Medicare Program: Comprehensive Care for Joint Replacement Model Three-Year Extension and Changes to Episode Definition and Pricing, 10516-10550 [2020-03434]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 85, Number 36 (Monday, February 24, 2020)]
[Proposed Rules]
[Pages 10516-10550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03434]



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Vol. 85

Monday,

No. 36

February 24, 2020

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Part 510





 Medicare Program: Comprehensive Care for Joint Replacement Model 
Three-Year Extension and Changes to Episode Definition and Pricing; 
Proposed Rule

Federal Register / Vol. 85, No. 36 / Monday, February 24, 2020 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 510

[CMS-5529-P]
RIN 0938-AU01


Medicare Program: Comprehensive Care for Joint Replacement Model 
Three-Year Extension and Changes to Episode Definition and Pricing

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise certain aspects of the 
Comprehensive Care for Joint Replacement (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 proposed performance years 6 through 
8, it would eliminate the 50 percent cap on gainsharing payments, 
distribution payments, and downstream distribution payments for certain 
recipients. This proposed rule would also extend the additional 
flexibilities provided to hospitals related to certain Medicare program 
rules consistent with the revised episode of care definition. 
Additionally, the proposed rule would allow time to test the proposed 
changes by extending the length of the CJR model for an additional 3 
years, through December 31, 2023, for certain participant hospitals. 
Finally, it solicits comment on how we might best conceptualize and 
design a future bundled payment model focused on lower extremity joint 
replacements (LEJR) procedures performed in the ambulatory surgical 
center (ASC) setting.

DATES: To be assured consideration, comments on this proposed rule must 
be received at one of the addresses provided in the ADDRESSES section 
no later than 5 p.m. EST on April 24, 2020.

ADDRESSES: In commenting, please refer to file code CMS-5529-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-5529-P, P.O. Box 8013, 
Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-5529-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Nora Fleming, (410) 786-6908.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period shall be made available 
for viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
will post all comments received before the close of the comment period 
on the following website as soon as possible after they have been 
received: https://www.regulations.gov. Follow the search instructions on 
that website to view public comments.

I. Background

A. Purpose

    The Comprehensive Care for Joint Replacement (CJR) model, which was 
implemented 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. 
As discussed in greater detail in section I.C. of this proposed rule, 
the CJR model was established through notice and comment rulemaking. 
While initial evaluation results for the first and second year of the 
CJR model \1\ indicate that the CJR model is having a positive impact 
on lowering episode costs when CJR participant hospitals are compared 
to non-CJR hospitals (with no negative impacts on quality of care), 
changes in program payment policy and national care delivery patterns 
have occurred since the CJR model began. In order to better evaluate 
the model with these changes addressed, this rule proposes to change 
and extend the CJR model for an additional 3 performance years. First, 
we propose to change the definition of a CJR `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 that contains procedure codes that will only be reimbursed 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) that removed the Total Knee Arthroplasty (TKA) procedure code 
from the IPO list, and the change in the CY 2020 OPPS rule (84 FR 
61353) that removed Hip Arthroplasty (THA) procedure code from the IPO 
list, we are proposing to change the definition of an `episode of care' 
to include outpatient (OP) procedures for TKAs (OP TKAs) and to include 
outpatient procedures for THAs (OP THAs).
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    \1\ See evaluation reports section posted on the CJR model 
website at: https://innovation.cms.gov/initiatives/cjr.
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    We are also proposing to make a number of changes to the target 
price calculation. Specifically, we are proposing to change the basis 
for the target price from 3 years of claims data to the most recent one 
year of claims data, to remove the national update factor and twice 
yearly update to the target prices that accounts for prospective 
payment system and fee schedule updates, to remove anchor factors and 
weights, and to change the high episode spending cap calculation 
methodology. Additionally, we are proposing a number of changes to the 
reconciliation process. Specifically, we are proposing to move from 2 
reconciliation periods (conducted 2 and 14 months after the close of 
each performance year) to one reconciliation period that would be 
conducted 6 months after the close of each performance year, to add an 
additional episode-level risk adjustment beyond fracture status, to 
change the high episode spending cap calculation methodology used at 
reconciliation, to add a retrospective market trend adjustment factor, 
and 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. Although the improvements 
we are

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proposing to make to the target price calculation and reconciliation 
process could potentially improve the accuracy of CJR episode pricing 
in performance year (PY) 5, we are not proposing that these changes 
apply to PY 5 because this proposed rule would not be finalized and 
effective until close to the end of PY 5.
    Since we are proposing to change the definition of an `episode of 
care' to include outpatient procedures, for which the beneficiary would 
not be admitted to the participant hospital, we are also proposing a 
change to the beneficiary notification requirements (which are 
currently tied to 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 an outpatient setting. We are 
also proposing to make changes to the dates of publicly-reported data 
used for quality measures and patient-reported outcomes (PRO) for the 
three additional performance years. We propose to advance the 
Complications and Hospital Consumer Assessment of Healthcare Providers 
and Systems (HCAHPS) performance periods in alignment with the 
performance periods used for performance years 1 through 5. For PRO, we 
are also proposing to advance the performance periods in alignment with 
previous performance periods as well as increase the thresholds for 
successful submission. Additionally, for the 3 additional performance 
years, we are proposing 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). We are also proposing 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 
episode definition, we are also proposing 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 to 
hospitals furnishing services to CJR beneficiaries in the outpatient 
setting as well. To allow time for us to evaluate the impact of these 
changes, we are proposing to extend the CJR model for an additional 3 
years, performance years 6 through 8, for participant hospitals located 
in the 34 mandatory metropolitan statistical areas (MSAs) (except for 
rural hospitals and low-volume hospitals). We are proposing conforming 
changes to the CJR regulations at 42 CFR part 510.
    Lastly, noting that TKA procedures will be covered by Medicare in 
the ambulatory surgical center (ASC) setting beginning January 1, 2020 
(84 FR 61253) and that certain other LEJR procedures may eventually 
also be covered by Medicare in the ASC setting, we are also soliciting 
comment on the design of a potential future bundled payment model for 
LEJR procedures in the ASC.

