Medicare Program: Comprehensive Care for Joint Replacement Model Three-Year Extension and Changes to Episode Definition and Pricing; Medicare and Medicaid Programs; Policies and Regulatory Revisions in Response to the COVID-19 Public Health Emergency

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 510

[CMS-5529-F]

RIN 0938-AU01

Medicare Program: Comprehensive Care for Joint Replacement Model Three-Year Extension and Changes to Episode Definition and Pricing; Medicare and Medicaid Programs; Policies and Regulatory Revisions in Response to the COVID-19 Public Health Emergency

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Final rule.

SUMMARY:

This final rule extends the length of the Comprehensive Care for Joint Replacement (CJR) model through December 31, 2024 by adding an additional 3 performance years (PYs). PY 6 will begin on October 1, 2021 and end on December 31, 2022; PY 7 will begin on January 1, 2023 and end on December 31, 2023; and PY 8 will begin on January 1, 2024 and end on December 31, 2024. In addition, this final rule revises certain aspects of the CJR model including the episode of care definition, the target price calculation, the reconciliation process, the beneficiary notice requirements, and the appeals process. In addition, for PY 6 through 8, this final rule eliminates the 50 percent cap on gainsharing payments, distribution payments, and downstream distribution payments for certain recipients. This final rule extends the additional flexibilities provided to participant hospitals related to certain Medicare program rules consistent with the revised episode of care definition.

DATES:

These final regulations are effective July 2, 2021.

FOR FURTHER INFORMATION CONTACT:

Bobbie Knickman, (410) 786-4161.

Heather Holsey, (410) 786-0028.

SUPPLEMENTARY INFORMATION:

I. Background

A. Purpose

The Comprehensive Care for Joint Replacement (CJR) model, which was implemented via notice-and-comment rulemaking and began on April 1, 2016, aims to support better and more efficient care for beneficiaries undergoing the most common inpatient surgeries for Medicare beneficiaries: Hip and knee replacements (also called lower extremity joint replacements or LEJR). This model tests bundled payment and quality measurement for an episode of care associated with hip and knee replacements to encourage hospitals, physicians, and post-acute care providers to work together to improve the quality and coordination of care from the initial hospitalization through recovery. While initial evaluation results for the first, second, and third year of the CJR model,

1

as well as an independent study in the New England Journal of Medicine,

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indicate that the CJR model is having a positive impact on lowering episode costs when CJR participant hospitals are compared to non-CJR participant hospitals (with no negative impacts on quality of care), changes in Medicare program payment policy and national care delivery patterns have occurred since the CJR model began. In order to update the CJR model to address recent policy changes and improve the model's ability to demonstrate savings, we issued a proposed rule titled “Medicare Program: Comprehensive Care for Joint Replacement Model Three-Year Extension and Changes to Episode Definition and Pricing”, which appeared in the February 24, 2020

Federal Register

(85 FR 10516). In this rule, we proposed to change and extend the CJR model for an additional 3 performance years. We proposed to change the definition of a CJR model episode in order to address changes to the inpatient-only (IPO) list, which is a list published annually in the Outpatient Prospective Payment System (OPPS) rule and which contains procedure codes that will only be paid by Medicare when performed in the inpatient setting. Specifically, in response to the change in the calendar year (CY) 2018 OPPS rule (65 FR 18455), which removed the Total Knee Arthroplasty (TKA) procedure code from the IPO list, and the change in the CY 2020 OPPS rule (84 FR 61353), which removed the Total Hip Arthroplasty (THA) procedure code from the IPO list, we proposed to change the definition of an episode of care to include outpatient procedures for TKAs and to include outpatient procedures for THAs.

1

See evaluation reports section posted on the CJR model website at:

https://innovation.cms.gov/initiatives/cjr.

2

Barnett, Wilcock, McWilliams, Epstein, et al. “Two-Year Evaluation of Mandatory Bundled Payments for Joint Replacement” see

https://www.nejm.org/doi/10.1056/NEJMsa1809010.

In addition to updating for changes in a hospital setting, the model also needed a more accurate and adaptable payment methodology that can sustain adjustments in practice and payment systems over time. Therefore, we proposed to make a number of changes to the target price calculation to improve sustainability and accuracy. Specifically, we proposed to change the basis for the target price from 3 years of claims data to the most recent 1 year of claims data to make the target price more representative of recent practice patterns, particularly post-acute care. We proposed to remove the national update factor and twice yearly update to the target prices and replace them with a retrospective trend factor at reconciliation to create greater consistency in the payment methodology with underlying practice and Medicare fee-for-service (FFS) payment system changes. We proposed to remove anchor factors and weights because they are no longer necessary and generate complexity.

Additionally, we proposed a number of changes to the reconciliation process with similar goals of sustainability and payment accuracy. We proposed to move from two reconciliation periods (conducted 2 and 14 months after the close of each performance year) to one reconciliation period that would be conducted six months after the close of each performance year to reduce hospital burden and for ease of administration. We proposed to add an additional episode-level risk adjustment beyond fracture status for greater payment accuracy. We proposed to change the high episode spending cap calculation methodology as the current methodology inaccurately capped high cost cases. We also proposed to the change the quality (effective or applicable) discount factors applicable to participants with excellent and good quality scores to better recognize high quality care.

Since we proposed to change the definition of an episode of care to include procedures performed in the hospital outpatient department, for which the beneficiary would not be admitted as an inpatient to the participant hospital, we also proposed a change to the beneficiary notification requirements (which are currently tied to inpatient admission) such that CJR participant hospitals are also required to notify the beneficiary of his or her inclusion in the CJR model if the procedure takes place in a hospital outpatient department setting. We also proposed to make changes to the dates of publicly reported data used for quality measures and patient-reported outcomes (PRO) for the 3 additional performance years to accommodate the extension period. In addition, we

proposed to advance the Complications measure and Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) measure performance periods to add additional collection for PYs 6-8 in alignment with the performance periods used for PYs 1 through 5. For PRO, we proposed to advance the performance periods in alignment with previous performance periods as well as increase the thresholds for successful submission to add additional collection for PYs 6-8. Additionally, for the 3 additional performance years, we proposed to eliminate the 50 percent cap on gainsharing payments, distribution payments, and downstream distribution payments when the recipient of these payments is a physician, non-physician practitioner, physician group practice (PGP), or non-physician practitioner group practice (NPPGP) consistent with updates to other Innovation Center models. We also proposed to make changes to the appeals process in order to clarify the reconsideration review (second level appeal) process. Finally, in conjunction with the proposed change to include specific outpatient procedures in the CJR model episode definition, we also proposed to extend the waiver of the skilled nursing facility (SNF) 3-day rule and the waiver of direct supervision requirements for certain post-discharge home visits for participant hospitals furnishing services to CJR beneficiaries in the outpatient setting as well. As outlined in section II.D.1. of this final rule we are extending the model for 3 performance years to generate the necessary evaluation findings under a revised payment methodology for the agency to consider expansion of the model.

As further outlined in section II.D.2. of this final rule, we proposed that the extension of the CJR model would only apply to participant hospitals located in the 34 mandatory metropolitan statistical areas (MSAs) for whom participation has been mandatory since the beginning of the model in 2016. This proposal excludes rural and low-volume hospitals in the 34 mandatory MSAs and any voluntary hospitals in 33 voluntary MSAs that have opted into the model for PYs 3 through 5. The model currently enrolls 139 voluntary, rural, and low-volume hospitals. Excluding rural, low-volume, and voluntary hospitals from the model results in 330 hospitals in the 34 mandatory MSAs participating in PYs 6 to 8. We proposed conforming changes to the CJR model regulations at 42 CFR part 510.

This final rule also finalizes policies in two interim final rules with comment (IFCs). Specifically, the IFC titled, Medicare and Medicaid Programs; Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency,

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implemented a 3 month extension to CJR PY 5 such that the model would end on March 31, 2021, rather than ending on December 31, 2020, and provided an adjustment to the extreme and uncontrollable circumstances policy to account for the COVID-19 pandemic. The second IFC titled, Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency,

4

further extended PY 5 through September 30, 2021, created an episode-based extreme and uncontrollable circumstances COVID-19 policy, provided two reconciliation periods for PY 5, and added Medicare Severity-Diagnostic Related Groupings (MS-DRGs) 521 and 522 for hip and knee procedures.

3

85 FR 19230.

4

85 FR 71142.

B. Summary of Costs and Benefits

As shown in our impact analysis in section IV. of this final rule, we estimate that the CJR model changes we proposed will save the Medicare program approximately $217 million over the additional 3 model years. We note that our impact analysis has some degree of uncertainty and makes assumptions as further discussed in section IV. In addition to these estimated impacts, the goal of CMS' Center for Medicare and Medicaid Innovation (Innovation Center) models is to reduce program expenditures while preserving or enhancing the quality of care. Our evaluation results document that many participant hospitals are attempting to enhance their infrastructure to support better care management and to reduce costs. We anticipate there will continue to be a broader focus on care coordination and quality improvement through the CJR model among participant hospitals and other providers and suppliers within the Medicare program that may lead to better care management and improved quality of care for beneficiaries.

C. Statutory Authority and Background

Under the authority of section 1115A of the Social Security Act (the Act), through notice-and-comment rulemaking, the Innovation Center established the CJR model in a final rule titled “Medicare Program; Comprehensive Care for Joint Replacement Payment Model for Acute Care Hospitals Furnishing Lower Extremity Joint Replacement Services” that appeared in the November 24, 2015

Federal Register

(80 FR 73274) (referred to in this final rule as the “November 2015 final rule”). The CJR model is a Medicare Part A and B payment model in which acute care hospitals in certain selected geographic areas receive retrospective bundled payments for episodes of care for lower extremity joint replacement or reattachment of a lower extremity (collectively referred to as LEJR). The CJR model holds participant hospitals financially accountable for the quality and cost of a CJR model episode of care and incentivizes increased coordination of care among hospitals, physicians, and post-acute care providers. All related care covered by Medicare Parts A and B within 90 days of hospital discharge from the LEJR procedure is included in the episode of care. The first CJR model performance period began April 1, 2016. At that time, the CJR model required hospitals located in the 67 MSAs selected for participation to participate in the model through December 31, 2020 unless the hospital was an episode initiator for an LEJR episode in the risk-bearing phase of Models 2 or 4 of the Bundled Payments for Care Improvement (BPCI) initiative. Hospitals located in one of the 67 MSAs that participated in Model 1 of the BPCI initiative, which ended on December 31, 2016, were required to begin participating in the CJR model when their participation in the BPCI initiative ended.

We issued a final rule titled “Medicare Program; Comprehensive Care for Joint Replacement Payment Model for Acute Care Hospitals Furnishing Lower Extremity Joint Replacement Services; Corrections and Correcting Amendments,” which appeared in the March 4, 2016

Federal Register

(81 FR 11449), to correct a limited number of technical and typographical errors identified in the November 2015 final rule. We issued a final rule, which appeared in the January 3, 2017

Federal Register

(82 FR 180), titled “Medicare Program; Advancing Care Coordination Through Episode Payment Models (EPMs); Cardiac Rehabilitation Incentive Payment Model; and Changes to the Comprehensive Care for Joint Replacement Model (CJR)” (referred to as the “January 2017 final rule”), to implement the creation and testing of three EPMs and to make certain refinements to better align the CJR model with the new EPMs, to make minor technical improvements to the CJR model and to create an Advanced Alternative Payment Model (Advanced APM) track within the CJR model. We

issued a final rule, which appeared in the May 19, 2017

Federal Register

(82 FR 22895), titled “Medicare Program; Advancing Care Coordination Through Episode Payment Models (EPMs); Cardiac Rehabilitation Incentive Payment Model; and Changes to the Comprehensive Care for Joint Replacement Model (CJR); Delay of Effective Date,” which finalized May 20, 2017 as the effective date of the January 2017 final rule (82 FR 180) (referred to as the “May 2017 final rule”). The May 2017 final rule also finalized a delay to the effective date of certain CJR model regulations from July 1, 2017 to January 1, 2018. We issued another final rule, which appeared in the December 1, 2017

Federal Register

(82 FR 57066), titled “Medicare Program; Cancellation of Advancing Care Coordination Through Episode Payment and Cardiac Rehabilitation Incentive Payment Models; Changes to Comprehensive Care for Joint Replacement Payment Model: Extreme and Uncontrollable Circumstances Policy for the Comprehensive Care for Joint Replacement Payment Model” (referred to as the “December 2017 final rule”), that implemented further revisions to the CJR model, including giving rural and low-volume hospitals selected for participation in the CJR model as well as those hospitals located in 33 of the 67 MSAs a one-time option to choose whether to continue their participation in the model through December 31, 2020 (that is, continue their participation through PY5). The December 2017 final rule also finalized further technical refinements and clarifications for certain payment, reconciliation and quality provisions, and implemented a change to increase the pool of eligible clinicians that qualify as affiliated practitioners under the Advanced APM track. An interim final rule with comment period was also issued in conjunction with the December 2017 final rule (82 FR 57092) in order to address the need for a policy to provide some flexibility in the determination of episode costs for providers located in areas impacted by extreme and uncontrollable circumstances. This extreme and uncontrollable circumstances policy was adopted as final in the final rule (83 FR 26604) that appeared in the June 8, 2018

Federal Register

, titled “Medicare Program; Changes to the Comprehensive Care for Joint Replacement Payment Model (CJR): Extreme and Uncontrollable Circumstances Policy for the CJR Model.”

We issued the proposed rule, which appeared in the February 24, 2020

Federal Register

(85 FR 10516), titled “Medicare Program: Comprehensive Care for Joint Replacement Model Three-Year Extension and Changes to Episode Definition and Pricing” (hereinafter referred to as the “February 2020 proposed rule”). In addition, in the April 24, 2020

Federal Register

(85 FR 22728), we published a document extending the public comment period of the February 2020 proposed rule for an additional 60 days (until June 23, 2020).

We issued an IFC, which appeared in the April 6, 2020

Federal Register

(85 FR 19230), titled “Medicare and Medicaid Programs; Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency” (hereinafter referred to as the “April 2020 IFC”). The April 2020 IFC (85 FR 19230) accounted for the impact of the COVID-19 public health emergency (PHE) on CJR participant hospitals. We extended PY5 through March 31, 2021 and adjusted the extreme and uncontrollable circumstances policy to account for the COVID-19 PHE by specifying that all episodes with a date of admission to the anchor hospitalization that is on or within 30 days before the date that the emergency period (as defined in section 1135(g) of the Act) begins or that occurs through the termination of the emergency period (as described in section 1135(e) of the Act); actual episode payments are capped at the target price determined for that episode under §  510.300.

Additionally, CMS issued a proposed rule, which appeared in the May 29, 2020

Federal Register

(85 FR 32460) titled “Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Policy Changes and Fiscal Year 2021 Rates; Quality Reporting and Medicare and Medicaid Promotion Interoperability Programs Requirements for Eligible Hospitals and Critical Access Hospitals (hereinafter referred to as the “FY 2021 IPPS/LTCH proposed rule”). In the FY 2021 IPPS/LTCH proposed rule (85 FR 32510), we solicited comment on the effect of the proposal to create new MS-DRG 521 and MS-DRG 522 on the CJR model and whether to incorporate MS-DRG 521 and MS-DRG 522, if finalized, into the CJR model's proposed extension to December 31, 2023.

