Medicare $7 Billion Joint-Surgery Bill Targeted for Savings

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The U.S. Medicare program will test an overhaul of how it pays for hundreds of thousands of hip and knee replacements, which cost about $7 billion a year.

The five-year program will track how patients fare after the surgeries and pay hospitals based in part on the quality of those outcomes, assessing financial bonuses and penalties. About a quarter of the procedures will be affected, and the U.S. expects to save $150 million in total, Patrick Conway, who oversees a Medicare innovation initiative, said on a conference call with reporters.

“Hospitals and physicians would have an incentive to work together to deliver more effective and efficient care,” Health and Human Services Secretary Sylvia Mathews Burwell said on the call.

Medicare is the single biggest purchaser of health care in the U.S. and spent about $586 billion in 2013 to cover more than 50 million elderly and disabled people. Reining in that spending by making the program more efficient has been a major goal of the Obama administration.

The pilot program will be mandatory for more than 800 hospitals in 75 regions including New York, Los Angeles and Seattle. Similar test efforts have been voluntary, and CMS said requiring hospitals to take part will give the U.S. better data on whether the initiative works.

Lower Costs

Ultimately, the program could pressure doctors, hospitals and medical device makers to perform procedures at lower costs. Stryker Corp., Zimmer Biomet Holdings Inc. and Johnson & Johnson are the biggest makers of artificial hips and knees, according to data compiled by Bloomberg Intelligence. If the proposal is approved, it would begin on Jan. 1.

Thursday’s proposal, sometimes referred to as bundling, is just one of several cost-saving efforts that the U.S. is testing. In May, the Health and Human Services Department said a program to better manage patient care by creating Accountable Care Organizations had saved more than $384 million in its first two years.

“You have an administration that is very committed to moving these advanced payment models along, and bundling is one of the ones that they’re most optimistic about,” Dan Mendelson, chief executive officer of the consulting firm Avalere Health, said before the proposal was announced. “You can have more accountability and ultimately lower costs.”

Orthopedic procedures -- like joint operations -- are particularly well suited to bundles, Mendelson said. That’s because the care is related to an individual event, and it’s easier to measure outcomes such as a patient’s ability to walk. Bundling payments for sprawling, complex disorders like cancer or mental illnesses can be more difficult, he said.

In the plan announced Thursday, hospitals would be responsible for how their patients fare for 90 days following the surgeries, a period that includes rehabilitation. To figure out whether hospitals should get penalties or bonuses, the U.S. would compare expected and actual costs, while also taking into account complications and whether the patient had to return to the hospital.