B. Summary of Costs and Benefits

    As shown in our impact analysis in section IV. of this proposed 
rule, we estimate that the CJR model changes we are proposing will save 
the Medicare program approximately $269 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. 
of this proposed rule. In addition to these estimated impacts, the goal 
of CMS' Center for Medicare and Medicaid Innovation (Innovation Center) 
models are to reduce expenditures while preserving or enhancing the 
quality of care. In addition, many participants are attempting to 
enhance their infrastructure to support better care management and 
reducing costs. We anticipate there will continue to be a broader focus 
on care coordination and quality improvement through the CJR model 
among 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'' 
published in the November 24, 2015 Federal Register (80 FR 73274) 
(referred to in this proposed 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 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.
    In the March 4, 2016 Federal Register (81 FR 11449), we published 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'', that corrected a limited number of technical and 
typographical errors identified in the November 2015 final rule. On 
January 3, 2017, we published a final rule (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 Alternate 
Payment Model (Advanced APM track within the CJR model. On May 19, 
2017, we published a final rule (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). The May 2017 final rule also 
finalized a delay to the effective date of certain CJR regulations from 
July 1, 2017 to January

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1, 2018. On December 1, 2017, we published another final rule (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 in this proposed rule 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. 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 June 8, 
2018 final rule (83 FR 26604), titled ``Medicare Program; Changes to 
the Comprehensive Care for Joint Replacement Payment Model (CJR): 
Extreme and Uncontrollable Circumstances Policy for the CJR Model,'' 
and effective on July 9, 2018.

II. Provisions of the Proposed Rule

A. Episode Definition

1. Background
    The CJR model began on April 1, 2016. The CJR model is currently 
nearing completion of the fourth performance year, which includes 
episodes ending on or after January 1, 2019 and on or before December 
31, 2019. The fifth performance year, which includes all episodes 
ending on or after January 1, 2020 and on or before December 31, 2020, 
would necessarily incorporate episodes that began before January 1, 
2020. As previously discussed in section I.C. of this proposed 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 finalized 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 
providers 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 onto either Medicare Severity-Diagnosis Related Group (MS-
DRG) 469 (LEJR with complications and/or comorbidities) or MS-DRG 470 
(LEJR without complications and/or comorbidities). Subsequently, in 
acknowledgement of the fact that TAR procedures are almost always more 
complex and expensive to perform than TKAs or THAs, CMS finalized a 
policy in the FY 2017 IPPS final rule to ensure that TARs would always 
map to MS-DRG 469, which reimburses at a higher rate than MS-DRG 470, 
to compensate for complications and comorbidities (81 FR 56815).
    When the TKA procedure described by 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 OP TKA procedures 
were, by default, excluded from the CJR model. When the change to the 
IPO list to remove TKA procedures was proposed, CJR participants 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 episodes would be too low and would not reflect 
the shift in 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 have been performed in the outpatient 
setting for the full calendar year of 2018, we have one 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 
claim data shows that approximately 25 percent of TKAs are 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 OP 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 OP 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 OP TKA episodes (created using the same criteria 
as CJR episodes, with the exception that they would have been triggered 
by the OP 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 APC to which they 
are assigned, we removed the payments associated with the episode 
initiating 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

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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. This supported our belief that the 
outpatient TKA episodes were sufficiently comparable to MS-DRG 470/no 
fracture inpatient CJR episodes that we should find a way to change the 
existing CJR episode definition to encompass outpatient LEJR episodes 
as well as inpatient LEJR episodes.
2. Changes to Episode Definition To Include OP 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 OP TKA into the CJR model, as well as 
THA, in light of the recent change in the CY 2020 OPPS final rule to 
remove THA from the IPO list, which was recently finalized (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.) We do not 
anticipate that TARs will be removed from the IPO list due to their 
complexity. If we continued to exclude OP TKAs and OP THAs from the CJR 
model and did not allow CJR hospitals the incentive to coordinate and 
improve care for OP 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 OP TKAs and OP THAs 
would also potentially reduce the generalizability of future results 
from the CJR model evaluation, as CJR hospitals would be less 
comparable to control group non-CJR 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 assure that our evaluation findings are as robust and 
generalizable as possible, we aim to incorporate OP 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.
    Consistent with our goal for site neutrality, as evidenced, for 
example, in the CY 2019 OPPS final rule (83 FR 58818) where 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, as well as in the CY 2020 OPPS final rule (84 FR 
61365) where we continued the two-year phase-in of this site neutral 
payment policy, we do not want to create separate prices for inpatient 
and outpatient CJR episodes. We also want to be consistent with the 
BPCI Advanced voluntary bundled payment model, which will be offering a 
site-neutral LEJR episode beginning 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 OP 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 proposed 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 PY 6, we are proposing to 
revise the definition of an `episode of care' in the CJR model to 
include permitted OP TKA/THA procedures. This revised definition would 
apply 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 be the first day of PY 6. Further, we are 
proposing to group the OP 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 OP TKA episodes most closely resembles spending on MS-
DRG 470 without hip fracture episodes. 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.
    Since the proposal to remove THAs from the IPO List has recently 
been finalized, we also propose to include outpatient THA procedures 
with MS-DRG 470 episodes in order to calculate a target price. Although 
we do not have Medicare claims data for OP THA at this time, as we 
currently do for OP TKA, we note 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. OP THAs have been assigned to the same 
Comprehensive Ambulatory Payment System (C-APC) 5115 (Level 5 
Musculoskeletal Procedure) as OP TKA (84 FR 61253). Therefore, we 
believe that the site-neutral MS-DRG 470 price that we propose to 
calculate (which would be based on a blend of inpatient TKA, inpatient 
THA, OP TKA, and OP THA episodes) would also be appropriate for OP THA 
episodes. However, in the case of THA, we would include any OP THA 
episodes without hip fractures in the MS-DRG 470 without hip fracture 
episode pricing and we would include any OP THA episodes with hip 
fractures in the MS-DRG 470 with hip fracture episode pricing. Compared 
to TKAs, which we expect would rarely be performed on an outpatient 
basis in the presence of a hip

[[Page 10520]]

fracture due to the added complexity of treating the hip fracture while 
performing the TKA, we believe that THAs with hip fractures would be 
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 do not anticipate that any OP 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 OP THA into with 
and without hip fracture episodes that would be grouped into MS-DRG 470 
with hip fracture and MS-DRG 470 without hip fracture episodes, 
respectively, because we expect that spending for OP THA with hip 
fracture and without hip fracture episodes would resemble spending for 
MS-DRG 470 with hip fracture and MS-DRG without hip fracture episodes, 
respectively.
    Given that we are proposing that OP TKA and THA would initiate CJR 
episodes, we are similarly proposing that an OP TKA or THA, if 
furnished at a participant hospital during an ongoing 90-day CJR 
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 normally 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-DRG 469 or 470 that occur at a 
participating hospital during an ongoing CJR episode cancel the ongoing 
episode and initiate a new episode. We are proposing to extend that 
policy to OP TKA and THA episodes. In conclusion, then, an active CJR 
episode initiated by a prior admission to an acute care hospital for 
DRG 470 or 469, would be cancelled, and a new CJR episode would be 
initiated, if either an inpatient LEJR procedure or an OP 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 episode initiated by a first anchor 
procedure (OP TKA or THA) would be cancelled, and a new CJR episode 
would be initiated, if either an inpatient LEJR procedure or an OP TKA 
or THA were furnished to an eligible beneficiary at a participating 
hospital during the ongoing episode initiated by the first anchor 
procedure.
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 3 
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 CJR. 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. The stability of 
ICD-10-CM codes has meant that MS-DRGs 469 and 470 have also 
experienced minimal change in recent years in terms of codes 
designating hip fracture and codes representing excluded services. 
Given the recent stabilization of the coding systems used in CJR, we 
are proposing to discontinue our annual sub-regulatory process to 
update the hip fracture list and episode exclusions list. We seek 
comment on our proposal and whether there are any circumstances in 
which updates may still be needed.

