Federal health officials are proposing a major change in the way Medicare pays for hip and knee replacements, requiring hospitals to partly repay the government if patients get avoidable infections and other complications but rewarding them with extra payments if patients do well.
The proposal announced Thursday by the Centers for Medicare and Medicaid Services is part of the Obama administration’s efforts to overhaul the health-care system, in part by using the payment system to reward quality of care rather than volume of services. Under the current system, doctors and hospitals typically get paid set fees for every procedure they perform, regardless of how patients fare.
The proposal is designed to hold hospitals accountable for an entire episode of care, from surgery through 90 days after discharge. That way, hospitals would have an incentive to work with doctors, home health agencies and nursing facilities to make sure patients get the coordinated care they need, reducing avoidable complications and re-hospitalizations.
The experiment will “treat these surgeries as one complete service rather than a collection of individual services,” Health and Human Services Secretary Sylvia Mathews Burwell told reporters. She likened the various care providers involved to the parts of a symphony orchestra: “Only by working together [are we] going to get the music to come alive.”
The new payment method would be used in 75 areas across the country, affecting 800 hospitals and an estimated 100,000 patients a year. Officials hope to save $150 million over the five-year demonstration period.
The average Medicare expenditure for hip and knee replacement — including surgery, hospitalization and recovery — ranges from $16,500 to $33,000, depending on the area.
The agency is seeking public comment until Sept. 8. If the proposal is finalized, it would begin Jan. 1 and last five years.
Health officials said they chose hip and knee replacements because they are the most commonly performed Medicare inpatient surgeries and are expected to continue to grow as the population ages. In 2013, there were more than 400,000 inpatient procedures, costing Medicare more than $7 billion for the hospitalizations alone.
The quality and cost of these surgeries vary greatly. The rate of complications, such as infections or implant failures, can be more than three times higher at some facilities than others.
As the country’s largest payer for health-care services, Medicare’s changes often affect the way medical care is delivered in doctors’ offices and hospitals across the country.
The hospitals involved in the experiment would continue to be paid under existing Medicare payment systems.
But depending on the hospital’s quality and cost performance, it could either earn a financial reward or be required to repay Medicare for a portion of the costs. Determining factors would include infections, implant failures and hospital readmissions. Officials also plan to survey patients about their experience.
Tricia Neuman, a senior vice president at the Kaiser Family Foundation and a Medicare expert, said the experiment is consistent with the administration’s ongoing push to improve the quality of care and lower costs and could greatly benefit patients.
“But it is a demonstration that is yet to be tested — particularly on such a large scale,” she said.
Medicare has been experimenting with payment approaches for more than a decade, and the 2010 Affordable Care Act tried to tackle the issue by expanding payment models, such as lump-sum payments for treating patients throughout an episode of care, such as hip-replacement surgery.
Lenny Bernstein contributed to this report.