Agencies in 67 MSAs: Hospitals Can Have Favorites

For providers in 67 Metropolitan Statistical Areas (MSAs), April 1st brought some interesting changes to the healthcare industry as a whole.  CMS has launched a five year pilot program to help reign in costs associated with two of the most common procedures – hip and knee replacements.  The official name of the model is the Comprehensive Care for Joint Replacement Model (CJR or CJR Model) and is based on the inpatient procedures performed by hospitals.

CMS’ purpose for the program is an attempt to reduce costs associated with hip and knee surgeries, from the initial surgery to a patient’s return to normal.  For home health agencies like yours, this new program can mean one of two things: growth or a potential liability.  The model isn’t too difficult to understand – it’s mandated and not optional for starters, but there are a lot of small moving parts and red tape that must be understood to be navigated successfully.


Hospitals are required to participate, unless they are classified as a critical access facility.  A critical access hospital is typically located in a rural area and is a minimum of 35 miles away from any other hospital.  For city providers, most of your hospitals will not fit into this category.  However, the CJR model is surprisingly spread out across the nation to gather data from many areas – rural locations, major cities and different geographic areas with varying types of industry and demographics.


The CJR Model is all inclusive; from start to finish.  From the moment a patient enters a hospital in preparation for surgery, to their recovery in a rehab (SNF), or to being cared for by an agency like yours, to the outpatient rehab, all of the providers’ services are now the ultimate responsibility of the hospital where the surgery took place.   Like home health, the entire period of care for the CJR is called an episode and runs 90 days from the date the patient is admitted for surgery.


All Medicare beneficiaries – this is an important distinction that must be understood – who are strictly Medicare patients (not Medicare Advantage or Medicare as a Secondary Payer) are included in the CJR for both Part A and Part B services.  If a patient’s primary payer is a private insurance, Medicaid or any type of insurance other than Medicare, the patient is not part of the program.  For agencies that accept private insurance patients, this provides an opportunity to pick up patients who do not go to an agency that only accepts Medicare.


But because the CJR is solely focused on Medicare patients and many hospitals derive most of their revenue from Medicare, hospitals are going to be forced to carefully choose home health agencies as a partner.  Hospitals are going to be facing financial penalties, but also financial incentives to do well.  Similar to an ACO (Accountable Care Organization), the hospital will dictate how your agency will provide services.  Those services are going to be heavily monitored so as not to exceed parameters set forth by data provided to the hospital by CMS.


Agencies will continue to bill as normal – there is no change to the PPS model that has been in place since the early 2000s.  However, at the end of each calendar year, CMS will be using all of the claims data attached to a patient who had knee or hip surgery to analyze costs.  This cost data will be based on historical reimbursement with locality factors minus 2%.  Each type of surgery will have its own annual target for each hospital. Hospitals will receive data twice per year to reflect Medicare updates.


Each CJR episode of care will be individually analyzed and then summarized.  If the total reimbursement of care for a CJR episode is less than the amount allowed by CMS and the quality of care is met (also determined by CMS), the hospital receives a bonus on the difference.  For instance, if the total reimbursement for a hospital in Oklahoma City is $30,000 and CMS’ target reimbursement for the episode is $31,000, the hospital will receive a small portion of the $1,000 difference as a bonus.  But if the total episode costs $35,000, the hospital will be penalized based on the $4,000 overage.  The penalty will be subject to a cap, but the hospital will end up having to pay a portion back to Medicare.


Hospitals will not see a penalty or bonus in 2016.  The first year a hospital will see a repayment penalty will be in 2017 and it will be capped at 5% of the total episodic reimbursement amount per procedure.  However, in year 3, the penalty amount jumps to 10% and then doubles again to 20% in years 4 and 5.


The same percentages apply to the hospitals’ reconciliation or bonus payments.  The second year of the CJR model will introduce a capped bonus of 5% which increases to 10% in year 3 and then jumps up to 20% in years 4 and 5.  December 31, 2020 is the end of the fifth year of the program.


Now that we understand how complicated the program is, we know why hospitals will be very selective in their discharge referral selections.  Your agency’s star rating is going to play an integral part in selection. (We’ve included a special feature about star ratings and their increasing dominance in provider relationships.)   Preferred provider status is usually the goal of most agencies when creating a referral relationship with hospitals and other providers.  Should your agency be chosen by a hospital to be a selected provider, your relationship is now referred to as a ‘collaboration’.  Your official title in the CJR will be ‘collaborator’ and not provider.


With these tight knit relationships getting ready to blossom, how do you avoid any conflicts of interest – anti-kickback statues, compliance, and patient choice?  CMS is relaxing many of the compliance issues to ensure the CJR’s potential success.  To make the CJR model effective, CMS is going to allow hospitals to partner with specific providers based on their level of quality (star ratings) and their ability to communicate effectively by sharing information to enhance overall patient care.  Patients, however, will still have the option to select any provider they choose, regardless of the hospital’s affiliation.


As with any agreement, there is also risk and maybe not reward.  The CJR Model is written in such a way that collaborator agreements between a hospital and agency can include provisions in which agencies are responsible for any penalties incurred by treating a patient.  If your agency is just one part of the continuum of care for a patient, and that patient has also been in a SNF and received outpatient rehab, exceeding the reimbursement amount assigned to the procedure could leave you on the hook for paying some of that money back.   There are caps in place to ensure a hospital can’t bankrupt your agency, but it will be close and painful if a large penalty is incurred.


Receiving a share of the bonus in the CJR model is also at the discretion of the hospital.  The hospital can choose to keep any bonus money for itself or distribute it amongst the collaborators.  We can likely bet that hospitals will keep the bonus and use it for hospital purposes before sharing.



Within the fine print of the CJR model, there is a direct threat to home health agencies.  The CJR allows physician staff to visit a patient in their home, up to 9 visits, if it is determined that the patient does not qualify for home health. Think about it – a large system can create a team of clinicians to visit patients in their home for a couple of weeks, prep them for outpatient rehab and totally skip over home health.  Sounds good for the hospital, but not so much you.  While this won’t always be appropriate, you can safely say that hospitals will be using this loophole as a way to stay within episode budget.
Agencies have an opportunity that is being placed before them. However, they also have a direct threat to their existence.  As many agencies know, it’s much easier for a hospital system to refer to one or two agencies as opposed to 20.  Ratings are ratings, but when it comes to referrals, those ratings are going to either make or break you.  An agency with a rating less than 3 is going to find itself in a difficult position to attract Medicare referrals in the CJR Model.  Hospitals are not likely to want to refer to an agency with less than a 4 star rating as it could ultimately impact them.  But if you’re an agency that does have a 4 star rating, or is currently at 3 ½ stars, with some work to get to 4 stars, you could be a collaborator.


We will be following the CJR model and tracking data as it is made available.  Agencies should be aware that they are in a CJR model area and that hospital referrals could be scarce without an agreement in place.  But, agencies all over the country should look at this pilot model as a look into the future of where Medicare reimbursement is heading – play for pay.  This demonstration in 67 MSAs is not just a hit for those agencies in the MSAs selected, but for the industry as a whole.  Your agency is under new scrutiny and you must play ball or pick up your toys and leave the sandbox, because times are quickly changing and if you aren’t proactive, you just might be left fighting for your agency’s life.