We issued another IFC, which appeared in the November 6, 2020

Federal Register

(85 FR 71142), titled “Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency” (hereinafter referred to as the “November 2020 IFC”). In the November 2020 IFC, we implemented four changes to the CJR model. First, we extended PY5 an additional 6 months, so PY5 ends on September 30, 2021. Second, we made changes to the reconciliation process for PY5 to allow two subsets of PY5 to be reconciled separately. Third, we made a technical change to include MS-DRGs 521 and 522 in the CJR episode definition, retroactive to inpatient discharges beginning on or after October 1, 2020, to ensure that the model continues to include the same inpatient LEJR procedures, despite the adoption of new MS-DRGs 521 and 522 to describe those procedures. Lastly, we made changes to the extreme and uncontrollable circumstances policy for the COVID-19 PHE to adapt to an increase in CJR episode volume and renewal of the PHE, while providing protection against financial consequences of the COVID-19 PHE after the extreme and uncontrollable circumstances policy no longer applies.

II. Provisions of the Proposed Rule, Summary of and Responses to Public Comments, and Provisions of the Final Regulations

In response to the publication of the February 2020 proposed rule, we received approximately 66 timely pieces of correspondence. Contained within these 66 pieces of correspondence were approximately 810 discrete comments concerning the extension of the CJR model by 3 years, the CJR model episode of care definition, the target price calculation, the reconciliation process, the elimination of the 50 percent cap on gainsharing, the beneficiary notice requirements and discharge planning notice, program waivers, the appeals process, evaluation, and regulatory impact. Additionally, we received many comments regarding our request for comment on new LEJR focused models that would include ASCs. These comments were from groups representing medical societies, hospital associations, hospitals, and medical centers. The remaining comments were from individual physicians and individual commenters.

We received several comments that were in general agreement with the proposed rule as well as several comments that were in general disagreement with the proposed rule. Summaries of these comments and our responses are discussed later in this section. Finally, we received several comments that are considered out of scope. Although comments that are out of the scope of this rule are not addressed with the policy responses in this final rule, we are taking each

comment into consideration and may address these comments in future rulemaking as warranted. Summaries of the public comments that are within the scope of the proposed rule and our responses to those public comments are set forth in the various sections of this final rule under the appropriate heading.

Comment:

A commenter stated that the extension of the CJR model continues to raise concerns about CMS' authority to implement a mandatory model, contending that it is an unconstitutional delegation of legislative authority and unfairly targets one-fifth of hospitals and one type of procedure and medical specialty. Another commenter stated that after 5 years of mandatory participation in the CJR model, the extension provides CMS the opportunity to transition CJR to a voluntary model for PYs 6-8. The commenter contended that a mandatory requirement violates the Innovation Center's authority.

Response:

For the reasons we discussed in the CJR model's November 2015 and the December 2017 final rules, we continue to believe that section 1115A of the Act and the Health and Human Services (HHS) Secretary's existing authority to operate the Medicare program authorize the CJR model, including an extension of its duration as well as its mandatory nature. Specifically, sections 1102 and 1871 of the Act give the Secretary the authority to implement regulations as necessary to administer Medicare, including testing these Medicare payment and service delivery models as was done in the November 2015 and the December 2017 final rules.

The extension we are finalizing in this final rule does not impose any permanent changes to the Medicare program; rather, as discussed elsewhere in this rule, we are extending the performance period of model test in order to evaluate the impact of changes to the model that address changes in program payment policy and national care delivery patterns. This authority also allows the Secretary to test different methods for delivering services under Medicare to determine the effectiveness of these methods. We disagree with the commenter that contended that PYs 6 to 8 should be voluntary and that mandatory participation in the extension violates the Innovation Center's authority. As outlined in the CJR model November 2015 final rule, we believe that both section 1115A of the Act and the Secretary's existing authority to operate the Medicare program authorize the CJR model extension as we have proposed and are finalizing in this final rule. Section 1115A of the Act authorizes the Secretary to test payment and service delivery models intended to reduce Medicare expenditures while preserving or enhancing quality. The statute does not require that models be voluntary, but rather gives the Secretary broad discretion to design and test models that meet certain requirements as to spending and quality. Under this authority, re-evaluation of policies and programs, as well as revisions through rulemaking, are within an agency's discretion. Accordingly, the agency has authority to modify a mandatory model, as was done in the December 2017 final rule.

As further discussed in section II.D.2. of this final rule, narrowing participation for hospitals in the 34 mandatory MSAs during the 3-year extension will allow CMS to minimize selection bias while evaluating the impact of the changes in this rule. Additionally, the cost to evaluate the small voluntary arm of the model for PYs 6 through 8 is costly relative to the information that would be gained from the small sample size. For these reasons, we decline to adopt the commenter's suggestion to make PYs 6 through 8 voluntary.

Comment:

A commenter stated that there exists a significant administrative and management burden for providers associated with participating in multiple bundled payment initiatives simultaneously (for example, those that participate in both the BPCI Advanced model and CJR model at the same time). This commenter stated that managing multiple bundles across both models subjects participants to two different sets of financial specifications, reporting, and other measures, which is resource intensive. The commenter urged CMS to consider this burden by better aligning requirements for its various episode-based payment initiatives, including CJR and BPCI Advanced. They stated a possible solution to the administrative challenges of participating in both BPCI Advanced and CJR is to allow CJR participants the ability to participate in the lower joint Clinical Episode under BPCI Advanced rather than being required to participate in CJR.

Response:

We acknowledge the commenter's suggestion to allow hospitals currently participating in both the CJR model and the BPCI Advanced model to participate in BPCI Advanced only going forward; however, we disagree that participation in both models at the same time creates too much burden on participant hospitals, because the CJR model consists of only one type of episode of care, LEJR. BPCI Advanced on the other hand has various types of clinical episodes, one of which is the Major Joint Replacement of the Lower Extremity (MJRLE). For practical purposes, LEJR and MJRLE are referring to the same type of episode composed of MS-DRGs 469 and 470. The BPCI Advanced Participation Agreement states that if a participant or, if applicable, a Downstream Episode Initiator (for example, an acute care hospital) is also participating in an Innovation Center model implemented via regulation, such as the CJR model, the participant will not be held accountable for any clinical episodes included in that model for purposes of BPCI Advanced. This means that any LEJR episodes that are triggered by a hospital participating in both BPCI Advanced and CJR models would be reconciled under the CJR model and not the BPCI Advanced model. This approach has helped reduce the risk of inconsistent requirements across the two initiatives, thereby reducing burden on participants participating in both initiatives.

CJR participant hospitals have had several years of experience with LEJR episodes focusing on quality and efficiency in the CJR model. CMS believes that participant hospital experience in the CJR model should alleviate issues with operational burden since CMS provides educational resources through the CJR Learning System and CJR Connect to assist CJR participant hospitals with managing operational processes. Moreover, CMS is committed to providing guidance regarding the changes made in this final rule relative to the previous CJR model requirements and will continue to provide educational resources during the extension for model participants.

Finally, we note that while the BPCI Advanced model and the CJR model differ in various ways, the broad goals of the models are the same: Improving quality of care while reducing overall costs during an episode of care. We believe it is reasonable for model participant hospitals in both models and Downstream Episode Initiators in the BPCI Advanced model to engage in care redesign strategies targeted at LEJR episodes, regardless of the model under which the LEJR episode is reconciled. As such, we are finalizing the extension under which certain CJR participant hospitals are required to continue to participate in the CJR model, even if they are concurrently participating in BPCI Advanced and accountable under BPCI Advanced for non-LEJR episodes.

Comment:

Another commenter expressed support for proposed policies

that promote consistency across model years, support investment in quality of care, and reduce operational burdens for CJR participants. This commenter specifically stated that moving to one reconciliation period, retaining current quality measures and removing gainsharing caps under the CJR model will help minimize burden on hospitals participating in CJR and BPCI Advanced while increasing consistency between CJR and BPCI Advanced.

Response:

CMS agrees with the commenter and believes that our efforts to decrease operational burden, such as moving to one reconciliation period, retaining current quality measures and, as we discuss in section II.G. of this rule, eliminating the 50 percent gainsharing cap will help to improve consistency between both models (CJR and BPCI Advanced).

Comment:

Although several commenters expressed support for the model's increased focus on decreasing costs, MedPAC argued that the proposed changes do not go far enough to generate savings for the Medicare program after accounting for reconciliation payments to providers. MedPAC suggested that the model be expanded nationally to help improve cost savings and improve Medicare's sustainability. MedPAC stated that evidence shows these changes would generate more savings for the model if it was expanded nationwide to increase the number of participant hospitals.

Response:

We appreciate this comment, but disagree that this model needs to be expanded nationwide for PY6 through PY8. Section 1115A(c) of the Act authorizes the HHS Secretary to expand a model, but only after taking into consideration the evaluation and after certain findings that CMS has not yet made. The model is still being evaluated for its ability to generate cost savings.

Comment:

Multiple commenters expressed their support for CMS' efforts to incentivize coordinated care and improve APMs. The improvements mentioned in these comments range from improved cost savings, quality measures, and outcomes for Medicare beneficiaries. A large number of commenters discussed their support for these listed goals and many others stated it as the primary reason for supporting this final rule. Other commenters expressed the need to continue to improve these areas and other areas of healthcare delivery.

Response:

We acknowledge and appreciate the commenters' remarks.

Comment:

Although several commenters expressed support for the changes to the CJR model, they listed several recommendations for CMS to consider when developing models in the future. A few commenters listed that there should be an increased focus on cost savings in future models. Although no specific adjustments were suggested, the commenters believed that the Innovation Center should prioritize cost savings more to improve the long term sustainability of the Medicare program.

A significant portion of the commenters also discussed other areas of improvements for current and future models. Their suggestions included expanding the scope of the models to include services not just confined to services that are paid for by Medicare, allowing providers besides hospitals and physicians to lead models, and increasing financial incentives.

Response:

We thank the commenters for taking the time to provide input on future models. As the Innovation Center continues to develop more models we are always willing to accept input from various sources.

A. Episode Definition

1. Background

The CJR model began on April 1, 2016. The CJR model is currently in its fifth performance year. The fifth performance year, which was extended to include all episodes ending on or after January 1, 2020 and on or before September 30, 2021, would necessarily incorporate episodes that began before January 1, 2020. As previously discussed in section I.C. of this final rule, the CJR model was created to bundle care for beneficiaries of Medicare Part A and Part B undergoing LEJR procedures, and in so doing, to decrease the cost and improve the quality of that care (80 FR 73274).

When the CJR model was initially established in the November 2015 final rule, the LEJR procedures on which the model is focused, specifically, those procedures for TKA, THA, and Total Ankle Replacement (TAR), were all listed on the IPO list. This meant that Medicare would only pay hospitals for these procedures when they were performed in the inpatient setting and billed through the Inpatient Prospective Payment System (IPPS). For this reason, CJR model episodes were defined to include inpatient procedures only. These TKA, THA, and TAR procedures all mapped to either Medicare Severity-Diagnosis Related Group (MS-DRG) 469 (Major Joint Replacement or Reattachment of Lower Extremity with Major Complications and/or Comorbidities (MCC)) or MS-DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity without MCC). Subsequently, in acknowledgement of the fact that the data analysis performed demonstrated TAR procedures are almost always more complex and expensive to perform than TKAs or THAs, CMS finalized a policy in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38028 through 38029) to ensure that inpatient TAR procedures would always map to the higher severity MS-DRG 469 and made corresponding changes to the MS-DRG titles (MS-DRG 469 became Major Hip and Knee Joint Replacement or Reattachment of Lower Extremity with MCC or Total Ankle Replacement; MS-DRG 470 became Major Hip and Knee Joint Replacement or Reattachment of Lower Extremity without MCC).

In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58491 through 58502), CMS finalized two new MS-DRGs, 521 (Hip replacement with Principal Diagnosis of Hip Fracture, with MCC) and 522 (Hip replacement with Principal Diagnosis of Hip Fracture, without MCC) that encompassed a subset of hip replacement procedures that had previously mapped to MS-DRGs 469 and 470 regardless of whether or not a principal diagnosis of hip fracture was present. We modified the CJR model episode definition in the November 2020 IFC to include MS-DRGs 521 and 522, with discharges on or after October 1, 2020, in order to accommodate this change in MS-DRGs and ensure that the subset of hip replacement episodes that included a principal diagnosis of hip fracture was not dropped from the CJR model during PY 5.

When the TKA procedure described by Current Procedural Terminology (CPT) Code 27447 was removed from the IPO list in the CY 2018 OPPS final rule (82 FR 59382) effective January 1, 2018, Medicare beneficiaries undergoing outpatient TKA procedures were, by default, excluded from the CJR model. When the change to the IPO list to remove TKA procedures was proposed, CJR participant hospitals raised concerns that the less complex TKA cases would move to the outpatient setting and the remaining inpatient population would represent a more complex and costly case mix than the population used to calculate the target price. As such, many commenters on the proposed OPPS 2018 rule (82 FR 59384) expressed their concern that the target prices for the remaining inpatient CJR model episodes would be too low and would not reflect the shift in the inpatient patient population. While we noted the commenters' concerns, due to the lack of historical outpatient episode spending claims data on which to base a target price, we were not able to

recalculate target prices to reflect the movement of procedures from the inpatient to the outpatient setting at that time. We stated in the CY 2018 OPPS final rule with comment period (82 FR 59384) that we did not expect a significant volume of TKA cases that would previously have been performed in the hospital inpatient setting to shift to the hospital outpatient setting as a result of removing TKA from the IPO list. However, we also acknowledged that as providers' knowledge and experience in the delivery of hospital outpatient TKA treatment developed, there could be a greater migration of cases over time to the hospital outpatient setting. We further stated our intention to monitor the overall volume and intensity of TKA cases performed in the hospital outpatient department to determine whether any future refinements to the CJR model would be warranted.

As of May 2019, since TKAs had been performed in the outpatient setting for the full calendar year of 2018, we had 1 full year of national spending data (including time for claims run out) with which to assess the early impact of TKAs being offered to Medicare beneficiaries in the outpatient setting. Our analysis of this 2018 claims data showed that approximately 25 percent of TKAs were being performed in the outpatient setting, annually. These data also allowed us to explore spending differences between the least resource-intensive inpatient episodes and episodes based on an outpatient procedure. We used resource-intensity of inpatient episodes, as indicated by MS-DRG, as a proxy for identifying which patients may have been appropriate candidates for outpatient TKA, since the clinical information physicians use to make this judgment (for example, the patient's body mass index, smoking history, blood pressure among other clinical information) is not available on claims. Since we expected that the outpatient TKA procedures would only be performed on relatively healthy patients without complications or comorbidities and would have mapped to the MS-DRG 470 without hip fracture category had they been performed in the inpatient setting, we compared spending patterns between inpatient MS-DRG 470 without hip fracture episodes and outpatient TKA episodes (created using the same criteria as CJR model episodes, with the exception that they would have been triggered by the outpatient TKA [CPT code 27447]). Given that inpatient TKA procedures receive an MS-DRG payment while outpatient TKA procedures are paid at a lower rate as part of payment for the Ambulatory Payment Classification (APC) to which they are assigned, we removed the payments associated with the episode initiating MS-DRG and/or CPT code for TKA, specifically CPT code 27447, and focused on the remaining episode costs for any post-acute spending for these patients who we expected to be clinically similar. As we expected, post-acute spending patterns were highly similar between the inpatient MS-DRG 470/no fracture episodes and the outpatient TKA episodes, with average SNF costs of $9,229 and $9,252, and average home health costs of $3,070 and $3,074, respectively. Subsequent analysis of 2019 claims data showed similar results, with average SNF costs of $9,468 and $9,894, and average home health costs $3,060 and $3,029, respectively. This supported our belief that the outpatient TKA episodes were sufficiently comparable to MS-DRG 470/no fracture inpatient CJR model episodes that we should find a way to change the existing CJR model episode definition to encompass outpatient LEJR episodes as well as inpatient LEJR episodes.