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 469 without hip 
fracture, MS-DRG 470 with hip fracture, 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 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 \2\) and hospital-specific spending for performance 
years 1 through 3, episode target prices were based on 100 percent 
regional spending beginning performance year 4. 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 episode volume and set more stable target 
prices, CJR 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

[[Page 10521]]

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.
---------------------------------------------------------------------------

    \2\ 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 Proposed 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 
proposed 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, recent analysis by the Office of 
the Actuary has shown that national expenditures for LEJR procedures 
sand associated post-acute care services have been decreasing since 
2016. While average episode payments declined for both CJR and control 
group episodes during the first two performance years of the model, 
payments declined more for CJR episodes. Average episode payments 
decreased by $997 more for CJR 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 CJR episodes from the baseline.\3\
---------------------------------------------------------------------------

    \3\ See 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 evaluation for CJR and non-CJR participants 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.

  Table 1--Average LEJR Spending Outside of the CJR Model From Medicare
                               Claims DATA
------------------------------------------------------------------------
                                    Average cost  per
           Program year                  episode        Cost trend  (%)
------------------------------------------------------------------------
2014..............................            $26,444  .................
2015..............................             26,006               -1.7
2016..............................             24,925               -4.2
2017..............................             24,352               -2.3
------------------------------------------------------------------------

    Excluding CJR participant hospitals, national per episode costs for 
hip and knee replacement procedures calculated using Medicare claims 
data dropped by about 8 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 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.

                           Table 2--Average per Episode Spending for MS-DRG 469 and MS-DRG 470 Episodes in 2016, 2017 and 2018
                                                  [Includes all IPPS hospitals, not just CJR hospitals]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           2016 Average    2017 Average    2018 Average   Percent change  Percent change  Percent change
                                                           standardized    standardized    standardized   in per episode  in per episode  in per episode
                         Region                              price per       price per       price per     price 2016 to   price 2017 to   price 2016 to
                                                              episode         episode         episode          2017            2018            2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
New England.............................................         $23,627         $22,770         $22,525            -3.6            -1.1            -4.7
Middle Atlantic.........................................          23,971          22,889          22,922            -4.5             0.1            -4.4
East North Central......................................          22,856          21,968          22,155            -3.9             0.9            -3.1
West North Central......................................          22,280          21,524          21,692            -3.4             0.8            -2.6
South Atlantic..........................................          22,859          22,029          22,275            -3.6             1.1            -2.6
East South Central......................................          23,649          23,262          23,105            -1.6            -0.7            -2.3
West South Central......................................          25,037          24,354          24,649            -2.7             1.2            -1.5
Mountain................................................          21,766          20,954          21,151            -3.7             0.9            -2.8
Pacific.................................................          22,158          21,487          21,891            -3.0             1.9            -1.2
National................................................          23,118          22,316          22,482            -3.5             0.7            -2.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Although the CJR 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 are also proposing to change the target price

[[Page 10522]]

update methodology to a 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 
changes to propose to the target price structure for CJR, we did 
consider an option of setting prices at the national, rather than 
regional level. While we did not elect to model this proposal for this 
proposed rule and are instead proposing to continue the regional 
pricing approach, we seek 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 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 one 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 are proposing 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 (performance years 1 to 3) to 100 
percent regional pricing (performance years 4 and 5). Additionally, 
since we are proposing to include OP TKA/THA procedures as well as 
inpatient admissions for MS-DRG 469 or 470 in the CJR episode 
definition, 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 proposed 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, 
noting that 2019 data is not yet available for analysis), 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 are therefore 
proposing to remove the national trend update factor. We are also 
proposing 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 are proposing in this 
rule in section II.C.6. of this proposed rule 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 proposed rule, for the purpose of calculating 
CJR episode target prices for performance years 6 through 8 we propose 
that Part A and B Medicare claims data for beneficiaries with CJR 
episodes (that is, beneficiaries with a claim for an MS-DRG 470 or MS-
DRG 469, or a permitted OP TKA/THA procedure billed by a CJR 
participant hospital), would be grouped into 1 of the following types 
of CJR episodes:
     MS-DRG 470 with hip fracture (which would include OP THA 
episodes with hip fracture).
     MS-DRG 470 without hip fracture (which would include OP 
TKA episodes and OP THA episodes without hip fracture).
     MS-DRG 469 with hip fracture.
     MS-DRG 469 without hip fracture.
    To then calculate target prices for performance years 6 through 8, 
these 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, MS-DRG, and hip fracture combination. 
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/hip fracture 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 performance year 6, at the 
beginning of each performance year, these average regional target 
prices would be posted on the CJR website.
    Finally, we note that we are proposing 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 episode data, which was more of a concern 
when the model began due to the hospital-specific pricing component. 
CJR episodes anchored by MS-DRGs 469 and 470 are pooled together during 
target price calculations to have a greater historical CJR 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 multiply that MS-
DRG 470 target price by, 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 performance years 4 and 5 use only 
regional episode spending data to calculate target prices, and since we 
are proposing for performance years 6 to 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 are proposing to no longer use the 
regional and hospital anchor weighting steps from the original CJR 
target price calculation methodology.

[[Page 10523]]

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 
performance years 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 performance year 4 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 are proposing additional tools meant to ensure 
accuracy of target pricing, specifically, the trend factor discussed in 
section II.C.6. of this proposed rule and the risk adjustment discussed 
in section II.C.4. of this proposed rule, which further mitigates our 
concerns regarding target pricing uncertainty. Therefore, we believe 
that for the proposed CJR 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 one 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 
OP TKA procedures to trigger CJR episodes (see section III.A. of this 
proposed 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 without hip fracture.
    Therefore, for the proposed performance years 6 through 8, we 
propose to use the most recently available one year of data available 
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 performance years 1 and 2 were 
calculated with baseline data from 2012 to 2014, for performance years 
3 to 4 were calculated with baseline data from 2014 to 2016, and for 
performance year 5 are calculated with baseline data from 2016 to 2018. 
We propose to base performance year 6 target prices on episode baseline 
data from 2019, performance year 7 target prices on episode baseline 
data from 2020, and performance year 8 target prices on episode 
baseline data from 2021. By using only 2019 data for performance year 6 
target prices, we will 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 believe that using only 
the most recently available, 1 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 seek comment on this proposal.
4. Removal of Anchor Factor and Weights and Removal of the Prospective 
Payment System Target Pricing Updates
    Since CJR target prices during performance years 1 to 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 
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 are proposing for performance years 6 to 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 performance years 4 to 5 we removed 
hospital-specific ratios of MS-DRG 469 to 470 episodes from the target 
price calculation. We propose to continue this in proposed performance 
years 6 to 8. Given that we no longer have these concerns, we also 
propose to stop using the national anchor factor calculation and the 
subsequent regional and hospital weighting steps in the CJR target 
price calculation method for performance years 6 to 8. Additionally, we 
propose 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 are proposing (in section II.C.6. of this 
proposed 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/OP TKA/THA procedure/hip 
fracture 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 seek comment on this proposal.
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

