Public Release: 

Medicare's bundled payment experiment for joint replacements shows moderate savings

Harvard T.H. Chan School of Public Health

Boston, MA - Medicare's randomized trial of a new bundled payment model for hip and knee replacement surgeries led to $812 in savings per procedure, or a 3.1% reduction in costs, when compared with traditional means of paying for care, according to new research from Harvard T.H. Chan School of Public Health and Harvard Medical School. The study found that the bundled payment model was also associated with a reduction in use of skilled nursing care after the hospitalization, but had no effects on complication rates among patients.

The study will be published online January 2, 2019 in the New England Journal of Medicine.

"Interest in bundled payments has exploded the past few years," said Michael Barnett, one of the lead authors on the study and assistant professor of health policy and management at Harvard Chan School. "The big question has always been whether this new model can lead hospitals to meaningfully reduce spending without harming patients. This study indicates that with the right financial incentive, hospitals can save money without compromising quality by sending more patients home rather than to a nursing facility."

Bundled payments are an alternative payment strategy that health plans, Medicare, and Medicaid are experimenting with to reduce expenses. Unlike traditional fee-for-service payments, bundled payments provide a single, fixed payment for a procedure and follow-up care rather than individually paying all parties separately.

In 2016, Medicare implemented the Comprehensive Care for Joint Replacement Model. In this randomized controlled trial, all hospitals in randomly selected cities had to accept a bundled payment model for hip or knee joint replacements. The program is the largest randomized policy experiment in Medicare to date of a new payment model. Under the model, hospitals in the selected cities received bonuses or penalties depending on how much they spent on follow-up care 90 days after joint-replacement patients were discharged.

To determine if the bundled payment model was effective at reducing costs and complications, the researchers analyzed data from the first two years of the program (2016-2017). They compared costs associated with 280,161 joint replacement procedures in 803 hospitals that were required to participate in the bundled payment program with 377,278 procedures in 962 hospitals that were not participating in the program.

The analysis showed that before accounting for administrative costs, bonuses and penalties, the bundled payment model resulted in a modest 3% savings for each patient and that complications rates did not increase. The cost savings were driven almost exclusively from reducing the use of post-acute care nursing facilities, the researchers said.

One concern that has been expressed over bundled payments is that such models may incentivize hospitals to avoid operating on sicker, more costly patients. This study, however, showed that the model had little impact on the number of higher-risk patients who received lower extremity joint replacements.

The study adds to the growing body of evidence that bundled payment models reduce spending without sacrificing quality of care, the researchers said. They added that the cost savings associated with bundled payments grew during the 18-month study period and that it is likely savings would continue to grow as the bundled payment model matured.

"While there is widespread agreement that we need to move away from our typical payment system, how to do so remains unclear. We need more rigorous experiments such as this one," said Ateev Mehrotra, senior author and associate professor of health care policy at Harvard Medical School.

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Other Harvard Chan School researchers who contributed to the study include Arnold Epstein and John Orav.

Funding for this study came from The Commonwealth Fund, and the National Institute on Aging of the National Institutes of Health grants K23 AG058806 MLB and P01 AG032952.

"Two-Year Evaluation of Mandatory Bundled Payments for Joint Replacement," Michael Barnett, Andrew Wilcock, J. Michael McWilliams, Arnold Epstein, Karen Joynt Maddox, John Orav, David Grabowski, Ateev Mehrotra, New England Journal of Medicine, online January 2, 2019, doi: 10.1056/NEJMsa1809010

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Harvard T.H. Chan School of Public Health brings together dedicated experts from many disciplines to educate new generations of global health leaders and produce powerful ideas that improve the lives and health of people everywhere. As a community of leading scientists, educators, and students, we work together to take innovative ideas from the laboratory to people's lives--not only making scientific breakthroughs, but also working to change individual behaviors, public policies, and health care practices. Each year, more than 400 faculty members at Harvard Chan School teach 1,000-plus full-time students from around the world and train thousands more through online and executive education courses. Founded in 1913 as the Harvard-MIT School of Health Officers, the School is recognized as America's oldest professional training program in public health.

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