2. Changes to Episode Definition To Include Outpatient TKA/THA

Given stakeholders' interest in opportunities to treat LEJR patients in the outpatient setting as part of a bundled payment model, we explored ways to integrate outpatient TKA into the CJR model, as well as THA, in light of the change in the CY 2020 OPPS/Ambulatory Surgical Center (ASC) final rule to remove THA from the IPO list (84 FR 61353). (We remind readers that the removal of any procedure from the IPO list does not mandate that all cases be performed on an outpatient basis. Rather, such removal allows for Medicare payment to be made to the hospital when the procedure is performed in the hospital outpatient department setting. The decision to admit a patient is a complex medical judgment that is made by the treating physician.)

However, in the case of TKA and THA, if we continued to exclude outpatient TKAs and outpatient THAs from the CJR model and did not allow CJR participant hospitals the incentive to coordinate and improve care for these outpatient episodes, it is possible that this policy decision could create an unintentional financial incentive to perform a proportion of these procedures in a more expensive inpatient setting than would otherwise be medically necessary, thereby increasing costs to the Medicare program. Continuing to exclude outpatient TKAs and outpatient THAs would also potentially reduce the generalizability of future results from the CJR model evaluation, as CJR participant hospitals would be less comparable to control group non-CJR participant hospitals that did not have the same incentive to keep TKA and THA episodes in the inpatient setting, rather than moving appropriate episodes into the outpatient setting. Therefore, to ensure that our evaluation findings are as robust and generalizable as possible, we aim to incorporate outpatient LEJR procedures in such a way that we do not incentivize participants to choose a setting based on financial considerations rather than a given patient's particular level of need.

One of CMS' recent goals has been to move toward site neutrality in pricing. For example, in the CY 2019 OPPS final rule (83 FR 58818) we finalized our policy to pay for clinic visits furnished at excepted off-campus provider-based hospital departments at an amount equal to the site-specific physician fee schedule payment rate for the clinic visit service furnished by a non-excepted off-campus provider-based hospital department. This goal was also reflected in the CY 2020 OPPS final rule (84 FR 61365), where we continued the 2-year phase-in of this site-neutral payment policy. Consistent with our goal for site neutrality, we do not want to create separate prices for inpatient and outpatient CJR model episodes. We also want to be consistent with the BPCI Advanced voluntary bundled payment model, which offers a site-neutral LEJR episode and began January 1, 2020. These considerations, in conjunction with our finding that post-acute care costs were markedly similar for inpatient short stay TKAs, identified as those DRG 470 claims with lengths of stay of 2 or fewer days, and outpatient TKAs, with much of the difference in overall episode prices accounted for by the MS-DRG payment for inpatient episodes versus the outpatient procedure rate paid through OPPS, supported our belief that we could create a site-neutral episode that would include both outpatient TKAs and the least complicated, short stay inpatient TKAs, which would group to the MS-DRG 470 without hip fracture category. However, given the remaining difference in post-acute spending, as well as the higher amount paid by Medicare for an inpatient procedure billed under the IPPS as opposed to an outpatient procedure billed under the OPPS, we recognize that simply providing the same target price for both

inpatient TKA episodes and outpatient TKA episodes, based on historical spending for the two episode types blended together, would mean that the single blended target price could potentially underestimate spending on some inpatient episodes and likewise, could potentially overestimate spending on some outpatient episodes. This would theoretically average out across all MS-DRG 470 without hip fracture episodes at the regional level during reconciliation, but given the fact that hospitals' ratio of inpatient-to-outpatient cases will vary, we believe an additional episode-specific risk adjustment to the target price is needed to account for beneficiary-specific factors other than the presence of a hip fracture. We discuss our proposal to risk adjust episodes in more detail in section II.C.4. of this final rule. We believe that our episode-specific risk adjustment methodology will incentivize clinicians to continue performing LEJR procedures in the appropriate clinical setting, particularly since performing these procedures on sicker patients in the outpatient setting could increase the risk of post-acute complications and lead to higher overall episode spending.

Therefore, beginning with our proposed PY6, we proposed to revise the definition of an episode of care in the CJR model to include permitted outpatient TKA/THA procedures. This revised definition would have applied to episodes initiated by an anchor procedure furnished on or after October 4, 2020, because the 90-day episode would end on or after January 1, 2021, which would have been the first day of PY6. We note that, due to the extension of PY5, the revised definition would now apply to episodes initiated by an anchor procedure furnished on or after July 4, 2021, because the 90-day episode would end on or after October 1, 2021. Further, we proposed to group the outpatient TKA procedures together with the MS-DRG 470 without hip fracture historical episodes in order to calculate a single, site-neutral target price for this category of episodes, given that spending on outpatient TKA episodes most closely resembles spending on MS-DRG 470 without hip fracture episodes. We proposed that prices for the other three categories (MS-DRG 469 with hip fracture, MS-DRG 469 without hip fracture, and MS-DRG 470 with hip fracture) would continue to be calculated based on historical inpatient episodes only (with the exception of outpatient THA with hip fracture, which we would expect to happen rarely if at all, as described in this section). Since MS-DRGs 521 and 522 were introduced after the proposed rule was published, and subsequently incorporated into the CJR episode definition in the November 2020 IFC, effective as of October 1, 2020, we note that the comparable groupings using the updated MS-DRGs are as follows: MS-DRG 469 without hip fracture is now MS-DRG 469, MS-DRG 469 with hip fracture is now MS-DRG 521, MS-DRG 470 without hip fracture is now MS-DRG 470, and MS-DRG 470 with hip fracture is now MS-DRG 522.

Since the proposal to remove THAs from the IPO list had recently been finalized at the time of our February 24, 2020 proposed rule, we also proposed to include outpatient THA procedures with MS-DRG 470 episodes in order to calculate a target price. Although we did not have Medicare claims data for outpatient THA at that time, as we did for outpatient TKA, we noted that the costs for TKA and THA tend to be similar, which is why the inpatient procedures are priced together in MS-DRGs 469 and 470. Outpatient THAs have been assigned to the same Comprehensive Ambulatory Payment System (C-APC) 5115 (Level 5 Musculoskeletal Procedure) as outpatient TKA (84 FR 61253). Since the display of the proposed rule, we were able to analyze episode spending for selected 2020 claims data for TKA and THA episodes performed in the hospital outpatient department. We examined average episode costs for episodes initiated between July 1 and September 30 of 2020. We chose the third quarter because volume better approximated pre-COVID-19 PHE levels than earlier quarters in 2020 when many outpatient TKA and THA procedures were suspended. Further, it was the most recent available quarter of data with completed 90-day episodes after allowing time for claims runout. We observed that average total costs for outpatient THA episodes ($14,925) and outpatient TKA episodes ($15,286) were quite similar.

Therefore, we believed that the site-neutral MS-DRG 470 price that we proposed to calculate (which would be based on a blend of inpatient TKA, inpatient THA, outpatient TKA, and outpatient THA episodes) would also be appropriate for outpatient THA episodes. However, in the case of THA, we would include any outpatient THA episodes without hip fractures in the MS-DRG 470 without hip fracture (now MS-DRG 470) episode pricing and we would include any outpatient THA episodes with hip fractures in the MS-DRG 470 with hip fracture (now MS-DRG 522) episode pricing. Compared to TKAs, which we would not expect to be performed on an outpatient basis in the presence of a hip fracture due to the added complexity of treating the hip fracture while performing the TKA, we believe that THAs with hip fractures would be somewhat more likely to be performed on an outpatient basis, since the THA could be treatment for the hip fracture. We note that most hip fracture cases involving a THA surgery typically present emergently and involve an inpatient admission, so we anticipate that few, if any, outpatient THA cases will involve hip fractures. However, we acknowledge the possibility that medical advances in the next 3 years could cause this to change. Therefore, we believe it is appropriate to separate outpatient THA into with and without hip fracture episodes that would be grouped into MS-DRG 522 and MS-DRG 470 episodes, respectively, because we expect that spending for outpatient THA with hip fracture and without hip fracture episodes would resemble spending for MS-DRG 522 and MS-DRG 470 episodes, respectively.

Given that we proposed that outpatient TKA and THA could initiate CJR model episodes, we similarly proposed that an outpatient TKA or THA, if furnished at a participant hospital during an ongoing 90-day CJR model episode, would cancel the ongoing episode and initiate a new episode. When an episode is cancelled, this means that the services associated with the cancelled episode continue to be paid under Medicare FFS, but the cancelled episode is not included in the annual reconciliation calculation. This is consistent with our current policy that inpatient hospitalizations for MS-DRGs 469, 470, 521, or 522 that occur at a participating hospital during an ongoing CJR model episode cancel the ongoing episode and initiate a new episode. We proposed to extend that policy to outpatient TKA and THA episodes.

In conclusion, an active CJR model episode initiated by a prior admission to an acute care hospital for DRG 469, 470, 521, or 522 would be cancelled, and a new CJR model episode would be initiated, if either an inpatient LEJR procedure or an outpatient TKA or THA were furnished to an eligible beneficiary at a participating hospital during the ongoing episode initiated by the first joint procedure hospitalization. Similarly, a CJR model episode initiated by a first anchor procedure (outpatient TKA or THA) would be cancelled, and a new CJR model episode would be initiated, if either an inpatient LEJR procedure or an outpatient TKA or THA were furnished to an eligible beneficiary at a participating hospital during the

ongoing episode initiated by the first anchor procedure.

Since the publication of the February 24, 2020 proposed rule, CMS finalized phasing out the IPO list entirely over a 3-year period in the CY 2021 OPPS/ASC final rule with comment period (85 FR 85866 through 86305). TAR was among the procedures removed from the IPO list for CY 2021. This means that, as of January 2021, Medicare will pay each of the procedures included in the CJR model (TKA, THA, and TAR) when performed in an outpatient department of the hospital. Unlike THA and TKA, we do not expect that TAR will be widely performed in the hospital outpatient department. The procedure is much more complex than TKA or THA. In the absence of an MCC, both TKA and THA are typically paid through the less expensive MS-DRG 470, as discussed. However, Medicare always pays for TAR through the more expensive MS-DRG 469, in recognition of TAR's higher complexity and resource-intensity. We expect less complex patients to be eligible for treatment in the hospital outpatient department. Further, TAR is significantly less common than TKA and THA, comprising only 0.8 percent of all CJR episodes in 2020. For this reason, we are not incorporating outpatient TAR into the CJR episode definition. We will monitor data on TAR and consider future adjustments to the CJR episode definition, if warranted, through notice-and-comment rulemaking.

The following is a summary of the comments received and our responses.

Comment:

Several commenters supported CMS' proposal to incorporate outpatient TKA and outpatient THA into the CJR model episode definition. A commenter stated they view this change as allowing the model to keep pace with the changing standards of care and clinical practices across the country. Multiple commenters stated that since CMS has authorized TKA and THA surgery to be performed in the outpatient hospital setting under the Medicare program, it is appropriate to include these procedures in the CJR model to encourage hospitals, physicians, and post-acute care providers to work together to improve the quality and coordination of care for patients in this setting. A commenter stated that they commended CMS for taking steps to align the CJR model with other value-based care initiatives, namely the BPCI Advanced model, which includes both inpatient and outpatient LEJR episodes. A commenter stated their agreement with our proposal to distinguish between outpatient THA cases with and without hip fracture, even though hip fracture cases involving THA surgery typically would involve an inpatient admission.

Response:

We appreciate the commenters' support for our proposal to revise the CJR model episode definition to include outpatient TKA and THA. We agree that this change will encourage increased quality of care and care coordination across a wider range of treatment settings. We further appreciate that commenters supported our effort to better align the CJR model with BPCI Advanced, as well as our decision to distinguish between outpatient THA with and without hip fracture.

Comment:

Multiple commenters recommended that CMS add a definition at § 510.2 to specify that for the CJR model purposes, “outpatient setting” means the hospital outpatient department (HOPD). These commenters pointed out that this would distinguish HOPDs from other alternatives to inpatient care, such as an ASC.

Response:

We appreciate the commenters' suggestion, which we believe pertains to the definition of anchor procedure and its use of the term “outpatient setting.” We agree that the definition should be revised to clarify that by outpatient setting we mean a hospital outpatient department. We have made this change to the regulatory definition of “anchor procedure” at § 510.2.

Comment:

A few commenters requested clarification as to how outpatient episodes and their associated costs will be identified. A commenter asked whether outpatient episodes would be identified based on the presence of CPT codes 27447 or 27130 on the claim. Another commenter noted that when a patient has outpatient surgery for joint replacement, they often spend a night in the hospital and are seen by other physicians, such as hospitalists, to manage medical issues. The commenter asked whether the services of these physicians, which would be billed to Part B using CPT codes 99201-99215, would be included in the bundle as costs. Another commenter requested clarification on whether the episode would begin on the day of surgery as reported on the claim form, and, given that the 3-day payment rule does not apply to outpatient procedures, whether any pre-operative services in the 3 days prior to surgery would be included in the episode.

Response:

We appreciate the opportunity to provide clarifying details as to how outpatient TKA and THA episodes will be determined. Outpatient episodes will be identified by the presence of CPT codes 27447 (TKA) or 27130 (THA) on an outpatient claim (specifically, a hospital's institutional claim for an outpatient TKA or THA billed through the OPPS). The episode begins on the day of the anchor procedure, which will also be considered the discharge date, (that is, it would be considered day 1 of the 90-day post-acute portion of the episode).

In response to the commenter who referenced the 3-day payment rule (75 FR 50346), we note that this refers to the policy that states that a hospital (or an entity that is wholly owned or wholly operated by the hospital) must include on the claim for a beneficiary's inpatient stay, the diagnoses, procedures, and charges for all outpatient diagnostic services and admission-related outpatient non-diagnostic services that are furnished to the beneficiary during the 3-day (or 1-day) payment window. This means that such services are included under the MS-DRG payment, rather than billed separately, and in that way are reflected in the CJR model episode, even if they occur prior to the day of inpatient admission. We note that outpatient CJR model episodes will not have a comparable policy, so services provided prior to the day of the outpatient procedure will not be included in episode costs.

Our decision not to include a 3-day lookback for outpatient episodes is consistent with our decision in the November 2015 final rule to only include Part B claims for services on or after the date of admission in inpatient episode spending (80 FR 73315). Although we acknowledged at that time that there may be opportunities for care redesign and improved efficiency prior to the inpatient hospitalization, we stated our belief that these opportunities would be limited for an episode payment model focused on a surgical procedure and the associated recovery, as opposed to a different type of model that focused on decision-making and management of an underlying clinical condition itself (such as osteoarthritis). We also stated our belief that beginning the episode too far in advance of the LEJR surgery would make it difficult to avoid bundling unrelated items, and starting the episode prior to hospital admission would be more likely to encompass costs that vary widely among beneficiaries, which would make the episode more difficult to price appropriately (80 FR 73316).

