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The U.S. Centers for Medicare & Medicaid Services (CMS) proposed a mandatory bundled payment model that, once passed, could impact hip and knee implant pricing.

Earlier in 2015, CMS announced long-term goals to move the majority of reimbursement to value-based purchasing models, allowing hospitals to voluntarily implement models like bundled payments. The proposed Comprehensive Care for Joint Replacement (CCJR) Payment Model would take the decision-making power out of hospitals’ hands, making bundled payments mandatory in 75 cities.

CMS chose to focus on lower extremity joint replacement because hip and knee reconstruction is the most common inpatient surgery that Medicare beneficiaries receive, and the average expenditure for surgery, hospitalization and recovery ranges from $16,500 to $33,000. (To ward off confusion, please note that CMS includes hip and knee in its definition of lower extremities.)

CMS estimates that by incentivizing all stakeholders—hospitals, physicians, home health agencies, nursing facilities, etc.—to work together to reduce complications and readmissions, this specific program will yield Medicare savings of $153 million over its five-year period.

How would it affect hospitals? Under the test model, CMS will set prices that include the cost of surgery and post-90-day care. Hospitals that spend below the target price will receive the difference from CMS, while those that spend above the target price must return the difference to CMS. A two percent cut in the target price is expected to be applied each year.

How would it affect device companies? This would most likely enhance hip and knee implant price pressure, especially as hospitals face decreasing target rates throughout the program, and it may lead to continual vendor consolidation.

Comparable to current bundled payment programs, CCJR promotes surgeon gainsharing. Hospitals have driven down implant costs by consolidating the manufacturers from which they purchase. A mandatory program would give hospitals greater leverage to incentivize surgeons to switch implant brands and receive a share of savings.

“Our payment structure is changing,” Wael Barsoum, President of Cleveland Clinic Florida and Vice Chairman of the hospital system’s Orthopaedic Department, said to orthopaedic professionals at OMTEC 2015. “Why is that important to everyone in this room? Because you are one of the providers of the services that we give to patients. As we see our reimbursement going down, eventually you’re going to feel the pinch as well. As you decide every year coming into budget season, next year how you’re going to create your budget, you need to know what hospitals, what your consumers, are looking for from you.”

CMS is accepting public comments through September 8 with an expectation of finalizing the rule by end of year. The proposal calls for launching the program in January 2016, but industry experts have said that hospital pushback might lead to a date change.