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The New CJR Program: Everything You Need (But May Not Want) to Know

Sheldon Hamburger
Principal/Consultant, The Aristone Group, Raleigh-Durham, North Carolina

A Mandated Program

On November 16, 2015, the Centers for Medicare and Medicaid Services (CMS) announced the final rule for the Bundled Payments for Care Improvement Initiative and the mandatory bundled payment test called Comprehensive Care for Joint Replacement known as CJR. Effective April 1, 2016, acute-care hospitals in 67 geographic regions (known as metropolitan statistical areas [MSAs]) around the country will automatically be part of this new program. The program goes for five years (although the first year is nine months long) with various terms and risks phased in over time. There is no application process and no “opt-out.”

The Basics

CJR applies to Medicare fee-for-service (FFS) beneficiaries who have lower joint replacement procedures (diagnosis-related groups [DRG] 469 and 470) at any facility in the program. The patient’s financial benefit is not affected by being in the bundle and the patient cannot opt-out other than by going to another facility that is not in the program.

Under CJR, hospitals are responsible for the total Medicare FFS spend for patients from the index admission through 90 days after discharge (the episode period). The hospital is responsible for the DRG, plus all additional related Part A and Part B spending during the episode period. There is a long list of included and excluded services available from the CMS web site (https://innovation.cms.gov/initiatives/cjr).


The payment process is based on a “shared savings” model where the hospital and CMS share savings generated by driving the average case spend below a CMS-defined target price. To the extent CMS spends less than the target price, the hospital shares the vast majority of the savings. If the CMS spend exceeds the target price, the hospital will pay the overage back to CMS. This payback, or down-side risk, does not go into effect until the second year of the program. See Figure 1 for a simple, illustrative example of this.


Throughout the program, all parties (the hospital and all post-acute providers) continue to bill CMS as usual. The claims processing revenue cycle continues uninterrupted as does cash flow. On an annual basis, a reconciliation process will occur where CMS provides the hospital with the results of the prior year’s performance. CMS totals all relevant claims for each case. This total is compared with the target price and the difference determines whether CMS pays the hospital or visa-versa.

Target Price

It is important to note that CMS determines the target price based on the hospital’s recent performance (DRG + 90 days post-discharge spend for a rolling three year period as shown in Figure 2) AND other hospitals in the region. These regions are much larger than the MSA geography designation used to determine which hospitals were initially placed in the CJR program. This is a very important point and means that a hospital’s target price is based on how other institutions are performing. The formula for this calculation is phased in over the life of the program as shown in Figure 3.

The CJR program is largely based on CMS’ previous voluntary demonstration project Bundled Payment for Care Improvement (BPCI) Model 2. Three of the key differences include a stratified target price for fractures, a change in the discount structure and the requirement that the hospital meet a minimum quality score in order to receive any savings it generates. Many BPCI Model 2 participants, as well as those providing public comment for CJR, have raised the fact that elective procedures and fractures bear substantially different risk profiles and that the target pricing model should reflect that. CMS has responded by agreeing to provide separate (i.e., stratified) pricing. Exactly how that will work won’t be known until CMS releases the initial target prices, most likely in Q1 2016. Like BPCI, CMS takes a percentage “off the top” of the program. This amount is called the discount and is currently pegged at three percent. This means that CMS takes three percent of the total program spend. CMS offers hospitals an opportunity to reduce this percentage to as low as one and one-half percent. Remember, a reduction in discount means more money for the hospital assuming there is savings to be shared. Note that the target price given to the hospital already includes a three percent discount.


An important note: even if the hospital generates savings, CMS will not share those savings unless the hospital also achieves a minimum quality performance score as described later in this article. This requirement is designed to be sure that hospitals maintain quality while reducing overall spend as opposed to simply cutting services to generate savings without regard to outcomes.

It’s also important to know that CMS provides some protection against runaway spend caused by outlier cases. But this is a two-way street. In return for limiting the hospital’s downside, there is also a limit to the upside. This formula is phased in over the life of the program as shown in Figure 4.

As stated previously, the hospital has an opportunity to reduce the three percent discount (called the Quality Incentive Payment) based on a CMS defined quality performance scoring mechanism. This mechanism revolves around the reporting and/or results of three quality measures (two of which are already being reported). Each measure counts toward an ultimate composite score of up to 20 points. Based on this composite score, the discount can be reduced.