However, since TKA was removed from the IPO list in 2018, we have discovered that the Part B claim for the surgeon's professional services is occasionally missing from CJR episode spending for inpatient episodes

associated with an inpatient TKA procedure. This was an extremely rare occurrence when all LEJR procedures were performed on an inpatient basis (0.2 percent of episodes in both PY1 and PY2), because the LEJR procedure would always be associated with an inpatient stay with a date of admission on or before the procedure itself, since it would not be paid for by Medicare if performed in the outpatient setting. Now that LEJR procedures can be performed on either an inpatient or outpatient basis, meaning that the LEJR procedure itself may or may not be associated with an inpatient stay, the decision of whether or not to admit the patient for an inpatient stay does not necessarily need to be made on the day of the procedure.

Since the removal of TKA from the IPO list, the frequency of CJR episodes (all of which, by definition, have been associated with an inpatient stay) that have been missing the surgeon's Part B professional claim has increased ten-fold (2.1 percent in PY3, and 2.8 percent in PY4). This omission has occurred because the date of the procedure was prior to the date of the inpatient admission. We believe that in most of these cases, the surgery is performed on an outpatient basis under the assumption that the patient will not require an inpatient admission, but the patient is subsequently determined to need more acute care and is admitted as an inpatient within 3 days. In such a case, the institutional charge for the procedure, which originally would have been billed through the OPPS, would instead be billed through the IPPS. Had the subsequent inpatient admission not occurred, the procedure would have been considered an outpatient procedure for purposes of the CJR episode definition, and it would not have triggered a CJR episode. However, as a result of the subsequent inpatient admission, the procedure would instead be associated with an institutional charge billed through the IPPS, and therefore would trigger a CJR episode even though the procedure itself predated the inpatient admission.

In the case of the subsequent inpatient admission after an outpatient LEJR procedure, most costs associated with the inpatient hospitalization would still be included in the MS-DRG payment due to the 3-day lookback period that already applies to inpatient hospitalizations, but the surgeon's professional claim (dated within 3 days prior to the date of admission in 98 percent of these cases), would not be included in CJR episode spending because it would be billed as a Part B professional claim with a date of service prior to the date of the inpatient admission. Given our clearly stated intention to include claims for Part B professional services on the date of the surgery, we are making a technical change to the services included in a CJR episode, which in PYs 6-8 will begin on the date of admission for episodes initiated by an inpatient hospitalization (that is, an anchor hospitalization) or the date of the procedure for episodes initiated by an outpatient procedure (that is, an anchor procedure). This change will only apply to episodes initiated by an inpatient anchor hospitalization that do not include a surgeon's Part B professional claim for the LEJR procedure itself because the procedure occurred prior to the inpatient admission date.

Beginning in PY6, in these cases only, we will perform a 3-day lookback to identify the surgeon's Part B professional claim and include it in episode spending. The episode start date will continue to be the date of admission on the IPPS claim associated with the anchor hospitalization that triggered the episode, rather than the procedure itself being treated as an anchor procedure and triggering the episode. To clarify the fact that the procedure would not be considered an anchor procedure in this situation, we have amended the definition of anchor hospitalization to specify that an anchor hospitalization would be initiated upon admission to an inpatient hospital stay within 3 days after an outpatient TKA or outpatient THA procedure and amended the definition of anchor procedure to specifically exclude such situations. The 3-day lookback policy for episodes triggered by an anchor hospitalization that are missing the surgeon's Part B professional claim will be specifically limited to the surgeon's Part B professional claim, such that no other claims during that 3-day period prior to the date of the inpatient admission will be pulled into the episode spending total. We have made this technical change to the regulation text at § 510.200(b)(15).

Comment:

A commenter requested that we provide outpatient cost data to participant hospitals, as participant hospitals currently do not have access to the full cost of care for Medicare beneficiaries in the outpatient setting. They stated their belief that this information would help providers better understand beneficiaries' needs and how to meet those needs more cost effectively, whereas without the cost data, it would be difficult to understand the impact of the variable case mix on cost.

Response:

We agree that as a result of the revised episode definition, participant hospitals will need additional data for episodes that are initiated in the outpatient setting to facilitate their success in the CJR model. We will provide participant hospitals with monthly claims data for outpatient episodes that are comparable to what they currently receive for inpatient episodes. They will have timely access to claims data across all treatment settings included in the episodes, which will allow them to better understand beneficiaries' needs and how to meet those needs in the most cost effective way while maintaining care quality.

Comment:

Multiple commenters supported the proposal to create a site-neutral target price for inpatient and outpatient episodes. MedPAC stated that it supports adding LEJR procedures performed in outpatient hospital departments to the CJR model and setting site-neutral target prices for inpatient and outpatient episodes. MedPAC further stated that it agrees with CMS's proposal to base the target price for MS-DRG 470 without hip fracture on a blend of historic spending for outpatient TKA episodes, outpatient THA episodes without hip fracture, and inpatient episodes for MS-DRG 470 without hip fracture because of the cost similarity of these episodes. Another commenter stated their belief that the proposed addition of outpatient procedures as a blended, site-neutral payment adequately captures episodes that are triggered in hospital-based outpatient departments, and that the addition of hospital outpatient procedures to the CJR model will aid CMS in driving efficiency in these settings. Another commenter stated their support for including outpatient procedures in the CJR model because it decreases the incentive to perform these procedures in the inpatient setting unnecessarily on otherwise healthy patients who lack complications or comorbidities, particularly in light of the similar cost considerations for post-acute care for both inpatient and outpatient procedures.

Response:

We appreciate the commenters' support for our creation of a site-neutral target price for inpatient and outpatient episodes.

Comment:

A commenter stated that they support site neutral target prices, but stated that this support was contingent on the quality of the surgical care and medically necessary follow-up rehabilitation care being maintained. Another commenter similarly stated that they support site neutral target prices, but expressed concern about the potential for a site neutral inpatient/

outpatient target price to drive higher risk patients to the lower cost outpatient setting. This commenter stated their concern that hospitals would overrule the decision-making of the physician and patient as to the most appropriate setting for the patient's surgery, such that a patient who, based on the clinician's judgment and/or the patient's preference, should receive a TKA or THA on an inpatient basis would instead receive the procedure on an outpatient basis. They urged CMS to regularly analyze utilization data and monitor for significant shifts in procedure setting and/or negative outcomes, and make results from these analyses publicly available through peer-reviewed literature and CMMI model evaluation reports.

Response:

We appreciate the commenters' support for our creation of a site-neutral target price for inpatient and outpatient episodes. We also acknowledge their concern about unintended consequences, where a provider might choose to steer certain patients to the outpatient setting when it is not in the best interest of, or is against the preferences of, the patient. We note that, since the IPO list was established in 2000, we have consistently stated that regardless of how a procedure is classified for purposes of payment, we expect that in every case the surgeon and the hospital will assess the risk of a procedure or service to the individual patient, taking site of service into account, and will act in that patient's best interest (65 FR 18456). We have reiterated this sentiment in rulemaking several times over the years, including the removal of TKA from the IPO list in the CY 2018 OPPS/ASC final rule with comment period (82 FR 59383), removing THA from the IPO list in the CY 2020 OPPS/ASC final rule with comment period (84 FR 61142), and most recently in phasing out the IPO list in the CY 2021 OPPS/ASC final rule with comment period (85 FR 86083). The decision regarding the most appropriate care setting for a given surgical procedure is a complex medical judgment made by the physician based on the beneficiary's individual clinical needs and preferences and on the general coverage rules requiring that any procedure be reasonable and necessary (84 FR 61354). We expect hospitals to respect the decision of the physician and patient.

Additionally, as we stated in the February 2020 proposed rule, a provider who treats a patient in the outpatient setting when the inpatient setting would be more appropriate risks the patient developing complications and requiring costlier care to recover from those complications than would have been necessary if the patient's procedure had taken place in the more appropriate inpatient setting. Our episode-level risk adjustment (described in Section II.C.4) is designed to incentivize the provision of care in the appropriate setting, by increasing the episode target price for beneficiaries who are likely to require more resources and be costlier to treat, due to the complexity of their condition, and lowering the episode target price for beneficiaries who are likely to require a lower degree of care. We believe this methodology will greatly reduce the likelihood of a participant treating a beneficiary in a setting that is not concordant with the beneficiary's actual care needs.

Finally, we will continue the monitoring practices that we have had in place throughout the CJR model to identify patterns of inappropriate care, which includes monitoring the proportion of patients who are treated in the outpatient setting by CJR participant hospitals in comparison to non-CJR participant hospitals. If we see that certain hospitals are treating patients in the outpatient setting at a rate that is different from their peers and cannot be explained by aspects of the hospital's patient population such as average age, count of CMS-HCC conditions, and area-level socioeconomic factors, then we have multiple options for remediation as described in the November 2015 final rule, which include requiring the participant hospital to develop a corrective action plan and reducing or eliminating a participant hospital's reconciliation payment (§ 510.410(b)(2)). We will also continue to share changes in practice patterns and trends we identify through evaluation reports and other means.

Comment:

Many commenters stated that they do not believe the episode definition should be changed at this point in time. They suggested either postponing the inclusion of outpatient episodes in the CJR model, or maintaining separate cost target categories for outpatient TKA and outpatient THA, rather than grouping them with DRG 470. A few commenters expressed their concern that the safety of outpatient TKA and outpatient THA has not been established, and that CMS does not have enough experience with these episodes to incorporate them into the CJR model.

Response:

We acknowledge that, at the time that the February 2020 proposed rule was published, both TKA and THA had been removed from the IPO list relatively recently, and we appreciate the commenters' concerns about patient safety. However, the extension of PY5 through September 30, 2021 means that by the time outpatient TKA and outpatient THA episodes are incorporated into the CJR model, participant hospitals will have had just under 4 calendar years of experience with outpatient TKA and just under 2 calendar years of experience with outpatient THA. Prior to CMS' recommendation to postpone elective surgeries between March and April of 2020 due to COVID-19 PHE, the percentage of outpatient TKA episodes had been steadily increasing since outpatient TKA was removed from the IPO list as of January 2018. In February 2020, 43 percent of TKA procedures at CJR participant hospitals were performed in the outpatient setting. This suggests that hospitals had the experience of treating a substantial number of outpatient TKA patients during the two years prior to the temporary suspension of elective surgeries. The number of outpatient THA procedures beginning in January 2020 showed a similar pattern to outpatient TKA, suggesting that hospitals had a similar level of confidence in their ability to manage outpatient THA patients. After a steep decline in outpatient TKA/THA volume during the months of March and April of 2020, elective surgeries resumed in May and showed monthly volume increases through the summer of 2020, although we acknowledge that some hospitals have since chosen to postpone elective surgeries for varying periods of time due to local COVID-19 resurgences. Given the degree to which we expect outpatient TKA and outpatient THA to return to their previous volumes as a result of decreased COVID-19 hospitalizations and due to the national COVID-19 vaccination campaign currently underway, we believe that by the time PY6 begins and outpatient TKA and outpatient THA are incorporated into the CJR episode definition, hospitals will have had the opportunity to perform enough of these outpatient procedures to have gained considerable expertise in their outpatient episode management.

Regarding patient safety, we note that State and local regulations, accreditation requirements, hospital conditions of participation (CoPs), medical malpractice laws, and other CMS initiatives will continue to ensure the safety of beneficiaries receiving TKA or THA in both the inpatient and outpatient settings, so we believe that further delay is not necessary before incorporating outpatient TKA and THA into the CJR model episode definition.

In particular, the CoPs are regulations that are focused by statute almost exclusively on protecting the health and safety of all patients and are intended to be the baseline health and safety requirements on which hospitals, accreditation organizations, States and localities, and professional organizations can add and build upon with more specific and more stringent requirements. We note that the CoPs already require hospitals to be in compliance with applicable Federal laws related to the health and safety of patients (42 CFR 482.11). Additionally, there are numerous regulatory standards and provisions in the hospital CoPs at 42 CFR 482 that provide extensive patient safeguards and that provide enough room and flexibility so as to ensure that hospitals can follow nationally recognized standards of practice and of care where they are applicable and can adapt if those standards change over time through innovative new practices. We discussed these patient safeguards in more detail in the CY 2021 OPPS/ASC final rule with comment period (85 FR 86084).

As indicated in the 2020 Quality Strategy, CMS has continued to develop safety measures and tools, like the Outpatient and Ambulatory Surgery Consumer Assessment of Healthcare Providers and Systems Survey (OMB Control Number: 0938-1240), to help determine the safety and quality of the performance of procedures in the outpatient setting, to alleviate concerns about the safety and quality of more varied, complex procedures performed in the outpatient setting. Additionally, if a beneficiary communicates a concern about the quality of their care to the Medicare Beneficiary Ombudsman (MBO), that communication will be relayed to the beneficiary's CMS Regional Office and the CJR team for further investigation. The CJR team also regularly monitors episode claims data to identify patterns that suggest inappropriate practices on the part of a CJR participant hospital. Therefore, given CMS' developing ability to measure the safety of procedures performed in the outpatient setting and to monitor the quality of care, we do not believe a delay in incorporating outpatient TKA and THA into CJR is needed.

Comment:

Multiple commenters stated their concern about introducing multiple changes to the CJR model at this time, in light of the COVID-19 PHE. They stated that the introduction of outpatient episodes with a blended inpatient/outpatient target price and new risk adjustment methodology was too much change for participant hospitals to adapt to while they are still dealing with the impacts of the COVID-19 PHE.

Response:

We appreciate the commenters' concerns, and we recognize that the COVID-19 PHE has created many challenges for participant hospitals and the healthcare system as a whole. In order to support continuity of model operations and ensure that participants would not unfairly suffer financial consequences of the COVID-19 PHE due to their participation in the CJR model, we first extended PY5 by 3 months in the April 2020 IFC. Many commenters on the April 2020 IFC requested that PY5 be further extended, for a total of a 12-month extension. In the November 2020 IFC we extended PY5 by an additional 6 months for a total extension of 9 months. Although not the full 12-month extension that commenters requested, we believe that this 9-month extension will provide participant hospitals adequate time to adapt to both the COVID-19 PHE and TKA/THAs being removed from the IPO list. We reiterate that the extension of PY5 through September 30, 2021 means that by the time outpatient TKA and outpatient THA episodes are incorporated into the CJR model, participant hospitals will have had just under four calendar years of experience with outpatient TKA and just under 2 calendar years of experience with outpatient THA. As stated previously, we expect outpatient TKA and outpatient THA to return to previous volumes as a result of decreased COVID-19 hospitalizations and due to the national COVID-19 vaccination campaign currently underway by the time PY6 begins and outpatient TKA and outpatient THA are incorporated into the CJR episode definition. In February of 2020, there were approximately 13,000 TKA and 5,500 THA performed in the outpatient setting. Although the number decreased dramatically in March 2020, by June 2020 the frequency of outpatient TKA had nearly returned to pre-COVID 19 PHE levels and outpatient THA exceeded previous levels, with approximately 11,500 TKA and 6,500 THA performed in the outpatient setting that month. Therefore we believe that hospitals will have had the opportunity to perform enough of these outpatient procedures to have gained considerable expertise in their outpatient episode management and they will be able to adapt to the changes to the CJR model when they are introduced for PY6.

