Chasing the Rabbit – Keeping Up with Changes in the CJR Regional Targets

By Jonathan Pearce and John Kalamaras

Hospitals in the Medicare Comprehensive Care for Joint Replacement (CJR) program appear to be facing an uphill battle as their targets transition from historically-based baseline targets to targets based on the episode cost of other hospitals in the region. During the first two performance years of CJR targets were primarily (66%) based on the hospital's historical cost during 2012-14, with the remainder based on the average episode cost of other hospitals in their Metropolitan Statistical Area. Under this arrangement, hospitals could achieve savings by reducing episode cost below their own historical levels. However, in performance year 3, which begins in January 2018, targets will be based primarily (66%) on regional episode cost, with only one third based on the hospital's historical baseline cost, and in the following two performance years targets are based entirely on regional episode costs. Thus, financial performance of the hospital will be highly dependent on the hospital’s cost relative to other hospitals in its region, rather than its own historical performance.

And those regional costs are steadily decreasing - in some regions dramatically so. The table below shows the amount by which regional targets decreased in the seven regions with the greatest amount of change. Targets in the Middle Atlantic region decreased by 3.3% from performance year 2 to performance year 3.

Region

Reduction in Regional Cost

(2) MIDDLE ATLANTIC

-3.3 %

(5) SOUTH ATLANTIC

-3.0 %

(3) EAST NORTH CENTRAL

-2.9 %

(9) PACIFIC

-2.7 %

(8) MOUNTAIN

-2.6 %

(6) EAST SOUTH CENTRAL

-1.5 %

(4) WEST NORTH CENTRAL

-1.3 %

(7) WEST SOUTH CENTRAL

-1.1 %

 

This change should be no surprise when considering another recent news release from CMS showing the savings accrued by participating CJR hospitals in the first performance year. Of the 10 hospitals with the greatest amount of savings, eight were in the Middle Atlantic region. And on the basis of average savings per episode (as opposed to total dollars savings) nine of the 10 hospitals with the highest per episode savings were also in that region. The average savings for hospitals in this region having more than 100 episodes was $1588, 45% higher than the average of all hospitals having more than 100 episodes.

Also note that financial success during performance year one was primarily driven by a hospital successfully reducing its own costs from those in the baseline period. (In contrast, financial success during the later years of CJR will be primarily based on the absolute level of a hospital’s cost as compared to its peers, rather than its success in reducing its own cost.) So the reduction in the regional targets arises from the success of these hospitals in reducing costs below their previous levels.

Implications for other hospitals in this region are significant. When some of the major hospital within the region have created significant surpluses by driving down their costs, the result is a significant decrease in the regional average cost, which will reduce performance targets in the later years of the CJR program. Hospitals with historically high cost who have not been able to reduce those costs will find themselves with significant deficits in the later periods of CJR.

Jonathan Pearce is a Principal with Singletrack Analytics. John Kalamaras is a Senior Healthcare Informatics Analyst with DataGen. Singletrack Analytics and DataGen collaborate on the BPCI 360 and CJR 360 analytics toolsets for Medicare bundled payment analysis.