Figure 5 shows the quality measures and their relative value on the point scale. The first two measures, risk-standardized complication rate (RSCR) and hospital consumer assessment of healthcare providers and systems (HCAHPS), are already being reported. The hospital’s results will be compared to national performance as shown in Figure 6. Based on this comparison, the hospital will be awarded points on a sliding scale. The third measure is patient reported outcomes and its reporting is, initially, voluntary. CMS indicates that this could be mandatory later in the program.

For each of the three quality measures, the hospital is awarded points. The sum total of those points is the composite quality score and is used to determine the quality incentive payment (i.e., the change in the discount percentage). Figure 7 shows how the composite quality score relates to the discount. For example, a composite score greater than 13.2 out of the maximum possible 20 will result in a discount of one and one-half percent. Also note that a score below 4.0 is considered so poor (CMS calls this “below acceptable” performance) that the hospital would not even be eligible to share in any savings at all.

Note that the discount structure for sharing savings (Discount for Reconciliation Payment) remains constant over the life of the program. However, the discount structure for repayment to CMS (when the spend is above the target price) increases over the five year period. In the first year, there is no repayment to CMS since there is no downside risk. In year two, a discount begins as shown in Figure 7 and that discount increases in year four.

Gainsharing in CJR

The CJR program allows hospitals to share its savings, or gains, with other healthcare providers known as collaborators. A hospital may wish to share money with surgeons, for example, to create an incentive for them to achieve quality goals and improved outcomes which ultimately drives down spending generating more savings. Any such gainsharing must be based on quality improvements consistent with CJR. The hospital might also want collaborators to share losses. This is allowable under CJR but certainly a topic for negotiation between the hospital and collaborator. A contract must be in place with the collaborator before any patient care is rendered in order for any gainsharing to be effective. In addition to savings generated by the total episode spend compared to the target, hospitals can also share savings generated inside the hospital known as internal cost savings or ICS. Although this reduction is not reflected in the reconciliation process (since it is part of the DRG), reduction in ICS improves margin and this improvement can be shared with collaborators. This sharing of ICS is unique to BPCI and CJR and creates a special opportunity for organizations willing to spend the time and effort to work on this option.

CMS Offers Waivers

CMS provides a number of waivers under the CJR program to allow hospitals flexibility to experiment on methods to improve care and lower total spend. The three key waivers for care delivery are:

  • Skilled nursing facility (SNF) 3-day rule: Beginning in year two of the program, SNFs may bill CMS for CJR patients with a hospital stay of less than three days. · Home health: Beneficiaries who do not satisfy requirements for home health services (the “incident to” rule) may receive up to nine post-discharge home visits during an episode. 
  • Telehealth: The geographic site requirement for telehealth services as well as the requirement that the eligible telehealth individual be in one of eight eligible types of sites is waived.

In addition, CMS and the Office of the Inspector General (OIG) have issued a joint statement (available on the CMS web- site) that waives the federal anti-kickback statute and the physician self-referral law in CJR for gainsharing arrangements. Legal counsel will, of course, need to review this statement and associated contracts to be sure arrangements are in line with these guidelines.

Beneficiaries’ Incentive and Protections

CJR allows the hospital to provide beneficiaries with certain incentives that would assist patients in getting care. But there are limits and requirements.

  • Incentives to beneficiaries in excess of $25 must be documented. Work with legal counsel to be sure these don’t constitute inducement. 
  • Technology provided to beneficiaries such as remote monitors must be valued at less than $1,000.
  • Any items given to beneficiaries must be returned to the hospital at the conclusion of the episode. ·
  • Beneficiaries must be provided with a complete list of post-acute provider options. Hospitals are not prevented from establishing preferred networks.

Data Is Still Key

Like all valued-based programs, CJR success is heavily dependent on the availability and use of data. Your organization has plenty of data that will be helpful and should be used. CMS will provide data sets that will be essential for you to have, analyze and leverage to design and monitor your program.

CMS intends to make several data sets available but hospitals MUST request that data:

  • Baseline claims history (inpatient and post-acute). – This will give you insight into historical patterns. 
  • Ongoing data (at least quarterly, possibly monthly). – This will give you some insight into your program’s performance along the way but it’s still retroactive as opposed to real time. 
  • Aggregated data showing average episode spending by DRG for the hospital and the region. – This will give you insight into where you stand compared to other hospitals in your region whose performance affect your target price.