Comment:

A commenter stated that, while they understood that CMS cited its primary reason for the extension was to test the impact of Medicare paying for TKA and THA in the hospital outpatient setting, there are a number of factors that would prove problematic for testing that episode under the CJR model. For example, they stated their belief that it would be difficult, if not impossible, to generalize any future findings from the CJR model that occur over the next several years, as these evaluation results would be confounded by the impact of the COVID-19 PHE.

Response:

We acknowledge the commenter's concern about the generalizability of results due to the COVID-19 PHE. However, given the extension of PY5 through September 30, 2021 and the expectation that COVID-19's impact on participant hospitals will be greatly mitigated by an aggressive COVID-19 vaccination initiative through the first 3 quarters of 2021, we believe that the experience of CJR participant hospitals under the modified methodology will largely reflect the post-COVID-19 realities of the healthcare system that will continue for the foreseeable future. Therefore we believe that the results will be sufficiently generalizable to test the impact of CJR methodology on outpatient TKA and outpatient THA episodes.

Comment:

Multiple commenters suggested that CMS create separate cost target categories for outpatient TKA and outpatient THA in the CJR model due to their assertion that the episode-level risk adjustment methodology would not sufficiently mitigate the cost differential between inpatient and outpatient episodes. They pointed out that patients who fall into a low risk category may prefer to be treated in the inpatient setting for a variety of reasons that are not captured in the risk adjustment. Other commenters stated their concern that some hospitals may be disadvantaged by a blended target price due to factors beyond the hospital's control, which are not accounted for in the risk adjustment methodology. A commenter pointed out that, while the number of TKAs and THAs performed in the outpatient setting has increased overall, the increase varies widely across hospitals, driven by a number of factors including beneficiary demographics and prevalence of comorbidities in the local market, surgeon experience and preferences, the capabilities of hospitals of various sizes, the availability of multidisciplinary care coordination and discharge planning teams, the types of post-acute care resources present within a region, population dispersion, and rurality within a hospital's referral region.

Response:

We acknowledge the commenters' concerns, but we note that

the episode level risk adjustment methodology is designed specifically to address the concern that some hospitals may perform a higher percentage of inpatient episodes due to the age, health, and socioeconomic status of the surrounding patient population. For instance, if the patient population for a given participant hospital tends to be older than that of other participant hospitals, the episode level risk adjustment would adjust the target price upward (assuming the risk adjustment coefficient were greater than 1), such that a participant hospital with an older population would have a greater increase in their aggregate target price due to risk adjustment than would a participant hospital with a younger population. We further note that, although we originally did not propose to include a variable related to socioeconomic status, in response to comments and our subsequent analyses, we are including dual-eligibility in the final risk adjustment methodology as a proxy for socioeconomic status, along with the previously proposed age group and CJR HCC count (described in section II.C.4 of this final rule). Participant hospitals that treat an older, sicker, or socioeconomically disadvantaged population will have their episode target prices adjusted upwards accordingly. Our decision to remove rural and low-volume hospitals from the extension will also reduce the variation between the remaining participant hospitals in PY6-8 in terms of size, population dispersion, and rurality within participant hospitals' referral regions.

Comment:

A few commenters stated concerns related to the calculations underlying our proposed changes to the target price calculation methodology and the information we provided in the proposed rule to allow commenters to understand and comment on our proposed methodology. A commenter stated their concern that CMS did not provide further information about how we analyzed the impact of the mix of inpatient versus outpatient procedures on site-neutral pricing. This commenter also stated their belief that CMS's proposal to revise the existing MS-DRG 470 without hip fracture pricing category to include both outpatient TKA and outpatient THA appeared to be based on limited data and simulated cost comparisons, and that CMS did not provide an adequate description of the methodology or access to data for independent analysis. Another commenter stated that, due to the fact that MS-DRG weights are calculated using data with a 2-year lag, the current MS-DRG 470 payment is based on costs for an overall healthier pool of patients, because healthier patients had not yet begun shifting to the outpatient setting at that time. This commenter stated their belief that the payment for MS-DRG 470 was therefore inadequate and should not be used as the basis for target prices in a mandatory model.

Response:

We disagree with commenters who stated that the analyses underlying our decision to calculate a blended inpatient/outpatient target price were insufficient due to the use of simulated episode data. Although we acknowledge that actual episode data are preferable, we believe that multiple aspects of our target price methodology (for example, the use of the most recent 1 year of baseline data, risk adjustment, and the retrospective market trend adjustment) will allow for the adjustment of target prices to the extent that data from actual outpatient episodes (with TKA beginning in 2018 and THA beginning in 2020) differ from the simulated episode data we used to design the methodology. We built this flexibility into the target price methodology specifically to address the fact that patterns of care and spending can evolve over time. We note that we did not calculate a specific factor to determine the impact of site on the target price, because outpatient episodes constituted a relatively small percentage of all TKA/THAs at the time we performed our analyses, and we could not assume that such a factor would give a meaningful estimate of the impact of site on the target price over time. We further note that we have updated our analyses using 2019 claims data, which include a full year of actual outpatient TKA episodes, and the results have been consistent with those we reported based on simulated episodes from previous years (see Tables 3a and 4a in section II.C.4 of this final rule). For more specific data on the blended target price, we point commenters to Table 2a of this final rule in section II.B.2. of this final rule for preliminary regional target prices for PY6. We acknowledge that changes to the Medicare policies determining payment for TKAs/THAs have resulted in shifts in site of service that could impact the cost of episodes, but we point out that the change from using 3 years of data to 1 year of data as a baseline for target prices and our retrospective market trend adjustment are both designed to allow target prices to better reflect changes in both practice patterns and Medicare payment systems. Finally, we note that the fact that we received substantive comments on the blended target price methodology from the majority of commenters on this topic indicates that we provided an adequate level of information to enable providers to evaluate the methodology. Therefore we believe that we described our data analyses adequately and that our use of simulated episode data, with results later confirmed by analyses of actual episode data, was an appropriate basis for our decision to calculate a blended target price.

Comment:

Multiple commenters requested that CMS issue a standard set of criteria to help participants determine which patients are suitable candidates for outpatient surgery. A commenter stated his or her belief that, taking into consideration the proper patient assignment and providers' clinical judgment, it would be beneficial to many CJR participant hospitals if CMS provided directional criteria for outpatient THA/TKA versus inpatient total joint replacements. They stated that a standard set of criteria would benefit many hospitals when it comes to the clinical pathways adoption rate. Other commenters pointed to the October 2018 “Position Statement on Outpatient Joint Replacement,” jointly issued by the American Association of Hip and Knee Surgeons (AAHKS), the American Academy of Orthopaedic Surgeons (AAOS), The Hip Society, and The Knee Society, which includes recommendations for outpatient hip and knee arthroplasty procedures to guide hospitals, surgeons, and institutions in appropriate and safe patient care. These commenters urged CMS to work with these societies to operationalize their recommendations. Another commenter provided a list of medical and psychosocial exclusion criteria that the commenter believes should be applied to outpatient TKA and THA episodes. A commenter suggested that CMS could provide guidance on predictive tools to inform discharge planning to facilitate surgeon/hospital establishment of patient risk profiles. Another commenter requested detailed guidance on the application of the 2-midnight rule to TKA and THA procedures.

Response:

We acknowledge these commenters' request, but we note that CMS does not make clinical recommendations for care. We believe that the treating clinician, in partnership with the patient, is best suited to make the judgment of the appropriate clinical setting. Other government agencies, such as the Agency for Healthcare Research and Quality (AHRQ), or professional societies may provide resources to help guide clinical decisions. For guidance on the application of the 2-midnight rule to TKA and THA procedures we

refer commenters to the CY 2020 OPPS/ASC rule (84 FR 61363 through 61365).

Final Decision:

After consideration of the public comments received, we are finalizing our proposal to include outpatient TKA and THA in the CJR model episode definition with a blended inpatient/outpatient target price. (The methodology for calculating this blended target price is discussed in section II.B. of this final rule.)

3. Freezing Hip Fracture List and Episode Exclusions List

In the November 2015 final rule we finalized our proposal to establish a sub-regulatory process to update both the hip fracture list (indicating the International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM) and ICD-10-CM codes that would designate a hip fracture for purposes of risk adjustment in the baseline period and performance period, respectively (80 FR 73544) and the episode exclusions list (indicating which services would be considered unrelated to the episode, and therefore excluded from episode spending totals in both the baseline period and performance period) (80 FR 73305). At that time, Medicare had recently transitioned from the use of ICD-9-CM codes to ICD-10-CM codes (as of October 2015), and the ICD-10-CM code list was being expanded on an annual basis. For this reason, we finalized our proposal to update both the hip fracture list and the exclusions list without rulemaking on at least a yearly basis to reflect annual changes to ICD-CM coding, annual changes to the MS-DRGs under the IPPS, and any other issues that were brought to our attention by the public throughout the course of the model test (80 FR 73305). Our first set of revisions, applicable as of October 1, 2016, added 40 additional codes within the M84 category to the original 1,152 codes on the hip fracture list and 60 additional code categories to the original 574 code categories on the episode exclusions list.

Now that Medicare has used the ICD-10-CM coding system for over five years, the rate of annual coding changes has stabilized, which has resulted in fewer, if any, changes to either the hip fracture or episode exclusions list in recent years of the CJR model. For FY 2018, the hip fracture list remained unchanged, while 28 categories were added to the episode exclusions list. For FY 2019, we did not identify any changes to the ICD-10-CM codes that would impact the hip fracture list or episode exclusions list, so they were not updated. We note that the introduction of the new MS-DRGs 521 and 522 is a different way for the IPPS grouper to assign an MS-DRG weight to a subset of existing ICD-10-CM codes to reflect a differential in the cost of the associated hospitalization, as opposed to a new category of ICD-10-CM codes that would be considered for the exclusions list. The new MS-DRGs will also mean that the hip fracture list will become irrelevant in most cases, as episodes with hip fracture will be identified by the MS-DRG rather than primary ICD-10-CM code associated with the MS-DRG. (Although the hip fracture list would be used to identify a hip fracture in the case of an outpatient THA, we expect that THA in the presence of a hip fracture will almost always be performed in the inpatient setting.) Given the relative stability of the ICD-10-CM code set used to determine hip fractures and exclusions, we proposed to discontinue our annual sub-regulatory process to update the hip fracture list and episode exclusions list. We sought comment on our proposal and whether there are any circumstances in which updates may still be needed.

Comment:

A commenter did not oppose CMS' proposal to freeze the hip fracture and exclusions list.

Response:

We appreciate the comment. We note that we did not receive any comments opposing our proposal to freeze the hip fracture and exclusions list.

Final Decision:

After consideration of the public comments received, we are finalizing our proposal to freeze the hip fracture list and episode exclusions list.

B. Target Price Calculation

1. Background

Currently in the CJR model, participant hospitals are provided with prospective episode target prices for four MS-DRG/hip fracture combinations (MS-DRG 469 with hip fracture/MS-DRG 521, MS-DRG 469 without hip fracture, MS-DRG 470 with hip fracture/MS-DRG 522, and MS-DRG 470 without hip fracture), based on historical episode spending. Participant hospitals have the opportunity to achieve a reconciliation payment if their performance year spending is below the applicable target price, or they may owe a repayment if their spending is above the applicable target price. More specifically, we finalized in the November 2015 final rule (80 FR 73338) the method for establishing episode target prices based on 3 years of standardized historical episode spending. This historical spending is updated by trending forward the older 2 years of historical data to the most recent of the 3 years being used to set target prices (80 FR 73342). We calculate and apply different national trend factors for each combination of anchor MS-DRG (469 vs. 470) and hip fracture status (with hip fracture vs. without hip fracture). While the CJR model began with a blend of regional (“region” defined as one of the nine U.S. Census divisions

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) and hospital-specific spending for PYs 1 through 3, episode target prices were based on 100 percent regional spending beginning in PY4. Under current regulations, high episode spending is capped at 2 standard deviations above the mean regional episode payment, and target prices are trended forward at reconciliation to represent performance period dollars. To increase historical CJR model episode volume and set more stable target prices, CJR model episodes are pooled together and anchored by MS-DRGs 469 and 470 (80 FR 73352) factors calculated at the regional- and hospital-specific levels. Target prices are then prospectively updated to account for ongoing Medicare payment system updates (that is, Inpatient Rehabilitation Facility Prospective Payment System (IRF PPS), Physician Fee Schedule (PFS), IPPS, OPPS, and SNF PPS) to the historical episode data (80 FR 73342). Medicare payment systems do not update their rates at the same time during the year. For example, the IPPS, the IRF PPS, and the SNF PPS apply annual updates to their rates effective October 1, while the hospital OPPS and Medicare PFS apply annual updates effective January 1. To ensure we appropriately account for the different Medicare payment system updates that go into effect on January 1 and October 1, we finalized a policy to update historical episode payments for Medicare payment system updates and calculate target prices separately for episodes initiated between January 1 and September 30 versus October 1 and December 31 of each performance year. After target prices are updated for these system updates, local wage factors are used to convert standardized prices back to actual prices, and a 3 percent discount is applied to represent Medicare savings.

5

There are four census regions—Northeast, Midwest, South, and West. Each of the four census regions is divided into two or more “census divisions.” Source:

https://www.census.gov/geo/reference/gtc/gtc_census_divreg.html.

Accessed on September 27, 2019.

2. Overview of Changes to Target Price Calculation

Since the CJR model was implemented in 2016, both TKA and THA have been removed from the IPO

list, as discussed in section II.A. of this final rule. In addition, there have been several other Medicare payment policy changes, such as changes to the SNF payment system to move from Resource Utilization Groups (RUGs) to the Patient Driven Payment Model (PDPM). Additionally, as noted in Table 2 in this final rule, national expenditures for LEJR procedures and associated post-acute care services have been decreasing since 2016. While average episode payments declined for both the CJR model and control group episodes during the first 2 performance years of the model, payments declined more for the CJR model episodes. Average episode payments decreased by $997 more for the CJR model episodes than for control group episodes from the baseline to the intervention period (p<0.01). This relative reduction equates to a 3.7 percent decrease in average episode payments for the CJR model episodes from the baseline.

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See pg. 3 of the CJR Second Annual Report available on:

https://innovation.cms.gov/Files/reports/cjr-secondannrpt.pdf

Trend data now shows that the decrease in national expenditures observed by the CJR model evaluation for the CJR participant hospitals and non-CJR participant hospitals for the first 2 years of the model actually began prior to the implementation of the CJR model and has continued consistently post 2016. This improved efficiency can be seen through shorter hospital stays and lower SNF usage. Table 1 shows the summarized Medicare claims data for LEJR per episode spending outside of the CJR model.

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Excluding CJR participant hospitals, national per episode costs for hip and knee replacement procedures calculated using Medicare claims data dropped by about eight percent from 2014 to 2017, largely due to reductions in the utilization of post-acute services. In analyzing Medicare claims data from the CMS Integrated Data Repository (IDR) as of April 2019, we constructed CJR model episode costs for all IPPS providers and looked at average per episode spending by region for 2016, 2017, and 2018. While per episode costs generally decreased for all regions between 2016 and 2018, most regions had a slight increase in episode spending between 2017 and 2018, as shown in Table 2.

