Bundled Payments for Care Improvement: Health System Experience With Lower Extremity Joint Replacement at Higher and Lower Volume Hospitals

Abstract

Background: The Bundled Payments for Care Improvement (BPCI) initiative was introduced in 2013 to reduce Medicare healthcare costs while preserving or enhancing quality. We examined data from a metropolitan healthcare system comprised of 1 higher volume hospital and 4 lower volume hospitals that voluntarily elected to participate in the BPCI Major Joint Replacement of the Lower Extremity Model 2, beginning July 1, 2015. Stratifying the data by hospital volume, we determined how costs changed during the 16-month period when all 5 hospitals participated compared to the 1-year period preceding BPCI participation, where savings were achieved, and how the hospitals were rewarded.

Methods: The Medicare data included the 90-day target for each episode and actual part A and part B spending for the anchor hospitalization plus all post-acute payments including inpatient rehabilitation, skilled nursing, home health, outpatient physical therapy, and hospital readmissions.

Results: The mean episode of care cost decreased by 11.1% (from $21,324 to $18,953) at the higher volume hospitals and by 8.3% (from $25,724 to $23,584) at the lower volume hospitals during BPCI participation compared to the preceding year. The savings were achieved by reducing the use of inpatient rehabilitation, shortening the length of stay at skilled nursing facilities, and decreasing readmission rates. Although the higher volume hospital achieved an increased mean savings of $230 per episode compared to the lower volume hospitals ($2371 vs $2141), it was penalized $490 per episode after reconciling the actual Medicare expenditures with the BPCI targets while the lower volume hospitals received a mean reward of $315 per episode.

Conclusion: The BPCI initiative decreased costs and readmissions within our healthcare system. Despite substantial savings compared to the preceding year, the higher volume hospital's low target derived from its 2009-2012 baseline costs was not achieved which resulted in a penalty and led it to withdraw from the BPCI initiative in October 2016.

Keywords: 90-day medicare aggregate fee-for-service payment; anchor hospital and post-acute care episode costs; bundled payments for care improvement model 2 initiative; major joint replacement of the lower extremity; net payment reconciliation amount; risk track B.