The process of getting this data has not yet been defined by CMS. Hospitals may have capabilities to handle these data sets or may choose to use external, commercially available consultants and/or solutions. Either way, the ability to quickly and thoroughly analyze and interpret this data will be a key success factor in your program.

CJR Implications for Your Organization

Clearly, CJR is a game changer. With responsibilities now extending beyond discharge, hospitals need to become immediate experts in the post-acute care process. Using that newly acquired knowledge, the challenge will be to reengineer care delivery to optimize outcomes resulting in reduced spend.

The implications of CJR also extend beyond the initial program. Hospitals should align CJR with their corporate strategy and their plans for other value-based programs. The issues in CJR regarding risk management, post-acute care networks and gainsharing (to name a few) are the same as those in accountable care organizations (ACOs), for example. Recognizing those synergies enable you to leverage your model across the new care continuum.

You will find, as other industries learned quite some time ago, that your competitors will sometimes need to be your collaborators. Working with other hospitals’ emergency departments to identify readmission patients is an example where sharing this data could benefit both institutions as everyone is moving into the value-based world.

The April 1, 2016 start date puts pressure on hospitals to quickly ramp up. On the other hand, the fact that the first year (through December 31, 2016) has no downside risk may cause some to take a somewhat slower pace in adoption. This is a big mistake. Your target price is based on regional performance and the faster you get ahead, the better your chance for maximizing gains. Conversely, those who wait could very well find themselves spending the next five years playing from behind, always trying to catch up with everyone else in the region only to find themselves continuously outpaced and losing money.

The post-acute world is often a black hole for hospitals and CJR will provide an opportunity to see what happens there. These providers (such SNF and HHA) have limited capabilities and resources and hospitals could very well find themselves providing support services to help make these post-acute partners successful. Some hospitals have found that placing their own in a SNF, for example, can be tremendously helpful in reducing length of stay and readmission and well worth the expense.

Numerous challenges lie ahead as you attempt to reduce post-acute spend. SNFs will be reluctant to reduce length of stay (this is top line revenue), patients will push back at being asked to use your “preferred” post-acute provider network and your internal staff may reject various strategies since they don’t understand the value-based world. Do not despair—this is all normal for hospitals implementing these new value-based programs. Consider bringing in some experienced help from people who have lived this before.

You will also find yourself needing skill sets in the areas of risk management, analytics and care coordination. The role of care navigator, a kind of traffic cop, will help monitor your CJR patients to be sure they stay on track in your new care pathway. Technology tools are available to support what is often a new role for the hospital.

What Should I Do Now?

Two words: GET STARTED. Waiting will only make things more difficult, costly and frustrating. Here are some simple things you can do right now if you haven’t already done so.

  • Appoint, hire or contract a dedicated full-time project manager. This is not a part-time responsibility given to someone who’s already busy with other hospital responsibilities.
  • Establish a project leadership team. It doesn’t have to be your final governance team, but it should consist of champions who can drive action now. Consider using an orthopedic surgeon leader (essential) and someone from finance, IT and operations. 
  • Get data from your internal systems. You should be able to determine how many cases (DRG 469 and 470) you’ve had over that past several years. Look at who’s doing the surgeries, internal costs, readmissions, discharge dispositions and anything else you can find about your patients, surgeons and post-acute world. 
  • Create a list of key post-acute providers in your area. Do some research to get an understanding of that post-acute world where you and your patients live.
  • Get outside help. There are experienced consultants who can provide invaluable education, advice, guidance and solutions so you don’t waste precious time and resources.

The Bottom Line

CJR is a great opportunity for those willing to embrace it and make it part of their overall strategy in moving toward the world of value-based care. Other such programs are coming. Indeed, your other payers may already have value-based models available. You should be contacting them now to see how you can leverage your CJR investment into those opportunities.

Welcome to CJR. May the forces of change be with you!

Sheldon Hamburger is an Alternative Payment Model advisor for hospitals and healthcare firms nationally. With a focus on program implementation, he brings extensive knowledge and experience gained from more than 25 years of healthcare financial consulting, technology design and development and sales & marketing strategy for Fortune 1000 clients. He is a frequently sought-after speaker and writer on regulatory and technology trends affecting hospital operations, provider reimbursement issues, BPCI/CJR, programs and regulations, medical expense strategies and payer-provider dynamics. Residing in Raleigh, NC, he is an active member of HIMSS, HFMA & ACHE. He earned his Bachelors in Computer Engineering degree from the University of Michigan. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or (248) 613-7166.

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