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Although the CJR model target price methodology currently includes a DRG/hip fracture specific national trend update factor and twice yearly updates for changes in the Medicare prospective payment systems and fee schedules,

those updates do not capture shifts in spending between the target price and the model performance year and consequently, the current target prices have not accounted for nationwide reductions in LEJR spending from shifting care settings and more efficient care delivery. Therefore, we proposed to change the target price update methodology to use region/MS-DRG/hip fracture specific retrospective trend adjustments to ensure that target prices better capture spending trends and changes. We note that in considering proposed changes to the target price structure for the CJR model, we did consider an option of setting prices at the national, rather than regional level. While we did not elect to model this proposal and instead proposed to continue the regional pricing approach, we sought comment on the appropriateness of moving to national pricing approach in future years of the CJR model with the goal of removing price variation due to differences in regional care delivery patterns.

CJR model target prices are set based on 3 years of baseline data, with the 3-year baseline data updated every other year. When this policy was established we were concerned that we would not have enough claim volume in 1 or 2 years of data to set reasonably accurate hospital-specific prices, especially for smaller hospitals. Our proposed approach to target price calculation differs from the current approach as it involves setting target prices based on 1 year (the most recently available year) of baseline claims data. The baseline claims data used to establish target prices would be updated each year.

We proposed this change because our initial concern of insufficient episode volume stemmed from the fact that we incorporated hospital-specific pricing for the first 3 years of the CJR model. At this point in time, that concern has been mitigated as the baseline data used for target price calculations has moved from a blend of regional and historical baseline data (PYs 1 through 3) to 100 percent regional pricing (PYs 4 and 5). Additionally, since we proposed to include outpatient TKA/THA procedures as well as inpatient admissions for MS-DRG 469 or 470 in the CJR model episode definition (which as of October 1, 2020 has also included MS-DRG 521 and 522), we have determined that the most recently available 1 year of data will in fact be a more appropriate baseline period on which to set target prices as it contains both inpatient and outpatient LEJR claims.

As described in section II.C.6 of this final rule, a trend factor adjustment applied during reconciliation would account for shifts in the trend of national per episode spending. To the extent that the trend, which is the percent difference between 2 years of data, decreases (as illustrated in Table 2 for 2016 relative to 2018), target prices would decrease. However, if the percent difference shows an increase (as illustrated in Table 2 for 2017 relative to 2018), target prices would increase. Using 1 year of data (rather than 3) removes the need for the national trend update factor we previously used to trend forward the older 2 years of historical data to the most recent of the 3 being used to set target prices (80 FR 73342); we therefore proposed to remove the national trend update factor. We also proposed not to update the target prices twice a year for changes to Medicare Prospective Payment Systems and Fee Schedules, as we believe the new reconciliation trend factor adjustment we proposed would capture any payment changes in addition to any spending trend shifts.

Acknowledging the proposed episode definition changes described in section II.A.2 of this final rule, for the purpose of calculating CJR model episode target prices for PY6 through 8 we proposed that Part A and B Medicare claims data for beneficiaries with CJR model episodes (that is, beneficiaries with a claim for an MS-DRG 470, 469, 522 or 521 or a permitted outpatient TKA/THA procedure billed by a CJR participant hospital) would be grouped into one of the following types of CJR model episodes:

• MS-DRG 470 with hip fracture (now MS-DRG 522), which would include outpatient THA episodes with hip fracture.

• MS-DRG 470 without hip fracture (now MS-DRG 470), which would include outpatient TKA episodes and outpatient THA episodes without hip fracture.

• MS-DRG 469 with hip fracture (now MS-DRG 521).

• MS-DRG 469 without hip fracture (now MS-DRG 469).

We note that, due to the addition of MS-DRGs 521 and 522 to the CJR episode definition, we will make the following adjustment to the baseline episodes used to calculate target prices for PY6 only, because that will be the only year when the baseline data (2019) will not include the new MS-DRGs, while the performance year data will include the new MS-DRGs. For PY6 only, since target prices will be based on the original MS-DRGs but apply to performance period episodes with the new MS-DRGs, we will adjust the IPPS payment in baseline episodes with hip fracture, multiplying the baseline IPPS payment by the ratio of the new MS-DRG weights for 521 and 522 in the performance period to the MS-DRG weights for 469 and 470 in the baseline period, which will result in target prices that more accurately reflect the methodology we proposed in the February 2020 proposed rule. Our methodology assumed that the IPPS portion of TKA and THA episodes would differ only by the presence or absence of MCC, regardless of hip fracture status. That is, although we calculated target prices separately for episodes with and without hip fracture due to higher post-acute care costs for episodes with a hip fracture, the IPPS payment for MS-DRG 469 with and without hip fracture was based on a single MS-DRG weight, as was the IPPS payment for MS-DRG 470 with and without hip fracture. The introduction of separate MS-DRGs based on hip fracture status means that IPPS payments for TKA and THA episodes, which would have reflected one of two different MS-DRG weights based on MCC in the baseline, would reflect one of four different MS-DRG weights based on both MCC and hip fracture status in the performance period. For instance, in FY 2019, the weight assigned to MS-DRG 470, which included both hip fracture and non-hip fracture episodes without MCC, was 1.9898 (

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2019-CMS-1694-FR-Table-5.zip

). In FY 2021, the year that MS-DRGs 521 and 522 became effective, the weight assigned to MS-DRG 470, which only included non-hip fracture episodes without MCC, was 1.8999, while the weight assigned to MS-DRG 522, which only included hip fracture episodes without MCC, was 2.1891 (

https://www.cms.gov/files/zip/fy-2021-ipps-fr-table-5.zip

). As we expect that FY 2022 weights for these MS-DRGs will similarly reflect greater resource utilization associated with MS-DRG 522 as compared to MS-DRG 470, using 2019 data without adjusting for the change in the MS-DRG weights could potentially cause us to overestimate the cost of appropriate care for MS-DRG 470 episodes and underestimate the cost of appropriate care for MS-DRG 522 episodes during the performance period. By overestimating or underestimating target prices in this way, we could inadvertently reduce savings for Medicare when the target price was overestimated and incentivize stinting of care when the target price was underestimated. Post-acute spending for

these episodes will be subject to the market trend factor. For PY7 through 8 target prices, both the baseline and performance period will include MS-DRG 521 and 522, so the MS-DRG adjustment will no longer be necessary, and all costs for all episodes will be subject to the market trend factor.

To then calculate target prices for PYs 6 through 8, baseline episodes would be stratified into the applicable nine geographic regions, where regional assignment for a given episode would be based on the region to which the MSA for the hospital maps under the CJR model. This would result in 36 separate episode groups, as there would be one group for each region, and MS-DRG. Within each of the 36 groups, we would then array the episode costs, and, consistent with our proposed new methodology for deriving the high episode spending cap amount, we would cap episode costs at the 99th percentile amount within each region/MS-DRG combination. We note that the proposed methodology of capping high episode spending at the 99th percentile would replace the current high episode spending cap methodology, which sets the cap at 2 standard deviations above the mean regional episode payment. We would then calculate the mean episode cost within each group of capped episodes, resulting in 36 average regional target prices. Starting in PY6, at the beginning of each performance year, these average regional target prices would be posted on the CJR model website.

Finally, we note that we proposed to remove the use of an anchor factor and regional- and hospital-specific anchor weights from the target price calculation that we established in the original November 2015 final rule (80 FR 73273). We originally included this step in the target price calculation to set more stable target prices using a greater volume of CJR model episode data, which was more of a concern when the model began due to the hospital-specific pricing component in PY1 to PY3. During PY1 through PY3, CJR model episodes anchored by MS-DRGs 469 and 470 were pooled together during target price calculations to have a greater historical CJR model episode volume and set more stable target prices, noting that the hospital-specific pooled calculations are later “unpooled.” Specifically, we set the MS-DRG 470 anchored episode target price equal to the target price resulting from the pooled calculations. We then multiplied that MS-DRG 470 target price by the anchor factor to produce the MS-DRG 469 anchored target prices. The calculation of the hospital weights and the hospital-specific pooled historical average episode payments is comparable to how case mix indices are used to generate case mix-adjusted Medicare payments. The hospital weight essentially counts each MS-DRG 469 triggered episode as more than one episode (assuming MS-DRG 469 anchored episodes have higher average payments than MS-DRG 470 anchored episodes) so that the pooled historical average episode payment, and subsequently the target price, is not skewed by the hospital's relative breakdown of MS-DRG 469 versus MS-DRG 470 anchored historical episodes. However, since PY4 and PY5 use only regional episode spending data to calculate target prices, and since we proposed for PYs 6 through 8 to continue to use only regional episode spending data to calculate target prices and to utilize only the most recently available year of episode data for target price calculations, we do not believe volume issues will be a concern and thus we do not believe it is necessary to continue to perform these steps. Therefore, we proposed to no longer use the regional and hospital anchor weighting steps from the original CJR model target price calculation methodology.

At the time the proposed rule was published, CMS did not have the necessary data (for example, outpatient data) to calculate and provide sample target prices reflecting the proposed changes to the target price methodology. However, we are including a sample of these target prices for PY6 in Table 2a in this final rule. While these target prices reflect the target price methodology changes described in this section, they will not be the exact target prices used for PY6. As stated in section II.B.2 of this final rule, we will post official PY6 target prices on the CMS website in June 2021. The target prices described in Table 2a of this final rule are meant to serve as an example; we will update the 2019 baseline data again before calculating the official PY6 target prices to ensure completeness of the 2019 data.

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The preliminary MS-DRG 470 target prices described in this table were calculated using the blended inpatient/outpatient target prices, as described in section II.A.2 of this final rule. We further note that the IPPS payment for

episodes with hip fracture in the baseline initiated by MS-DRGs 469 and 470 with hip fracture in 2019 will be adjusted as described in section II.B.4 of this rule so that they will be comparable to episodes initiated by the new MS-DRGs 521 and 522 during the performance year.

The following is a summary of the comments received and our responses.

Comment:

Commenters in general were supportive of the proposed changes to the target price methodology but noted concern and considerations about certain changes. A commenter stated that for target price calculations, CMS should consider whether the size of the regions need to be modified based on previous years' findings or if there is significant market variability within a single region. A commenter urged CMS to evaluate the impact of the transition to regional only target pricing on safety-net hospitals that do not compete on a regional basis and that might otherwise value the predictability of target prices based on hospital-specific data.

Response:

The CJR model shifted to regional only pricing starting in PY4, and final reconciliation results from PY4 are not complete at this time. However, we continue to believe that this transition to using regional only data for target price calculations will provide valuable information regarding potential pricing strategies for successful episode payment models to reduce variation in LEJR episode payments and reward hospitals for reducing payments below their regional peers. We have no evidence to date suggesting significant variation within a single region that would lead us to consider alternative geographic regions. While safety-net hospitals may value predictability of target prices based on hospital-specific data, we are committed to continuing to test the regional only approach for CJR participant hospitals, including safety-net hospitals, which could strengthen the generalizability of the evaluation results. We also consider that the proposed risk adjustment methodology, which we are adopting with modification as described in section II.C.4 of this rule, will ensure that participant hospitals treating a higher proportion of complex patients are adequately provided upward risk adjustments to their target prices as a result of those costlier patients. Additionally, since all participant hospitals participating in PY6 through PY8 will have already participated in at least one of the performance years PY1 through PY5 of the CJR model, we anticipate these hospitals will be familiar with the CJR model approach to target price calculations based on regional only data and a regression back to hospital-specific data could be confusing.

Comment:

MedPAC suggested CMS move to national target prices, which should be adjusted to reflect local or regional input costs, stating this would incentivize providers in high-cost areas to reduce post-surgical service use and would reward providers in low-cost areas with larger shared savings payments than providers in high-cost areas.

Response:

We understand that moving to target prices calculated from national data may enhance the incentive for some areas to reduce episode costs compared to higher cost areas, but we proposed to maintain regional only pricing to ensure stability for existing CJR model participants that will only have experience with target prices calculated from regional-only data for 2 performance years in the CJR model before PY6 begins. Due to the addition of outpatient procedures to the CJR model episode definition, we also expect that regional data is more appropriate to use for target pricing in PYs 6 through 8 given the potential variation in outpatient utilization nationally, similar to the substantial regional variation in utilization for episodes involving LEJR procedures, as referenced in the November 2015 final rule.

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CMS appreciates MedPAC's suggestions to generate additional savings for the Medicare program by increasing the discount factor or increasing the stop-loss limit. Many of the changes CMS proposed to the CJR model payment methodology for PYs 6 through 8 are intended to be improvements to the original methodology that will increase the probability for model savings. While CMS could design a payment methodology that attributed a much larger portion of savings to the Medicare program, we must also balance the administrative burden and investments needed by participating hospitals to be successful under the model, and thus proposed a methodology—intended to ensure that CJR participant hospitals are still capable of achieving a certain level of savings for themselves in the model.

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Hussey PS, Huckfeldt P, Hirshman S, Mehrotra A. Hospital and regional variation in Medicare payment for inpatient episodes of care [published online April 13, 2015]. JAMA Intern Med. doi:10.1001/jamainternmed.2015.0674.

Comment:

A few commenters requested that CMS ensure that any changes to the CJR model payment methodology in general account for the range of patient complexity and underlying operating costs for sites treating more complex patients in order to avoid unnecessarily penalizing high quality providers caring for complex patients.

Response:

We understand the commenters' requests for a payment methodology that attempts to accurately account for variation in episode costs related to patient complexity. The CJR model initially provided risk adjustment for MS-DRG 470 and MS-DRG 469 patients with the presence of a hip fracture during PYs 1 through 5 in recognition that these patients had higher episode costs compared to non-fracture patients. We also chose that risk adjustment method to protect small and rural participants that may disproportionately have more emergent surgeries, such as hip fractures, in those low-volume settings. The proposed additional risk adjustment variables, as described in section II.C.4. of this final rule, were proposed with these same goals in mind and are meant to further increase the accuracy of target price risk adjustments for PYs 6 through 8. We also recognize that without risk adjustment the addition of outpatient TKA/THA to the CJR model episode definition, as described in section II.A.2 of this final rule, could create pressure for clinicians to recommend the lower cost outpatient setting to minimize total episode costs. The objective of the risk adjustment methodology for PYs 6 through 8 is to incentivize clinicians to continue performing LEJR procedures in the most appropriate clinical setting based on their assessment of each patients' complexity, and we appreciate that this aligns with commenters' requests for a methodology that accounts for the range of patient complexity and costs associated with treating more complex patients.

Comment:

A commenter noted that in comparison to the concept of bundles in the commercial insurance market, the payment methodology in the CJR model does not include consideration of such costs and market indicators like innovation, inflation, and an increasingly expensive labor market given the lowering of unemployment. The commenter asserted that under this payment methodology, there will be a point where there will only be losses in offering THA/TKA procedures to Medicare patients leading to loss of access to these procedures.