[[Page 10524]]

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 deviation methodology to appropriately cap high 
episode spending. First, we have observed that TKA and THA episode 
costs in the CJR model are not normally distributed; as such, less than 
95 percent of episodes have costs that fall within 2 standard 
deviations of the mean. This means that TKA and THA episodes in the CJR 
model exceed the 2 standard deviation amount in their cost more often 
than other clinical episode costs that are distributed approximately 
normally. Second, given the reliance on only regional data for target 
price calculations in performances year 4 to 5 and proposed performance 
years 6 to 8, a participant hospital with higher-cost episodes relative 
to its region will benefit more from this capping method since there 
will be a higher probability that its episodes will be capped. This 
effect was not as much of a concern during performance years 1 through 
3 since target prices were calculated using a blend of hospital-
specific and regional costs. However, since many of the participant 
hospitals now participating in the CJR model (especially mandatory 
participants) have higher-cost episodes relative to their regions, and 
target prices are derived from regional-only episode data, their 
performance period episode costs would likely exceed the 2 standard 
deviation high episode spending cap amount more often than intended. In 
other words, assuming a normal distribution, we would expect 95 percent 
of episode costs to be within 2 standard deviations of the mean episode 
cost. As. As we discussed in the CJR final rule (80 FR 73336), our 
original intent in establishing the high cost episode capping policy 
was to mitigate the hospital responsibility for episodes with very high 
Medicare spending during the post-discharge 90 day episode period. 
However, as noted previously, TKA and THA episode prices are not 
normally distributed, and more than 2.5 percent of episode costs exceed 
the 2 standard deviation maximum threshold. Third, and similar to the 
first challenge that TKA and THA episode costs in the CJR model are not 
normally distributed or otherwise similar to other clinical episodes, 
CJR participant hospital performance period episode costs are not 
normally or otherwise similarly distributed compared to the costs used 
to derive CJR target prices. Specifically, while episode costs are 
closer to a normal distribution during the initial target price 
calculation as a result of the larger volume of data in the national 
summary of episode costs (that is, the episode data includes non-CJR 
participating hospitals), the episode costs are not normally 
distributed during reconciliation since episode costs at reconciliation 
are derived from only performance period episode costs (that is, only 
CJR participant hospitals).
    Therefore, the current CJR model methodology that establishes a 
high episode spending cost cap at 2 standard deviations above the mean 
has not reliably produced an episode cost ceiling that applies only to 
very high cost episodes; rather, as a result of the episode 
distribution, the current methodology may result in the inappropriate 
capping of some episode costs. An internal analysis of CJR episode data 
by OACT showed that in 2016 and 2017 respectively 70 and 83 percent of 
CJR participants had at least 1 episode capped at the high cost episode 
cap. While we continue to want to protect participant hospitals from 
exposure to very high cost episodes, we need to balance that goal with 
the overarching goal of the CJR model to lower costs and increase 
quality for LEJR procedures.
    As a result, we are proposing to change the methodology used in 
deriving the high episode spending cap amount during reconciliation, 
described further in section II.C.5. of this proposed rule. Since the 
current CJR model high episode spending cost capping methodology used 
during initial target price calculation is the same methodology used 
during reconciliation, we also propose to change the methodology used 
in deriving the high episode spending cap amount during the initial 
target price calculation to match the proposed methodology used during 
reconciliation. Specifically, we propose to change our method of 
deriving the high episode spending cap amount applied to initial target 
prices by setting the high episode spending cap at the 99th percentile 
of historical costs. Similar to the current methodology, the high 
episode spending cap calculation would utilize the national summary of 
episode data to calculate the 99th percentile of each MS-DRG and hip 
fracture combination for each region. Total episode costs above the 
99th percentile would be capped at the 99th percentile amount prior to 
calculating target prices for each MS-DRG and hip fracture combination 
for each region. We expect that this method of calculation will result 
in high episode spending caps that more accurately represent the cost 
of infrequent and potentially non-preventable complications for each 
category of episode, which the participant hospital could not have 
reasonably controlled and for which we do not want to penalize the 
participant hospital. We seek comment on this approach.

C. Reconciliation

1. Background
    Currently, for each performance year, CJR payments are reconciled 
twice; at 2 and then 14 months after the close of a performance year. 
At reconciliation, performance year episode costs are

[[Page 10525]]

