Effects of Major Joint Replacement Bundled Payments on Medicare and Commercial Post-Discharge Spending

Objective:

Medicare’s voluntary bundled payments program has been heralded as a potential solution to align incentives and curb rising health care expenditures. Interest in acute care based bundled payments for major lower extremity joint replacement has been particularly high, with multiple cohorts of providers enrolling from October 2013 through October 2015. Early studies of the program show that bundled payments resulted in provider behavior change, leading to decreased spending for inpatient post-acute care. This paper augments previous studies by examining whether spending reductions persist over time, and whether behavior changes by bundled payment providers were specific to the treatment of Medicare patients or were more broadly implemented, spilling over onto commercial patients.

Methods:

We examined 90-day, post-discharge spending for hospital-based bundled payments for Medicare and commercially insured patients treated for major lower extremity joint replacement from January 2012 through March 2016. We used claims data from the Michigan Value Collaborative, a statewide, 76-hospital consortium. We compared changes in spending by patients admitted to bundled payment providers, compared to patients admitted to non-participating control providers, using difference-in-differences analyses. Our treatment group consisted of 4,687 episodes from five early entrants (January 2014 provider enrollees) and 7,569 episodes from five late entrants (April 2015 provider enrollees). First, we examined dynamic effects of bundled payments on Medicare spending over a period of 27 months for early entrants. Second, we compared changes in Medicare spending between early and late entrants to determine whether there were heterogeneous cohort effects. Third, we assessed whether bundled payments led to spillover effects on spending.

Results:

In difference-in-differences comparisons against episodes in the baseline period from 2012 through 2013, we found no statistically significant differences in average 90-day post-discharge Medicare spending in early entrant hospitals during the first year of bundled payments, but statistically significant but non-persistent decreases in 2015. Medicare spending in early entrant hospitals in the first quarter of 2015 declined by $887 (SE: $446; p<0.10) more than control episodes in the same periods, and declined by $1,270 (SE: $608; p<0.05) in the subsequent six-month period. We observed a positive but imprecisely estimated $298 increase (SE: $1,176) by late 2015. We found no evidence of heterogeneous effects on Medicare spending between early and late entrants (F-statistic, 0.04; p=0.85), nor consistent difference-in-differences estimates indicative of spillovers between Medicare and commercially insured patients.

Conclusions:

Participation in bundled payments led to short-lived reductions in post-discharge spending. The effects of bundled payments were mitigated as non-bundled payments hospitals appeared to adopt alternative cost containment efforts and spending reached equally low levels, making it more difficult for bundled payments providers to achieve differential savings in later years. Finally, our findings suggest that behavior changes from bundled payments providers were isolated to Medicare beneficiaries and did not lead to broad-based practice change. Ultimately, the future success of bundled payments will hinge on its ability to incentivize continuous improvement and its role in transforming practice culture among providers.