Single Tracks Blog

Why You Shouldn't Take the Initial CJR Reconciliation to the Bank

Okay, you can take it to the bank, but you shouldn't book it in your financial statements or pay it out in gainsharing payments. That's because the reconciliation is likely to change significantly when the performance period is re-reconciled next year, and the change will most probably occur in a negative direction.
Here's why that's likely to happen. While most of the claims in these episodes have been processed and paid, and were included in the initial reconciliation, a small number of claims always remain outstanding over a long period of time. In our experience with major joint replacement episodes, 1% to 2% of claims will be paid after the first reconciliation but before the second reconciliation. These claims will be included in the second reconciliation and will increase the cost of their respective episodes.
In the Bundled Payment for Care Improvement (BPCI) program the targets are based on national episode costs and are recomputed with each reconciliation as additional claims are processed across the country. Therefore, BPCI targets generally increase slightly across the four true-ups for each reconciliation period. But the CJR targets are totally prospective – they do not change across reconciliations. Therefore, the same target will be used to reconcile each performance year in both the initial and final reconciliation that occurs a year later. So the target remains constant, but the claims increase, and therefore the episode cost increases. This means that the reconciliation amount will always decrease.
How much will it decrease? Unfortunately, probably a lot. Reconciliation amounts are particularly sensitive to changes in episode costs. For example, if the target price was $100,000 and the episode cost of the first reconciliation was $90,000, the net payment reconciliation amount (NPRA) would be $10,000. If additional claims amounting to 1% of the episode cost were received and paid before the second reconciliation, the episode cost would increase to $90,900, but the NPRA would decrease to $9100, a reduction of more than 9%.  
Several examples of this effect are shown in the graph below. In that graph each vertical bar represents a CJR-participating hospital, with the height of the bar showing the percentage decrease in NPRA that the hospital would experience with a 1% increase in claims cost. A positive NPRA could also turn negative, totally erasing the surplus that the hospital thought it would experience. 
Because of this effect, hospitals should use extreme caution in announcing these results, and especially in making gainsharing payments based on them. For large NPRAs, auditors may require booking reserves for the potential reductions that could occur at the second reconciliation.
Many hospital celebrated CMS's decision to utilize prospective targets in the CJR program, not realizing the negative effect that they could have on creating a reliable reconciliation. Unfortunately, this means that many hospitals will need to wait an additional year before they are certain of the financial effects of participation in the first year of the CJR program.
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