Response:

CMS notes the CJR model was specifically designed for implementation in the Medicare program, where hospitals and beneficiaries are faced with different considerations and choices in the commercial insurance market, such as payment rates and beneficiary benefits. The retrospective market trend factor

and risk adjustment components of the proposed payment methodology are intended to produce accurate target prices that reflect the average regional costs. While the market trend factor may have the effect of decreasing target prices as a result of lower performance period average costs compared to baseline costs, as we note in section II.C.6. of this final rule, the market trend factor could also have the effect of increasing target prices to reflect higher performance period average costs, including market conditions such as inflation and labor costs. We do not believe the target price methodology will have the effect of decreasing access to THA and TKA procedures given the proposed market trend factor and 1 calendar year of baseline data that should appropriately align performance period spending with baseline spending.

Comment:

A few commenters stated that CMS provided insufficient data and did not fully describe the proposed target price methods and results of the simulated comparisons to allow independent analyses by stakeholders. In particular, a commenter requested that CMS make available all of the relevant data, along with a complete description of the analytic methodologies used in constructing the four target pricing episode categories, as well as sample site-neutral target prices for the nine census regions, and that the comment period be extended 60 days from the day on which the data and methodology details are provided.

Response:

We recognize the commenters' interest in obtaining the data CMS used to develop the changes to the CJR model target price methodology and creating simulated comparisons of that methodology. In the February 2020 proposed rule, we provided information and data regarding our target price methodology decision making, such as our decision to adopt a blended target price for outpatient procedures given the clinical rationale to combine those episode types (that is, outpatient and inpatient episodes). In particular, we recognize the risk adjustment methodology, described in section II.C.4 of this final rule, represents a significant change in how target prices will be calculated and how episodes will be reconciled in PYs 6 through 8. We described our rationale for choosing the risk adjustment variables we are adopting in this final rule, including the analytic methodologies to calculate the risk adjustment coefficients and the exact dates of claims data used to perform the analysis. We also included a discussion in that section about our consideration for alternative analytic methodologies and our decision to employ logarithmic transformation in the exponential model used to calculate risk adjustment coefficients. Additionally, we are adding detail in that section of this final rule regarding the decision to calculate risk adjustment coefficients nationally rather than regionally. Our approach is similar, both in terms of rationale and level of detail of the analytic methods and considerations, to what we provided in November 2015 rule (80 FR 73273), and for this reason, we believe that the information we provided in the proposed rule was sufficient.

However, since some components of the target price methodology for PYs 6 to 8 are identical to the methodology used for PYs 1 to 5 and are described in depth in the final rule establishing the CJR model (80 FR 73273), such as the length of an episode or use of regional only data (recognizing use of regional data began in PY4), so we did not repeat those components in detail in the proposed rule. While CMS recognizes there is a degree of uncertainty regarding the effect of the retrospective market trend factor or other components of the target price methodology, we believe the data and information we provided in the proposed rule and this final rule are sufficient to inform stakeholders of the changes we are adopting in this final rule. Similar to the original CJR model, we intend to conduct webinars detailing the payment methodology, in addition to making available other learning on the CMS website. As stated in section II.B.2. of this final rule, we will also post applicable (site-neutral) regional target prices for each of the four episode types, as well as the risk adjustment coefficients on the CMS website prior to the start of each performance year. In this final rule, we include sample site-neutral PY6 target prices, which can be found in Table 2a of section II.B.2 of this final rule. We also posted updated PY6 risk adjustment coefficients, including the addition of the dual-eligible status risk variable, in Table 3a and Table 4a in section II.C.4 of this final rule. Since the 2019 claims data used to calculate these sample target prices and risk adjustment coefficients were unavailable at the time the proposed rule was published, we were unable to include that information in the proposed rule. We anticipate posting final PY6 site-neutral target prices and final PY6 risk adjustment coefficients on the CMS website in June 2021.

Comment:

A commenter requested that CMS provide target price estimates calculated from Medicare claims data for bundles that include the status quo (current model), the proposed episode targets, and the targets if inpatient and outpatient episodes were priced separately.

Response:

For a sample of the site-neutral PY6 target prices calculated using the proposed changes to the target prices methodology, we direct the reader to Table 2a in this final rule. As stated in section II.B.2 and section II.C.4 of this final rule, we will also post applicable (site-neutral) regional target prices for each of the four episode types as well as the risk adjustment coefficients on the CMS website prior to the start of each performance year. We anticipate posting PY6 site-neutral target prices and PY6 risk adjustment coefficients on the CMS website in June 2021. For an analysis of the proposed payment methodology, including the effect of excluding outpatient episodes from the episode definition, we direct readers to Table 6a and the related discussion in section IV.C. of this final rule.

Comment:

A commenter requested that CMS provide clear and specific guidance on the impacts of payment adjustment changes and overlap across initiatives for organizations that participate in multiple value-based care models or programs, like the CJR model, BPCI Advanced, the Medicare Shared Savings Program (Shared Savings Program), and others.

Response:

The CJR model overlap policies that applied during PYs 1 through 4 and each subset of PY5 will be applied when possible for PYs 6 through 8. However, we have determined that certain overlap policies that we proposed to apply to PYs 6 through 8 will not be feasible due to having only one reconciliation at six months after the end of the performance year, and we will no longer have a second reconciliation at 14 months after the end of the performance year. Therefore, although we are finalizing the changes to § 510.305(j)(1) that we adopted in the November 2020 IFC, which apply the provisions of that section to the subsets of PY5, we are not finalizing the changes to § 510.305(j)(1) that we proposed in the February 2020 proposed rule, which would have applied to PYs 6 through 8 our current policy of adjusting for shared savings payments when a CJR participant hospital is also a participant or provider/supplier in certain Accountable Care Organization (ACO) models or programs to which a CJR beneficiary is aligned. Those adjustments will no longer be feasible for PYs 6 through 8 because, as a result of the shorter time period between the end of the performance period and the

reconciliation calculation, we will not have access to the reconciliation data from ACO initiatives that would be necessary to allow us to perform the those adjustments.

Although not all of our proposed policies related to overlap can be maintained in PYs 6 through 8, we are maintaining the policy described at § 510.200(d)(4)(iii), which excludes certain per beneficiary per month (PBPM) payments under models tested under section 1115A of the Act. We are finalizing our proposal at § 510.200(d)(4) to extend this exclusion to episodes triggered by an anchor procedure, in addition to those triggered by an anchor hospitalization for PYs 6 through 8. In this final rule, we are also revising the list of ACO models or programs for which a prospectively aligned beneficiary is excluded from initiating a CJR episode in order to continue applying the policy specified at § 510.205(a)(6) in PYs 6 through 8. Specifically, we are replacing the reference to a Shared Savings Program ACO in Track 3 in § 510.205(a)(6)(iii) with a reference to a Shared Savings Program ACO in the ENHANCED track. Although we did not propose this change, we believe it is appropriate to include it in this final rule as a conforming change because the ENHANCED track of the Shared Savings Program is the successor of Track 3, as noted in § 425.600(a)(3), and our intention is to maintain this overlap exclusion policy.

Additionally, we are clarifying in this final rule that the overlap policies described at § 510.305(i)(1), which account for episode cancelations due to overlap between the CJR model and other CMS models and programs or for other reasons as specified in § 510.210(b), will occur at the single reconciliation during PYs 6 through 8. As described in the November 2015 final rule establishing the CJR model, we reserved these policies for the subsequent reconciliation (which takes place 14 months after the end of the performance year) to provide additional time beyond the initial reconciliation (which takes place 2 months after the end of the performance year) for claims run-out after an episode ended and to gather data about beneficiary alignment with other CMS models and programs. While we do not expect to have access to ACO reconciliation data that would allow us to perform the overlap adjustment described at § 510.305(j)(1) during PYs 6 through 8, as described previously, we do expect that ACO beneficiary alignment data will be available at the single reconciliation for PYs 6 through 8 (which will take place 6 months after the end of the PY) in order to identify episodes that are canceled in accordance with § 510.210(b). In this final rule, we are adding regulation text at § 510.305(m)(1)(v) to describe how this policy will be applied during PYs 6 through 8.

Lastly, regarding BPCI Advanced, we note the BPCI Advanced Participation Agreement (available at:

https://innovation.cms.gov/files/x/bpciadvanced-my3-am-restated-participation-agmt.pdf

) states “In the event that a Participant or, if applicable, a Downstream Episode Initiator is also participating in an Innovation Center model implemented via regulation (for example, the Comprehensive Care for Joint Replacement (CJR) model), the Participant will not be held accountable for any Clinical Episodes included in that model for purposes of BPCI Advanced. Furthermore, in the event the Participant is located in one or more Metropolitan Statistical Areas included in an Innovation Center model implemented via regulation (for example, the CJR Model), CMS will exclude from the BPCI Advanced Reconciliation calculation all clinical episodes included in that model.”

Final Decision:

After consideration of public comments we received, we are finalizing overlaps policies with some modifications. We are not finalizing the overlaps policy described in our proposed amendments to § 510.305(j)(1) because this proposal sought to continue into PYs 6 through 8 a particular overlaps adjustment calculation that is conducted during the subsequent reconciliation for which we will not have the required data available at the time of the single reconciliation for PYs 6 through 8. We are finalizing our proposal at § 510.200(d)(4) that applies the exclusion specified in § 510.200(d)(4)(iii) to episodes triggered by an anchor procedure, and we are making a conforming change to the regulation text at § 510.205(a)(6)(iii) to continue applying that overlap exclusion policy to the successor to Track 3 of the Shared Savings Program, which is the ENHANCED track. Finally, we are adding regulation text at § 510.305(m)(1)(v) to clarify how the overlaps policies described in § 510.305(i)(1) will be applied during the single reconciliation in PYs 6 through 8.

3. Change to One Year of Baseline Data

The CJR model currently uses 3 years of baseline data to calculate initial target prices, with the 3-year baseline data updated every other year. As we stated when we finalized this policy, we chose 3 years because we wanted to ensure that we would have sufficient historical episode volume to reliably calculate target prices (80 FR 73340). We stated that our purpose for updating the baseline every other year was to achieve a balance between using the most recently available data to reflect changes in utilization and minimizing uncertainty in pricing for participant hospitals.

When we chose to use 3 years of historical data we were specifically concerned that some hospitals might not have a sufficient volume of episodes to create a reliable target price, particularly for the less frequent MS-DRG 469 episodes, because target prices in PYs 1 through 3 incorporated hospital-specific data into target prices. Hospital-specific data was incorporated into target prices to more heavily weight a hospital's historical episode data in the first 2 years of the model (two-thirds hospital-specific, one-third regional) and provide a reasonable incentive for both historically efficient and less efficient hospitals to deliver high quality and efficient care in the early stages of model implementation. Therefore, it was important in the first 3 performance years to have 3 years of historical data to ensure that individual hospitals had an adequate volume of historical episode data upon which to base target prices. However, target prices beginning with PY4 are based entirely on aggregated regional episode spending data, rather than a blend of both regional- and hospital-specific data. Our concerns relating to an adequate volume of historical episode data are therefore mitigated. We also note that we proposed additional tools meant to ensure accuracy of target pricing, specifically, the trend factor discussed in section II.C.6. of this final rule and risk adjustment discussed in section II.C.4 of this final rule, which further mitigates our concerns regarding target pricing uncertainty. Therefore, we believe that for the proposed CJR model extension, 1 year of data will be sufficient to calculate target prices for all participant hospitals.

Furthermore, given the removal of TKA from the IPO list, along with the national shift in LEJR spending, we have determined that the most recently available 1 year of data will in fact be a more appropriate baseline period on which to set target prices. Specifically, the removal of TKA from the IPO list, which has led us to propose to allow outpatient TKA procedures to trigger CJR model episodes (see section II.A of this final rule), only became effective in CY 2018. As a result, CY 2018 is the earliest year for which we will have

available data that includes both inpatient and outpatient TKAs, which will be needed to calculate a target price for a blended inpatient/outpatient TKA episode within the category of MS-DRG 470.

Therefore, for PYs 6 through 8, we proposed to use the most recently available 1 year of data prior to the start of the performance year to calculate target prices rather than the 3 years of data currently used. Under the current methodology, target prices for PYs 1 and 2 were calculated with baseline data from 2012 to 2014, PYs 3 and 4 were calculated with baseline data from 2014 to 2016, and PY5 is calculated with baseline data from 2016 to 2018. We proposed to base PY6 target prices on episode baseline data from 2019, PY7 target prices on episode baseline data from 2020, and PY8 target prices on episode baseline data from 2021. We proposed that by using only 2019 data for PY6 target prices, we would be able to capture spending patterns associated with the movement of TKA into the outpatient setting, as well as other practice trends during that year. Therefore, we stated our belief that using only the most recently available 1 calendar year of baseline data and updating that 1 year of baseline data annually will provide the best available picture of spending patterns we would expect to see during the performance period, which will allow us to calculate more accurate target prices. We sought comment on this proposal.

The following is a summary of the comments received and our responses.

Comment:

Some commenters were in support of the proposed change to use 1 year of baseline data, with a few commenters stating that 1 calendar year of baseline data is sufficient in supporting the 100 percent regional pricing methodology as the volume of episodes is large enough to provide stability with pricing from a single year's worth of data. A commenter noted that 1 year of baseline data will more effectively capture Medicare payment policy changes over the last year, ensuring that the target price methodology is not an unintentional disincentive for the system of care due to not capturing appropriate costs. A commenter supported the use of 1 year of baseline data, but without the addition of outpatient TKA and THA procedures.

Response:

CMS agrees with commenters that regional episode volume enables CJR model target prices to be calculated based on 1 calendar year of baseline data and that using the most recently available calendar year of data will more effectively capture Medicare payment policy changes compared to the PY1 through PY5 method that utilized 3 years of baseline data. As noted in section II.A.2 of this final rule, we are adopting the inclusion of outpatient TKA and THA procedures in the CJR model episode definition for the 3-year extension to test the model in a broader population of beneficiaries than just those in the inpatient setting. Additionally, as noted in that same section of this final rule, given stakeholders' interest in opportunities to treat LEJR patients in the outpatient setting as part of a bundled payment model, we continue to believe this is important to the model test.

Comment:

Many commenters expressed concern that due to the COVID-19 PHE, baseline data from 2020 and 2021 will be inappropriate to utilize for PY7 and PY8 target price calculations without adjustment to the proposed payment methodology. In particular, a few commenters expressed concern with using only 1 year of data and noted that if some areas in a region experience a surge in COVID-19 cases while other areas do not, the regional pricing model CMS is proposing would be a less valid way to adjust target pricing. A commenter noted that CMS should use 2019 as the baseline year for PY6 hold it constant for PYs 7 and 8, updated annually based on a trend factor that CMS would develop that holds providers harmless for the 2020 performance year due to the increased expenditures associated with COVID-19. A commenter noted that CMS should work with stakeholders as it develops a method for using 2020 as a base year for target price calculation in the future. Another commenter noted that moving to a 1 year baseline period would allow for a better comparison between baseline periods in which no THA procedures were performed on an outpatient basis to performance periods in which THA was removed from the IPO list; however, this commenter also noted that CMS should postpone implementing a 1 year baseline period given the COVID-19 pandemic.