computed for each participant hospital for each MS-DRG and hip fracture 
combination and these costs are then capped at 2 standard deviations 
above the regional mean episode price. Each participant hospital's 
composite quality score for combined performance on the CJR model 
quality measures, specifically, the total hip arthroplasty/total knee 
arthroplasty (THA/TKA) Complications measure and HCAHPS Survey measure, 
and voluntary submission of patient-reported outcomes and limited risk 
variable data, is then calculated. While all participant hospitals in 
the CJR model are assigned a target price with a quality discount 
factor of 3 percent, the quality discount applicable to a specific 
participant hospital at reconciliation may be lowered to 2 percent in 
instances where the hospital earns a quality category of good, or 1.5 
percent in instances where the hospital earns a quality category of 
excellent. Based on reconciliation results from the first 2 performance 
years of CJR, roughly 18 percent of providers achieved quality scores 
of `Excellent', around 60 percent achieved `Good', around 12 percent 
achieved `Acceptable and less than 10% were deemed `Below Acceptable. 
An initial reconciliation is performed using claims data available 2 
months after the end of the performance year, and a final 
reconciliation is performed 1 year later, using claims data available 
14 months after the end of the performance year.
    At reconciliation, all participant hospitals that achieved LEJR 
actual spending below the target price and achieved a minimum composite 
quality score were eligible to earn up to 5 percent of the difference 
between their target price and their actual episode costs in 
performance years 1 and 2; 10 percent of this difference in performance 
year 3; and 20 percent in performance years 4 and 5. The limits are 
referred to as ``stop-gain limits'' (80 FR 73401). Any net payment 
reconciliation amount (NPRA) greater than the proposed stop-gain limit 
would be capped at the stop-gain limit.
    Conversely, participant hospitals with LEJR episode spending that 
exceeds the target price at reconciliation are financially responsible 
for the difference to Medicare up to a specified repayment, or a 
``stop-loss limit.'' For most participant hospitals, the stop-loss 
limit was 5 percent of the difference between their target price and 
their actual episode costs in performance year 2; 10 percent for 
performance year 3; and 20 percent for both performance years 4 and 5. 
For participant hospitals that are rural hospitals, Medicare-dependent 
hospitals, rural referral centers, and sole community hospitals, the 
stop-loss limit was 3 percent for performance year 2; and 5 percent for 
performance years 3 through 5. Any reconciliation repayment amount that 
exceeds the proposed stop-loss limit would be capped at the stop-loss 
limit.
    We implemented a parallel approach for the stop-gain and stop-loss 
limits to provide proportionately similar protections to CMS and to 
hospital participants, as well as to protect the health of 
beneficiaries. We believe it is appropriate that as participant 
hospitals increase their financial responsibility, they can similarly 
increase their opportunity for additional payments under this model. We 
also believe that these changes facilitate participants' ability to be 
successful under this model and allow for a more gradual transition to 
financial responsibility under the model.
2. Overview of Proposed Changes to Reconciliation Process
    In this proposed rule, we are proposing changes to the CJR 
reconciliation process that are intended to reduce administrative 
burden, to adjust target prices for beneficiary-specific risk elements, 
to better recognize participant providers with good and excellent 
composite quality scores, and to improve our ability to account for 
changes in payment policy and market trends in utilization. 
Additionally, we are proposing changes to the reconciliation process 
that parallel the changes we propose to the target price calculations 
discussed in section II.B. of this proposed rule.
    Beginning with performance year 6, we are proposing to conduct one 
reconciliation per CJR model performance year, which would be initiated 
6 months following the end of a CJR model performance period. This 
change is intended to reduce the administrative burden of a second 
reconciliation for Medicare and CJR participant hospitals, and it is 
driven by internal analyses, discussed in section II.C.3. of this 
proposed rule, that indicate 6 months after an episode ends are 
sufficient time to capture episode spending data. However, we propose 
that the current CJR post-episode spending policy, codified at 
Sec. Sec.  [thinsp]510.305(j)(2) and 510.2, would still apply during 
performance years 6 through 8. Additionally, we propose conforming 
changes to Sec.  510.305 such that the performance year 4 and 5 stop-
loss limits and stop-gain limits of 20 percent would continue in place 
for each of performance years 6 through 8.
    Additionally, in an effort to recognize the greater needs of 
certain beneficiaries that are beyond a participant hospital's control, 
we are proposing to incorporate a risk adjustment factor for each 
episode's target price during reconciliation for performance years 6 
through 8. Specifically, as discussed in section II.C.4. of this 
proposed rule, we would adjust the target price at reconciliation using 
two patient-level risk factors, the CMS-HCC condition count risk 
adjustment factor and the age bracket risk adjustment factor.
    Further, as mentioned in section II.B.5. of this proposed rule, we 
are proposing to change the methodology used in deriving the high 
episode spending cap amount during reconciliation. For performance 
years 6 through 8 of the proposed extension, at reconciliation we would 
determine the high episode spending cap amount by calculating the 99th 
percentile of regional mean episode spending and cap episodes at that 
amount, in order to remove the effect of high-cost statistical outliers 
on average costs. We are proposing this change since we have observed 
that CJR episode costs are not normally distributed, as discussed in 
section II.B.5. of this proposed rule, and a greater number of CJR 
episodes have exceeded the high episode spending cap amount than we 
intended.
    We are also proposing to add a market trend factor to adjust for 
recent variations in the underlying structure of the market. 
Specifically, we are proposing that the market trend factor would be 
the regional/MS-DRG/fracture mean cost for episodes occurring during 
the performance year divided by the regional/MS-DRG/fracture mean cost 
for episodes occurring during the target price base year. For example, 
at the first reconciliation for performance year 6 (calendar year 
2021), which, as proposed, will occur in June of 2022, we would compute 
the regional/MS-DRG/fracture mean cost for episodes occurring during 
2021 and would divide that by the regional/MS-DRG/fracture mean cost 
for episodes that occurred during calendar 2019 as the target prices 
for performance year 6 will be set using 2019 data.
    Lastly, we are proposing changes to the effective discount factor 
and applicable discount factor in Sec.  510.315, to better recognize 
participant providers in the `Good' and `Excellent' CJR composite 
quality score categories. For performance years 6 through 8, we are 
proposing to continue to use 3 percentage points as the discount factor 
applied during calculation of regional target prices. However, we are 
proposing to increase an individual participant hospital's potential 
quality incentive payment; that is, we are

[[Page 10526]]

