April 1996 Bulletin

HCFA extends demonstration project

Seek participants for hip, knee replacement program

The Health Care Financing Administration (HCFA) is soliciting applications for its planned demonstration project to bundle Medicare Part A and Part B payments for hip and knee replacement procedures. Requests for Proposals (RFPs) are being sent to the chief executive officer of every hospital in selected regions or cities that perform hip or knee replacements.

The selected hospitals are in Arizona, California, Hawaii, Illinois, Indiana, Michigan, Minnesota, Nevada, Ohio, and Wisconsin. Preapplications are due back to HCFA by May 10. For more information, contact HCFA's office of research and demonstrations (410) 786-7800.

In the demonstration project, HCFA and participating hospitals negotiate a package price which combines physician and hospital payments for a single episode of care into a single payment to the hospital. The hospital then distributes the payment to all of the providers involved in the provision of care, under an arrangement managed by the hospital. The global price must be lower than the total payment Medicare would otherwise make for that procedure.

HCFA has decided to extend the demonstration to elective total hip and knee replacement procedures (both primary and revision) because of the success of a similar project involving coronary artery bypass graft (CABG) procedures.

Based on CABG

In a meeting with the Academy's Committee on Health Care Financing, a HCFA official who served as the CABG project officer discussed the preliminary results of the CABG project and explained the solicitation, application, and review process for the hip and knee replacement project.

A total Medicare savings of 12 percent was realized over the three years of the CBAGproject. Researchers were surprised, however, that the volume of CABG cases at the participating sites did not increase as dramatically as they had expected.

Target areas

HCFA officials have decided against a nationwide solicitation of hospitals to participate in the hip and knee replacement demonstration project, due to concerns that the agency would be overwhelmed by the number of applications. Almost 4,000 hospitals in the United States perform hip or knee replacement procedures. Instead, HCFA researchers have conducted a geographical analysis of the country to determine where the RFP process will be targeted. HCFA officials want to conduct the study in those areas where a high number of procedures are performed, and that include both high volume and low volume hospitals. The regions or cities that are selected for the application process will not be announced until the process actually begins.

Hospitals receiving an RFP will have six to eight weeks to fill out a preliminary application. The application will likely cover areas such as total volume of procedures, length of stay, mortality and complication rates, use of consults, and average charges. HCFA will especially look for hospitals that perform a high volume of cases (perhaps 100 hips and 100 knees per year).

The preapplications will be reviewed by an expert panel (with physician representation), which will select hospitals to receive a full application. The final applications will be reviewed by another panel, perhaps as early as late summer 1996. HCFA officials have emphasized that the quality of the applications will be a more important factor than the amount of discount offered by the hospitals.

Final recommendations will be reviewed and approved by the HCFA administrator, Bruce Vladek, PhD. HCFA officials will then meet with hospital representatives to negotiate the global payment. The number of sites selected to participate in the project will depend on the number of applications received, the final recommendations of the expert panels, and the negotiation of the global payment with the hospitals. Implementation of the demonstration project will likely begin in early 1997. The project is planned to last three years, but may be extended to no more than five years.

There is continuing controversy over the use of the term "centers of excellence" in regards to the demonstration projects. Politicians, participating hospitals, and the HCFA administrator have used the term when referring to these projects. HCFA researchers have repeatedly stated that these demonstrations do not fit the definition of "centers of excellence" and that participating hospitals are not necessarily better providers of care. At this time, HCFA has no plans to expand the CABG project to involve exclusive contracting for these procedures. However, the Academy remains concerned about the use of the term and will continue to communicate with HCFA officials and other policy makers on this issue. The Academy will also continue to monitor the implementation of the demonstration project.


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