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How Medicare's new CJR model can affect hospitals' bottom lines

According to the Kaiser Family Foundation, Medicare spending for 2016 is expected to reach $560 billion and is projected to continue to increase exponentially with Medicare spending costs soaring to $866 billion by 2024. If these projections are accurate, there's growing concern among many economists that the Medicare program will soon be insolvent.

In an effort to improve the quality of patient care, reign in Medicare spending and improve overall efficiency within the health care field; the federal government has taken action to implement several new requirements with regard to some of the most common patient treatments. For example, the Comprehensive Care for Joint Replacement model, or CJR, went into effect last month.

During 2014, Medicare beneficiaries underwent more than 400,000 hip and knee replacement procedures which resulted in billions of dollars in Medicare reimbursement payments. While these procedures are extremely common, Medicare officials realized that there are wide variances in both the costs charged by individual hospitals as well as the quality of care provided.

To improve and standardize both the costs and quality of care hospitals deliver to Medicare beneficiaries who undergo hip and/or knee replacements, the CJR model provides target pricing and incentivizes "increased coordination of care among hospitals, physicians, and post-acute care providers." The model works by evaluating individual patient outcomes 90-days post operation and rewarding those hospitals that earn favorable cost and quality scores with reimbursements and forcing those that earn low scores to repay a portion of Medicare-related costs.

Currently, hospitals located in 67 populous geographic regions throughout the U.S., including New York City, are required to participate in the CJR model. For these hospitals, a significant percentage of their revenue streams are likely generated by knee and hip replacement procedures. It’s imperative, therefore, that hospitals take action to ensure that they are not only compliant with the CJR model’s procedural rules, but that they are also delivering quality care to Medicare beneficiaries in a cost-effective manner.

Source: Centers for Medicare & Medicaid Services, “Comprehensive Care for Joint Replacement Model,” May 2, 2016

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