Industry Insights

CMS Proposed Rule for Lower-Extremity Joint Replacement

July 2015
Author:  Eric Rogers

Eric Rogers

Senior Managing Consultant

Health Care Performance Advisory Services

Health Care

910 E. St. Louis Street, Suite 200
P.O. Box 1190
Springfield, MO 65801-1190 (65806)


On July 9, the Centers for Medicare & Medicaid Services (CMS) announced a proposed rule designed to promote “financial accountability” for the two most common surgical episodes:  MS-DRG 469 & MS-DRG 470 (lower-extremity joint replacement, or LEJR).

Referencing 2013 data, CMS Acting Administrator Andrew Slavitt noted these DRGs were selected based on high volumes and excessive variation in expenditure. The Comprehensive Care for Joint Replacement (CCJR) Model will test bundled payment for an episode of care beginning with the inpatient anchor stay and concluding 90 days post-discharge. Both Part A and Part B services related to the episode would be included in the retrospective reconciliation, which begins in Year Two. Target prices for hospitals are based on claims data from 2012 through 2014 and generally will include an automatic 2 percent discount. The initiative is proposed to begin January 1, 2016.

Providers Affected

The newly proposed rule targets hospitals paid under the inpatient prospective payment system (IPPS) in select metropolitan statistical area (MSA) counties performing at least 400 LEJR cases between July 2013 and June 2014. A list of selected MSA counties is available online. The only IPPS hospitals excluded from CCJR are those already participating in designated models of CMS’ Bundled Payments for Care Improvement, which served as a precursor program. While hospitals are accountable for the two-sided financial risk, CMS expects collaborative relationships to form among physicians groups, skilled nursing facilities (SNF), home health agencies and other post-acute care providers involved in providing care during the episode. Fraud and abuse waivers, three-day stay waivers for SNFs and gainsharing pools are addressed in the proposal as a means of enhancing care coordination. 

Episode Definition

The model proposes that CCJR episodes begin with an admission discharged under MS-DRG 469 or 470 and end 90 days post-discharge in order to cover the complete period of recovery. The episode would include all related items and services paid under Part A and Part B for all Medicare fee-for-service beneficiaries, with the exception of certain exclusions. 


CMS recognizes the necessity of providing hospitals with historical and ongoing claims data representing care furnished during LEJR episodes to hospitals so they can—among other things—adequately structure their care pathways, coordinate care for beneficiaries and estimate acute impatient and post-acute spending within those episodes. Hospitals with the capacity to analyze raw data claims will receive detailed beneficiary-level information. Hospitals with lower data analytics capacity can receive summary data reports. 


The CCJR model adopts a “quality first” principle, wherein participating hospitals would be required to achieve quality performance requirements on three measures before they are eligible to receive reconciliation payments. In addition, the measures must show incremental improvement as a means of encouraging continuous improvement:

  1. NQF 1551:  Hospital-level 30-day, all-cause risk-standardized readmission rate following elective total hip and knee arthroplasty
  2. NQF 1550:  Hospital-level risk-standardized complication rate following elective primary total hip and knee arthroplasty
  3. NQF 0166:  HCAPS survey

What’s at Risk:  Target Prices, Outliers & Fee-For-Service Revenue

Target prices will be calculated based on the hospital’s experience as well as regional MSA experience. In Years 1 and 2 of the model, two-thirds of the target price will be derived from the hospital’s 2012 through 2014 claims data, with the remaining one-third coming from regional claims data. The mix will shift to 100 percent regional claims data after the first two years. CMS provided regional historical average CCJR payments for MS-DRG 469 and 470 (West North Central) at $46,189 and $23,800, respectively. Understanding where and why costs are incurred during the episode will position providers for success with risk-based outcomes. CMS has provided a list of primary ICD-9 code ranges for excluded Part B services as well as MS-DRGs for excluded readmissions. In general, these exclusions are for acute events unrelated to the anchor stay and exacerbations of chronic conditions. In a July 16 CMS webinar, the agency said it believes “most claims” will be related in some way to the anchor stay. Tools for statistical analysis and clinical correlations will prove invaluable as hospitals begin to think in terms of outliers. Earlier this year, Secretary of Health and Human Services Sylvia Burwell announced an aggressive transition from fee-for-service toward advanced-payment models. The CCJR model supports that goal by effectively moving reimbursement to a bundled payment structure for 25 percent of U.S. joint replacements by January 1, 2016.

For additional information on how these changes could affect your organization, contact your BKD advisor.

Note:  BKD reviewed the details of the CCJR proposed rule and addressed many of the related questions in its recent webinar.

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