Response:

CMS recognizes the concern expressed by commenters of using 2020 and 2021 baseline data for calculating target prices for PYs 7 and 8 and the potential effect of the COVID-19 PHE on that data. However, we continue to believe that using the most recently available 1 calendar year of baseline data (with the modification discussed later in this section) will more accurately capture recent trends in the LEJR market than the previous use of 3 years of data, specifically regarding the migration to outpatient procedures than using 3 years of data, given the pace of changes in practice trends. If the migration to the outpatient setting for these procedures is accelerated during PY6 as a result of the COVID-19 PHE and other changes to the LEJR market, we believe the use of 1 year of baseline data is important to more timely reflect changes in episode spending patterns and the case mix of patients receiving a procedure in the outpatient or inpatient setting. Specifically, if we relied on the original CJR model methodology of using 3 years of baseline data to calculate target prices for PY6, we would use data from 2016-2018. Using the averages over 3 years of claims data to calculate target prices instead of using 1 year (that is, calendar year 2019 claims data for PY6) could create inaccurate target prices for outpatient episodes since the data would only contain 1 year of TKA outpatient data (that is, 2018), and it would not sufficiently capture the effect of the quickly evolving trends in the LEJR space noted in section II.A.2 of this final rule. The goal of the changes and extension of the CJR model adopted in this final rule are meant to inform the design of a future LEJR model that could be certified and expanded nationally, and we continue to believe using 1 calendar year of baseline data is critical and appropriate for that future model.

We also understand and agree with commenters that baseline data from 2020 will likely not be as reflective of true market conditions as if the COVID-19 PHE had not occurred, and agree with commenters that modifications must be made to avoid using baseline data from 2020. As described in section II.D.1. of this final rule, we are finalizing the start and end dates for PYs 6 through 8 as follows: PY6 will be October 1, 2021 to December 31, 2022; PY7 will be January 1, 2023 to December 31, 2023; and PY8 will be January 1, 2024 to December 31, 2024. Given the new start and ends dates of PYs 6 through 8, our model timeline is essentially shifting forward 12 months, such that PY7 will now begin with episodes ending on or after January 1, 2023. Given the timeline shift, we will now have access to 2021 calendar year claims data prior to the start of PY7. Using 2021 claims data to calculate target prices for the new PY7 timeline aligns with our intention to use the most recently available calendar year of baseline data, described in section II.B.3 of this final rule, and allows for the omission of 2020 calendar year claims data. Therefore, to accommodate commenters' suggestions of avoiding the utilization of 2020 claims data for target price calculation and to incorporate the

revised time frames for PYs 6 through 8, we are adopting the proposed methodology for PY6 but modifying the proposed methodology in § 510.300(b)(1)(v) so the date range of claims data used to calculate target prices for PY7 is January 1, 2021 to December 31, 2021. We are also modifying § 510.300(b)(1)(vi), which specifies the date range of claims data used to calculate target prices for PY8 to be January 1, 2022 to December 31, 2022 to accommodate the shift in PY7. We agree with commenters that 2020 data could be especially difficult to use for PY7 target price calculations. While 2021 data could also have similar distortions, we anticipate the corrective mechanisms of PYs 6 through 8 payment methodology, in particular the market trend factors, will reduce this distortion. For example, the market trend factors will reduce the potential variation caused by the COVID-19 PHE in average episode costs calculated from calendar year 2021 data compared to PY7 average episode costs. Since the market trend factors are calculated at the regional- and episode type-level, we anticipate they will accurately account for the potentially distorting effect of the COVID-19 PHE. As 2020 claims data are finalized, and 2021 data become available, we will monitor the potentially distorting effects of the COVID-19 PHE on that data and determine if any adjustment is needed regarding use of the 2021 data for PY7 target prices calculations.

Similarly, we are also finalizing corresponding changes to the timing of the data used to calculate the risk adjustment factors, described further in section II.C.4 of this final rule.

Comment:

Many commenters stated that 1 calendar year of baseline data would result in target prices that would be too variable, unpredictable, or susceptible to unexpected disruptions in the market compared to the 3 years of baseline data used previously. In particular, some of these commenters noted that more than 1 year of baseline data is necessary given the shift of TKA procedures to the outpatient setting in 2019, and because 2020 will be the first year of related Recovery Audit Contractor (RAC) audits and the first year THA procedures are payable in the outpatient setting. A commenter also noted that using 3 years of baseline data at the regional level creates additional stability in pricing due to the number of procedures included in the regional average compared to using a single year.

Response:

CMS continues to believe the most recently available 1 calendar year of baseline data is sufficient and in fact preferred given the shift of TKA and THA procedures to the outpatient setting and other changes in the LEJR market environment, as described in section II.A.2 of this final rule. As noted previously, the timeline shift for PY7 in this final rule enables CMS to utilize 2021 calendar year claims data for PY7 target price calculations, which we anticipate will more accurately capture recent trends, such as the shift of TKA procedures to the outpatient setting, than 2020 calendar year claims data. Regarding the potential for using data from the first year of RAC audits of TKA procedures, we note that these reviews began in calendar year 2020 and, as described in section II.B.3 of this final rule, we will calculate PY6 target prices using calendar year 2019 data and PY7 target prices using calendar year 2021 data, which will omit the first year of related RAC audits (that is, calendar year 2020) for which the commenter expressed concern of use for PY7 target price calculations. We anticipate that using only the most recent year of regional data, as well as incorporating the market trend factor discussed in section II.C.6 of this final rule, target prices will be more reflective of current spending patterns than using 3 years of data. We note that although the previous CJR model method of calculating target prices utilized 3 years of baseline data, the data was trended forward by a national growth factor and would still be susceptible, albeit to a lesser degree than simply 1 year of baseline data, to unexpected disruptions in the market. We recognized this potential susceptibility and proposed the market trend factor to mitigate its potential effects. While the retrospective nature of the market trend factor will change initial target prices at the subsequent reconciliation for each performance year, we note the risk adjustment coefficients posted on the CMS website prior to the start of each performance year will be the same coefficients applied at reconciliation each year. This is meant to increase the financial predictability for participants by holding constant the coefficients that are posted on the CMS website and used for reconciliation each performance year. Lastly, since target prices in PYs 6 through 8 will not be calculated with hospital specific data, we continue to believe there is little risk that a policy of using the most recent calendar year of data would result in insufficient volume of data related to certain episode types. We understand this risk from insufficient volume is greater as a result of the effect of the COVID-19 PHE on the 2020 data and are finalizing, as described in section II.B.3. and section II.C.4. of this final rule, the policy that 2020 claims data will not be used for target price or risk adjustment coefficient calculations, respectively. As noted previously, we also believe that using the most recent calendar year of baseline data for PY6 (that is, 2019 baseline data) will generate more accurate prices for the inclusion of outpatient procedures than the previous methodology that would have used baseline data from 2016 to 2018.

Comment:

Commenters noted that the CJR model's previous use of 3 years of baseline data ensured that participant hospitals, in particular high performing hospitals, would not be penalized for their own improvements in cost.

Response:

We understand the concern that if the CJR model target prices were calculated with 1 year of hospital-specific baseline data alone it could be interpreted that a hospital's own improvements would inhibit their ability to achieve savings in later years of the model. However, the policy we are adopting in this final rule to use 1 year of regional only baseline data for target prices proposed for PYs 6 through 8 will consider a participant hospital's performance relative to its regional peers (instead of the hospital's own historical performance) and will incentivize participants who are already delivering high quality and efficient care while still incentivizing historically less efficient providers to improve compared to their regional peers. Additionally, as we note in section II.C.4. of this final rule, the application of coefficients from the risk adjustment methodology is intended to also have the effect of rewarding hospitals that are able to provide care to certain beneficiaries (that is, those that trigger the application of the risk adjustment coefficients, such as patients with a CJR HCC count of three) at a lower cost compared to their peers.

Comment:

Another commenter stated concern that 2018-2020 national unadjusted CMS payment rates for TKA show a significant increase in the outpatient procedure payment and that this increase was overlooked by CMS.

Response:

We appreciate the suggestion by the commenter to consider the recent increase in payment rates for TKA procedures. As described in section II.B.3. of this final rule regarding the use of 1 year of baseline data, and in section II.C.6. of this final rule regarding the market trend factor, we anticipate both of those factors will ensure that annual variations in average episode costs are accurately adjusted in the updated CJR model payment methodology.

Comment:

A commenter recommended that CMS use 2019 data for baseline purposes to avoid continuous annual rebasing, other than to account for site of service shifts.

Response:

We proposed shifting the baseline data forward for each PY to ensure the target price methodology would effectively capture trends in the LEJR market. These trends include changes in payment systems and utilization of certain services, which would not be accounted for if we used the same year of baseline data for all 3 years of the extension and only included an adjustment for site of service shifts. In particular, 2019 baseline data will not reflect the migration to the outpatient setting for THA procedures that has occurred in 2020. We do believe that 2019 data will be an adequate baseline for calculating PY6 target prices in spite of the lack of outpatient THA data, given the similarity of average episode costs between outpatient TKA and outpatient THA episodes. We believe that it is preferable for PYs 7 and 8 target prices to be based on data that includes outpatient THA episodes, and we plan to use 2021 and 2022 data, since that data will be newly available. As noted previously, we continue to believe using the most recent year of baseline data, as opposed to an adjustment we would develop each year, will more accurately capture spending trends related to site of service shifts or other market changes and is more transparent.

Comment:

A few commenters recommended CMS exclude beneficiaries from the baseline that were part of other APMs, such as the CJR model, BPCI Advanced, and Medicare ACOs.

Response:

The proliferation of APMs nationally represents a positive evolution in CMS' efforts to support better and more efficient care for beneficiaries. However, it also creates difficulties in discerning the effects of one APM vs. another. While the CJR model has certain overlap and beneficiary exclusion policies to ensure appropriate episode attribution during a performance year and at reconciliation, as noted in § 510.305(i) for PYs 1 through 5 and in section II.B.2 of this final rule for PYs 6 through 8, we do not exclude these beneficiaries from baseline spending because, given the increasing reach and effect of APMs, it would be less reflective of actual average costs if the costs from those beneficiaries were excluded from the CJR model target price baseline data.

Final Decision:

After consideration of the public comments we received, we are finalizing as proposed that PY6 target prices will be based on episode baseline data from 2019. We are finalizing our proposal with modification to the baseline years used for PYs 7 and 8 target prices. Specifically, PY7 target prices will be based on episode baseline data from 2021, and PY8 target prices will be based on episode baseline data from 2022. These policies are finalized at 42 CFR 510.300(b)(1)(iv) through (vi).

4. Removal of Anchor Factor and Weights and Removal of the Prospective Payment System Target Pricing Updates

Since the CJR model target prices during PYs 1 through 3 were calculated using a blend of historical and regional episode costs, the primary intent of using anchor weights in the target price calculation was to increase the volume of data for statistical predictability purposes, particularly for MS-DRG 469 episodes, and to limit the degree to which a certain participant hospital's ratio of MS-DRG 469 episodes to 470 episodes would skew the pooled historical average episode payment, and subsequently the target price. We aimed to incentivize participant hospitals based on their hospital-specific inpatient and post-acute care (PAC) delivery practices for LEJR episodes. However, to incentivize both historically efficient and less efficient hospitals to furnish high quality, efficient care in all years of the model, we transitioned from primarily hospital-specific to completely regional pricing over the course of the 5 performance years (80 FR 73337).

Since we proposed for PY6 through 8 to use regional episode spending data only (no hospital-specific data) to calculate target prices, we no longer have the concern that a lack of volume of data for certain participant hospitals may limit the predictability of the target price calculation, as we did when hospital-specific data were incorporated into the target price calculation. Additionally, we no longer have the concern that a participant hospital's ratio of MS-DRG 469 to 470 episodes would skew the pooled historical average episode payment, because for PY4 and 5 we removed hospital-specific ratios of MS-DRG 469 to 470 episodes from the target price calculation. We proposed to continue this in PY6 through 8. Given that we no longer have these concerns, we also proposed to stop using the national anchor factor calculation and the subsequent regional and hospital weighting steps in the CJR model target price calculation method for PY6 through 8. Additionally, we proposed not to continue the annual updates to the target prices that account for changes in the Medicare prospective payment systems and fee schedule rates. Since we proposed (as discussed in section II.C.6. of this final rule) to add a market trend adjustment to the target prices at the time of reconciliation, which will adjust for the 2-year percent change in prices at the regional/MS-DRG level, we do not believe that the at least twice annual updates to the target prices continue to be necessary. To the extent that changes to these Medicare prospective payment systems and fee schedule rates influence episode costs, the percent difference in episode costs would account for that influence and therefore the annual updates would no longer be necessary. We sought comment on this proposal.

The following is a summary of the comments received and our responses.

Comment:

A few commenters commented on the proposal to remove the anchor factor and weights and updates to the target prices as a result of prospective payment system changes, with most comments concerning the effect of other aspects of the proposed target price methodology, such as the market trend factor. Commenters stated that the existing update methodology appropriately accounts for target price changes using OPPS and IPPS updates and the CMS discount is sufficient for CMS to receive guaranteed savings. A few commenters recommended that the CJR model adopt BPCI Advanced's methodology to adjust prospective target prices for SNF and other payment system updates.

Response:

As noted in the discussion before Table 6a in section IV.C. of this final rule, we proposed to remove the anchor factors and weights and updates to CJR model target prices as a result of prospective payment system changes from the CJR model payment methodology for the 3 years of the extension because they do not always account for all payment system changes. Instead of prescribing exactly how the CJR model might adjust baseline data for certain payment system changes, similar to the original CJR model and BPCI Advanced methodologies, we proposed to instead rely on the market trend factor to ensure consistency with performance year and baseline costs. We anticipate this method will be simpler than the anchor factors and weights and less burdensome to monitor than the twice annual updates testing in the CJR model PYs 1 through 5. We maintain that the proposed market trend factor will adequately account for these factors, weights, and updates.

Final Decision:

After consideration of the comments we received, we are finalizing our proposal to remove the

anchor factor and weights and updates to the target prices as a result of prospective payment system changes.

5. Changes to Methodology for Determining the High Episode Spending Cap Amount in Initial Target Price Calculation

The high episode spending cap policy was designed to prevent participant hospitals from being held responsible for catastrophic episode spending amounts that they could not reasonably have been expected to prevent, by capping the costs for those episodes. At the time the CJR model was implemented, we proposed and finalized a policy to set this high cost episode cap at 2 standard deviations above the regional mean episode price, both for calculating the target price and for comparing actual episode payments during the performance year to the target prices. When comparing actual episode payments during the performance year to the target prices at reconciliation, episode costs exceeding the 2 standard deviation high episode spending cap are not included as actual episode payments in the calculation. For example, if the high episode cap was set at $30,000, an episode that had an actual episode cost of $45,000 would have its costs, for purposes of the model, reduced by $15,000 when the cap was applied and therefore, the cost for that episode would be held at $30,000. Consequently, assuming the target price applicable to the episode was $25,000, the provider would be responsible for repaying a specific percentage portion of a $5,000 difference rather than for repaying a specific percentage portion of a $20,000 difference (where difference is assessed by the cost, or capped cost, for the actual episode compared to the target price). When we established this policy, we assumed that the episode costs in the CJR model would be normally distributed (80 FR 73335). With a normal distribution of costs, 95 percent of episodes would have costs that are within 2 standard deviations of the mean cost. Under this assumption, episodes with costs exceeding 2 standard deviations from the mean, would qualify as statistical outliers for high episode spending and we therefore set our high episode spending cap at 2 standard deviations above the regional mean episode price.

However, in reviewing data from our CJR model experience thus far, we have observed three challenges that have limited the ability of our current 2 standard

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