proposing a larger reduction in the discount factor based on the 
composite quality score. The opportunity for this larger reduction in 
the discount factor is being proposed because we anticipate that the 
proposed changes to the target price methodology, discussed in section 
II.B. of this proposed rule, will better align the target prices with 
actual spending during a performance year. While more accurate initial 
target prices will enhance stability for participant hospitals at 
reconciliation, it also means the quality adjusted target price and 
actual episode spending will align more closely over time and we want 
to ensure that we continue to recognize high quality participant 
hospitals by giving them a larger portion of the achieved savings. As a 
result, for performance years 6 through 8, we are proposing a 1.5 
percentage point reduction to the applicable discount factor for 
participant hospitals with ``good'' quality performance and a 3-
percentage point reduction to the applicable discount factor for 
participant hospitals with ``excellent'' quality performance.
3. Changes to Frequency and Timing of Reconciliation
    As noted in section II.B.1. of this proposed rule, following the 
completion of a performance year, participant hospitals that achieve 
episode spending below the applicable target price and achieved a 
minimum composite quality score were currently eligible to earn a 
reconciliation payment from Medicare for the difference between the 
target price and actual episode spending, up to a specified cap (see 80 
FR 73337 for a detailed discussion of CJR episode pricing). The 
retrospective process reconciles a participant hospital's actual 
episode payments against the target price 2 months after the end of a 
performance year. More specifically, we use claims data that is 
available 2 months after the end of a performance year and carry out 
the NPRA calculation described in Sec.  510.305 to make a 
reconciliation payment or repayment amount, as applicable. Fourteen 
months after the end of each performance year, CMS performs an 
additional calculation, using claims data available at that time, to 
account for final claims run-out and any additional episode 
cancelations due to overlap between the CJR model and other CMS models 
and programs, or for other reasons as specified in Sec.  510.210(b). 
The subsequent reconciliation calculation is applied to the previous 
calculation of NPRA for a performance year to ensure the stop-loss and 
stop-gain limits are not exceeded for a given performance year. The 
difference between the initial and final reconciliation amount from 
this calculation, if different from zero, is calculated and added to 
the NPRA for the subsequent performance year in order to determine the 
net reconciliation payment or repayment amount.
    We finalized the process to perform a reconciliation calculation 2 
months after the conclusion of a performance year, with a subsequent 
reconciliation calculation 12 months later, under the assumption that 
it was necessary to allow sufficient time for routine monitoring, 
review, and adjustment (80 FR 73386). However, internal analyses and 
monitoring of CJR claims data from performance years 1 and 2 indicates 
that the full 14 months is not necessarily required to sufficiently 
capture claims run out and overlap with other models. For example, the 
number of episodes attributed to performance year 1 increased by 
slightly less than 1 percent from the initial to subsequent 
reconciliation and total reconciliation payments for performance year 1 
decreased by about 6 percent between the initial and subsequent 
reconciliation. While the performance year 2 subsequent reconciliation 
process is still ongoing, initial estimates show a similar trend; that 
is the attributed episode count increased by about 1 percent and total 
reconciliation payments decreased by around 5 percent. While we are not 
able to accurately predict or quantify the dollar impact shifts between 
the initial and final reconciliations for individual CJR participants, 
anecdotally, based on reconciliations of the first 2 performance years 
of the CJR model, some CJR participants owed over $100,000 because 
their initial reconciliation payments were too high relative to their 
final reconciliation payments. Other providers who ultimately saw their 
reconciliation payments increase from initial to final reconciliations 
increased by amounts under $60,000. We recognize that shifting 
reconciliation amounts, especially those that result in unanticipated 
repayments, could be problematic for some providers. By allowing a 
longer period for claim run out prior to initiating the first and only 
reconciliation, we believe we could provide a more predictable and 
stable reconciliation process for CJR participants without 
significantly impacting the accuracy of the reconciliation payment and/
or repayment amounts. Additionally, we do not anticipate the change to 
the frequency and timing of CJR reconciliation will create difficulties 
accounting for overlap with other CMS Innovation Center models and the 
Medicare Share Savings Program (SSP). Since the two-month, initial 
reconciliation data is not considered final, and overlap with other 
models and SSP is only accounted for using final reconciliation data 
from the 14-month subsequent reconciliation, the proposed changes to 
the frequency and timing of CJR reconciliation should actually enable 
overlap accounting to occur eight months earlier than in CJR 
performance years 1 to 5.
    As a result, we are proposing to conduct one reconciliation for 
each of performance years 6 through 8, 6 months following the end of a 
performance year. For instance, for performance year 6 (which includes 
all CJR episodes ending on or after January 1, 2021 and on or before 
December 31, 2021), we propose to reconcile a participant hospital's 
CJR actual episode payments against the applicable target prices one 
time only, based on claims data available on July 1, 2022. As discussed 
previously, our internal analyses indicate the timing of this proposed 
reconciliation methodology will allow enough time to adequately capture 
episode costs. This methodology would also reduce the administrative 
burden associated with an extra reconciliation calculation on CMS and 
participant hospitals. Additionally, we believe this new methodology 
will enhance participant hospitals' ability to predict the outcome of 
reconciliation calculations, since they will no longer need to include 
unanticipated adjustments for prior year performance.
    As noted previously, we propose that current CJR post-episode 
spending policy, codified at Sec. Sec.  [thinsp]510.305(j)(2) and 
510.2, would still apply during performance years 6 through 8. 
Specifically, we would maintain the policy that 30-day post-episode 
spending for episodes attributed to all IPPS hospitals would be 
calculated to determine the value that is 3 standard deviations greater 
than the regional average 30 day post-episode spend and to determine if 
a participant hospital has excessive average 30 day post-episode 
spending. The spending amount exceeding 3 standard deviations above the 
regional average post-episode payments for the same performance year is 
subtracted from the net reconciliation or added to the repayment amount 
for the subsequent performance year for years 1 through 4. Unlike the 
high cost episode spending cap policy, the 30-day post-episode spending 
policy only assesses episode costs 30 days following the end of an 
episode; this distribution is more ``normal'' than the high cost

[[Page 10527]]

