October 1996 Bulletin

Medicare Joint Replacement Demonstration Project

In an effort to reduce costs, the Health Care Financing Administration (HCFA) initiated in 1990 a demonstration project to test a new payment method-a negotiated package price combining Part A and Part B payments into a single payment to a hospital for each episode of care. The hospital, in turn, distributes payments to all providers involved in the care, under a financial arrangement managed by the hospital.

HCFA initially conducted demonstration projects for coronary artery bypass graft (CABG) procedures and cataract surgery. It has now expanded the demonstration to additional cardiovascular procedures and hip and knee replacement procedures.

Hospitals involved in the project will be required to accept a global payment which is lower than HCFA would otherwise pay under the standard Medicare payment system. These hospitals will also be required to meet other criteria related to the volume of procedures performed, utilization review and quality assurance.

The American Academy of Orthopaedic Surgeons has concerns about several aspects of the HCFA demonstration project for total joint replacements. These include restrictions on choice and access for Medicare beneficiaries, the limited potential for cost savings, the type of payment arrangement being used and the marketing abuse of the term "Participating Centers of Excellence."

The Academy is deeply concerned about the effects that this demonstration project can have on access and choice for Medicare patients. Despite HCFA's denials, the Academy believes that the agency's goal in conducting this project is to lay the groundwork for contracting exclusively with certain facilities to provide joint replacement procedures for Medicare patients, with reduced payment as the basic criterion for selection.

Exclusive contracting is a serious concern because Board eligible and certified orthopaedic surgeons, by virtue of their training, are competent to perform joint replacement procedures. Moreover, they do so in a variety of community and academic medical centers, which also are well qualified and equipped for these procedures. However, many, if not most, of these orthopaedic surgeons and these facilities would be prevented from providing these procedures to Medicare patients if HCFA adopts exclusive contracting. Patient choice and access to care would then be severely restricted, causing significant patient inconvenience (e.g. long-distance travel to facilities) and serious disruptions in the doctor/patient relationship. In addition, exclusive contracting would force those hospitals with contracts to handle more cases than they are accustomed to, which could cause serious delays in treatment and other patient care problems.

The American Academy of Orthopaedic Surgeons strenuously objects to any attempt by HCFA to contract exclusively with certain hospitals for the provision of joint replacement procedures. Such a payment policy would severely limit patient choice and access to care, causing significant patient inconvenience and delays in treatment.

The Academy remains strongly opposed to HCFA's designation of the hospitals in the project as "Participating Centers of Excellence" and to aiding or encouraging these hospitals to use the term as a marketing device. There is no evidence to support the contention that hospitals that will be chosen to participate are better providers than those facilities not selected for the project, even if the participating hospitals have a larger volume of joint replacement cases. Rather, HCFA has designated these hospitals primarily because of their willingness to accept a discounted payment from the government.

The American Academy of Orthopaedic Surgeons continues to believe that the hospitals participating in this demonstration project cannot be deemed "Participating Centers of Excellence" because there is no conclusive evidence to show that they are better providers of care than non-participating facilities. The use of this term by HCFA is a serious misrepresentation to Medicare beneficiaries and an egregious violation of the public trust.

The Academy also is concerned about the limited potential for cost savings in this demonstration project. One reason given for the success of the CABG project is that hospitals and physicians were motivated to achieve greater operating and administrative efficiencies at a time when extended length of stays were prevalent and the cost of care was not being fully addressed. Unlike CABG procedures at that time, most of the excess cost in joint replacement procedures has been reduced over the past decade through reductions in lengths of stay and cost containment in the selection of joint implants. The use of "critical care paths" also has improved the quality of care for recipients of joint replacements in recent years.

The American Academy of Orthopaedic Surgeons believes that in order to accommodate HCFA's discounted price, hospitals participating in the project may be forced to rely on questionable additional measures, such as earlier patient discharges, the use of cheaper grade implants or the use of less experienced patient care personnel. All such measures are likely to have a negative impact on the quality of care and be deleterious for the patient.

The Academy supports the American Medical Association policy which strongly opposes HCFA demonstration projects using physician/hospital lump-sum payments that include physician reimbursement. The Academy believes that the government should not give hospitals full control over physician reimbursement because physicians have the major responsibility and legal risk for patient care.

The Academy believes that when packaged payment arrangements are used in the private sector, they should meet these AMA criteria: (a) not include cash rebates to patients, (b) guarantee that quality and cost-effectiveness of patient care have been tested and proven to be maintained or improved and (c) include the full and informed participation of all involved physicians in program development and implementation. The HCFA demonstration project does not meet these criteria.

Because of the negative effects that the Medicare Joint Replacement Demonstration Project will have on patient care and all the other concerns outlined in this Position Statement, the American Academy of Orthopaedic Surgeons urges that the demonstration project be canceled.

September 1996

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