episode cap distribution that assesses the full 90-day episode costs. 
There have been few issues with the post-episode spending methodology 
to date.
    For performance year 5, under current CJR regulations, the spending 
amount is assessed independently for year 5. Under our proposed 
policies, we note that the final performance year 5 reconciliation will 
be conducted slightly before we initiate the performance year 6 
reconciliation, and we are proposing to net the final performance year 
5 amount against the performance year 6 amount prior to issuing a 
reconciliation payment or demanding a repayment amount.
4. Additional Episode-Level Risk Adjustment
    When we originally proposed the CJR pricing methodology, we 
proposed to provide each hospital with a separate target price for 
episodes initiated by MS-DRG 469 versus MS-DRG-470, because MS-DRGs 
under the IPPS are designed to account for some of the clinical and 
resource variations that exist and that impact hospitals' costs of 
providing care (80 FR 73338). Specifically, MS-DRG 469, which focuses 
on costlier and complex hip and knee procedures involving patients with 
major complications and comorbidities, has a higher relative weight 
than MS-DRG 470, which ensures that the Medicare payment for MS-DRG 469 
is higher than that for MS-DRG 470. However, in response to comments 
requesting further risk adjustment, we finalized a policy to risk 
adjust target prices based on the presence of hip fractures (80 FR 
73339). We stated our belief that adding hip fracture status to our 
risk adjustment approach would capture a significant amount of patient-
driven episode expenditure variation. Thus, we currently provide four 
separate target prices to each participant hospital based on the 
combination of the MS-DRG to which the IPPS admission was grouped (469 
or 470) and whether or not the patient had a hip fracture.
    Given our proposal to specify that permitted OP LEJR procedures can 
initiate a CJR episode, we recognize that additional risk adjustment is 
needed in order to account for variability within the four categories 
of target price. As we note previously in section III.A. of this 
proposed rule, we recognize that a single blended target price for the 
MS-DRG 470 category in particular 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 participant hospitals' ratio of inpatient-to-outpatient cases 
will vary, we are proposing to make an episode-specific adjustment to 
each target price.
    The CJR model currently includes adjustments to MS-DRG 469 and 470 
target prices based on the presence of hip fracture. This policy allows 
us to include beneficiaries who receive LEJR procedures due to hip 
fractures in the CJR model, while acknowledging their typically greater 
health care needs by providing a target price that is based on payment 
for services furnished in the historical CJR episode data for Medicare 
beneficiaries with hip fractures in order to account for a significant 
amount of beneficiary-driven episode expenditure variation. With the 
same goal in mind of recognizing the greater needs of certain 
beneficiaries that are beyond a participant hospital's control, we are 
proposing an additional risk adjustment methodology for performance 
years 6 through 8. We note that in exploring options for a risk 
adjustment methodology, we considered a number of factors that are not 
included in the proposed methodology because they were not strong 
predictors of episode cost, might result in unintended provider 
efficiency disincentives, were overly complex to calculate or 
administer, had limited credibility or quality of the underlying data 
sources, and/or conflicted with overall bundled payment initiatives. 
The factors we considered include: Dual eligibility (that is, 
beneficiaries enrolled in Medicare Part A and/or Part B and receiving 
full Medicaid benefits), discharge status (that is, the care setting 
for the beneficiary post procedure), joint region (that is, hip, knee, 
or ankle), gender, CMS-HCC condition count, CMS-HCC risk scores (both 
community and institutional), rural/urban designation of the 
participant hospital, clinical setting (that is, inpatient or 
outpatient), rehospitalization rate (that is, presence of hospital 
admission post procedure), and indices of social determinants of health 
at the Zip Code level (for example, participant hospitals receiving a 
certain level of Medicare disproportionate share payments). After 
conducting a variety of analyses and regressions, we are proposing to 
incorporate the following additional risk adjustment into the CJR 
pricing based on CMS-HCC condition count and beneficiary age.
    The first part of the proposed methodology takes into account the 
total number of clinical conditions per beneficiary by assessing the 
count of CMS-HCC conditions, referred to as the CMS-HCC condition 
count. This approach parallels the approach taken in Medicare 
Advantage, which is responsive to section 1853(a)(1)(I)(i)(I) of the 
Act (42 U.S.C. 1395w-23(a)(1)(I)(i)(I)), as added by section 17006(f) 
of the 21st Century Cures Act, which requires CMS to make improvements 
to risk adjustment for 2019 and subsequent years, and which states 
that, among other things, ``[t]he Secretary shall take into account the 
total number of diseases or conditions of an individual enrolled in an 
MA plan. The Secretary shall make an additional adjustment under such 
subparagraph as the number of diseases or conditions of an individual 
increases.''
    Like the other variables in the CMS-HCC model, the count variables 
for the purposes of risk adjustment in CJR would be a series of binary, 
yes/no variables, meaning that a beneficiary does or does not meet the 
criteria for having a given number of CMS-HCC conditions. We propose to 
use five CMS-HCC condition count variables, representing beneficiaries 
with zero, one, two, three, or four or more CMS-HCC conditions. We 
propose to estimate a coefficient from the subgroup of beneficiaries in 
the sample with the specific count of conditions for each count 
variable (as described further later in this section). For example, all 
beneficiaries with two CMS-HCC conditions would receive a coefficient 
that is estimated independently of the coefficient for beneficiaries 
with zero, one, three or four conditions. The coefficient for the two 
CMS-HCC condition count variable would represent the expected marginal 
cost of having any two CMS-HCC conditions, as compared to having zero 
CMS-HCC conditions.
    The second part of the proposed risk adjustment methodology is 
meant to account for average anticipated episode costs associated with 
the age of a CJR beneficiary. Similar to the strategy for incorporating 
CMS-HCC condition count, we would create binary, yes/no variables for 
beneficiaries that fall into certain age ranges. We propose four age 
variables for the risk adjustment methodology to represent 
beneficiaries aged less than 65 years, 65 to 74 years, 75 years to 84 
years, and 85 years or more, based on the patient's age at the time the 
HCC files were created. We propose to estimate a coefficient from the 
subgroup of beneficiaries in the sample in each age range (as described 
further later in this section). We propose that, for applying the 
coefficient to a given reconciliation target price at reconciliation, 
we would select the age

[[Page 10528]]

bracket coefficient based on the patient's age on the date of admission 
for the anchor hospitalization or the date of the anchor procedure.
    The CMS-HCC risk adjustment model is prospective; it uses a profile 
of major medical conditions in the base year, along with demographic 
information (for example, age, sex, Medicaid dual eligibility, 
disability status), to predict Medicare expenditures in the next year. 
It is calibrated on a population of FFS beneficiaries entitled to Part 
A and enrolled in Part B, because CMS has complete Medicare expenditure 
and diagnoses data for this population. The proposed risk adjustment 
method for CJR would also be prospective in that it would use the most 
recently available data to predict the average expected adjustment in 
target price relative to the two risk adjustment variables for future 
performance years. Given the timing of this rule and the time to 
receive and process CMS-HCC condition count data, we propose utilizing 
beneficiary CMS-HCC condition count and age data from a baseline of 
January 1, 2019 to December 31, 2019, to calculate coefficients for 
both risk adjustment variables for performance year 6. Similarly, we 
propose utilizing beneficiary CMS-HCC condition count and age data from 
January 1, 2020 to December 31, 2020, and from January 1, 2021 to 
December 31, 2021, to calculate coefficients for both risk adjustment 
variables for performance years 7 and 8, respectively. While this 
should appropriately capture CMS-HCC condition count data for almost 
all beneficiaries, for any beneficiaries with missing CMS-HCC condition 
count data, we would apply a CMS-HCC condition count risk adjustment 
coefficient of one, so that their missing CMS-HCC condition count would 
neither adjust risk up nor down from the average regional target price 
based in the calculation of the coefficient.
    For PY 6 through 8, coefficients for the risk adjustment variables 
would be calculated prospectively, prior to the beginning of each 
performance year, using a linear regression model. In essence, this 
regression model approach would allow us to estimate the impact of CMS-
HCC condition count and age bracket on the episode cost of an average 
beneficiary, based on typical spending patterns for a nationwide sample 
of beneficiaries with a given number of CMS-HCC conditions and within a 
given age bracket. We propose an exponential model, with the dependent 
variable equal to the ratio of the individual episode cost the regional 
target price, since it will make it less difficult and simpler to 
estimate the proportional increase or decrease for each independent 
variable that can be directly applied to adjust the regional target 
prices. In statistical terms, linear regression models assume a linear 
relationship between a dependent variable and one or more explanatory 
variables, and the associated statistical inference typically reflects 
an assumption of a normal distribution of the error variance (that is, 
the discrepancy between observed values of the dependent variable and 
what would be predicted by the model). As we stated in section II.B.5. 
of this proposed rule, when costs are normally distributed, 95 percent 
of the costs are truly within 2 standard deviations of the mean, with 
only 5 percent of episodes having costs that are much higher than the 
average cost or much lower than the average cost. As we have previously 
observed, TKA and THA episode costs in CJR are not normally 
distributed; that is, less than 95 percent of the costs fall within 2 
standard deviations of the mean. This means that TKA and THA episode 
costs in CJR will inherently exceed the 2 standard deviation threshold 
more often than other clinical episode costs that are distributed 
normally.
    Exponential models, such as the risk adjustment model we are 
proposing, are commonly estimated by transforming the equation to logs 
through logarithmic transformation. In transforming our proposed 
exponential model, the dependent variable becomes the difference in the 
logs of the individual episode costs and the applicable regional MS-
DRG/Fracture target prices and the proportional increases or decreases 
for each independent variable are obtained by exponentiating the 
regression coefficients of the log-transformed model.
    Estimating the logged version of such a model could be problematic 
when de-transforming the logged results to their original form (that 
is, dollars), but this concern is not relevant since we are simply 
proposing to utilize the ratios from the logged version of the model. 
Further, we believe that the MS-DRG/hip fracture target pricing 
differentiation already explains a portion of the cost differences in 
CJR episodes. Therefore, rather than using the log of the episode cost, 
we are proposing to use the differential between the log of the episode 
cost and the log of the episode target price so as to focus only on the 
cost difference not already reflected in the existing target prices.
    Specifically, for each episode in the national sample, grouped into 
its appropriate category based on 36 combinations of the 9 regions and 
the 4 MS-DRG/permitted OP TKA/THA/hip fracture status categories, we 
would subtract the log transformed episode target price for that 
category from each log transformed standardized episode cost.\4\ We 
note that prior to computing the log values of the episode costs, we 
ranked the episode costs and determined the 99th percentile (high 
episode cost cap) amount for each region/MS-DRG/hip fracture 
combination. We then replaced the actual cost amount for each episode 
that exceeded the applicable 99th percentile amount with that 99th 
percentile amount, consistent with our proposal to update the 
methodology used in deriving the high episode spending cap amount.\5\ 
We note that we purposely applied the high cost episode cap prior to 
computing the regression as we are looking to compute a risk adjustment 
for the dollars involved in the model. Since we have a high episode 
cost cap such that no episode will ever cost more than the cap amount, 
we wanted to ensure the risk adjustment co-efficient explained the 
difference between the capped costs and the target price so we could 
adjust the targets appropriately. Then, we would regress, or determine 
the strength of the relationship between each risk adjustment factor 
and episode costs, these amounts (that is, the costs from episodes of 
care furnished to any eligible beneficiary in FFS Medicare from the 
applicable baseline calendar year who is entitled to Part A and 
enrolled in Part B and has an episode triggered by a claim for a MS-DRG 
469, MS-DRG 470 or permitted OP TKA/THA HCPCS code) onto their CMS-HCC 
condition count and age bracket. The resulting coefficients associated 
with CMS-HCC condition count and age bracket (after exponentiating the 
coefficients in order to ``reverse'' the logarithmic transformation we 
performed earlier on episode costs for purposes of the regression 
calculation), would be referred to as the CMS-HCC condition count risk 
adjustment factor and the age bracket risk adjustment factor. Because 
the coefficients are calculated at the national level, the average risk 
score in a given region and MS-DRG/permitted OP TKA/THA/hip fracture 
status category may not be equal to 1. As a result, the target price 
for a beneficiary could have a positive or negative risk adjustment 
applied even if that beneficiary's risk score is equal to

[[Page 10529]]

the average risk of the regional population on which their target price 
was based. We considered alternative approaches of calculating 
coefficients separately for each region or applying risk-
standardization to the regional target price prior to applying the 
beneficiary-specific risk score. However, we did not pursue these 
alternatives in an effort to minimize complication. We solicit comment 
on whether additional calculations steps should be included in order to 
ensure that the average risk score in a given region and MS-DRG/
permitted OP TKA/THA/hip fracture status category is equal to 1.
---------------------------------------------------------------------------

    \4\ We request comment on specification checks that should be 
conducted and on revisions, such as a switch to a fixed effects 
model, that would facilitate such additional analysis.
    \5\ We request comment on the impact of this practice on the 
statistical validity of the model.
---------------------------------------------------------------------------

    An example of the regression output from this model is provided in 
Table 3, which was calculated using national episode data from January 
1, 2018, to December 31, 2018, for MS-DRG 469, MS-DRG 470, and the 
permitted OP TKA/THA HCPCS code. The ``Pr > [bond]t[bond]'' column 
indicates the probability value, or p-value, that the effect of the 
risk adjustment factor is explained by that risk adjustment factor 
alone. Small p-values, typically less than 0.05, indicate strong 
evidence that the effect can be attributed to the risk adjustment 
factor. As described later in this section, the high p-value for the 
Dual Eligibility factor influenced our decision to not choose that risk 
adjustment factor. Indicated by the ``e\x\'' column, the risk 
adjustment coefficients represent the anticipated marginal cost 
associated with each specific risk adjustment factor. For example, the 
1.116 value in Table 3 for beneficiaries Age 85+ indicates that 
beneficiaries 85 years and older are anticipated to increase marginal 
episode costs by 11.6 percent. These coefficients would be posted on 
the CMS website prior to each of performance years 6 through 8, along 
with the average regional target prices, as described in section 
II.B.2. of this proposed rule.

                           Table 3--Regression Output From Log Linear Regression Model
----------------------------------------------------------------------------------------------------------------
                                       Model                                           Pr >
           Parameters                estimates    Standard error      t Value      [bond]t[bond]       e \x\
----------------------------------------------------------------------------------------------------------------
Intercept.......................        -0.08756        0.002127          -41.17          <.0001           0.916
Age 85+.........................        0.109515        0.002573           42.56          <.0001           1.116
Age 75 to 84....................        0.012587         0.00219            5.75          <.0001           1.013
Age 65 to 74....................        -0.05192        0.002134          -24.33          <.0001           0.949
Age Under 65....................  ..............  ..............  ..............  ..............               1
Dual Eligibility[*].............        0.001991        0.002787            0.71          0.4748           1.002
CMS-HCC Count = 4...............        0.226897        0.001721          131.81          <.0001           1.255
CMS-HCC Count = 3...............        0.140797        0.001893            74.4          <.0001           1.151
CMS-HCC Count = 2...............        0.095357        0.001534           62.16           <0001           1.100
CMS-HCC Count = 1...............        0.047497        0.001314           36.14          <.0001           1.049
CMS-HCC Count = 0...............  ..............  ..............  ..............  ..............               1
----------------------------------------------------------------------------------------------------------------
[* While we do not propose to include dual eligibility status in Medicare and Medicaid as a risk adjustment
  factor, it is included in this table to demonstrate the criteria we used to determine appropriate factors. The
  regression analysis was run without the Dual Eligibility variable, with no apparent impact on the other
  coefficient estimates.]

    We are proposing to conduct this linear regression model on updated 
baseline data and post the coefficients on the CMS website prior to the 
start of each of the performance years (6 through 8). By re-running the 
linear regression model each year based on more recent, nationwide data 
(including both CJR and non-CJR episodes), we will more accurately 
account for changes in spending patterns that disproportionately impact 
certain subgroups within our two risk adjustment variables of CMS-HCC 
condition count and age bracket. For instance, if a new LEJR-related 
treatment were introduced during the baseline period, but it was only 
appropriate for use in patients under the age of 85, then the risk for 
increased episode costs relative to the regional mean episode cost 
associated with being in the age brackets for beneficiaries under age 
85 would be impacted differently than the risk of being in the 85+ age 
bracket. By re-running the linear regression model each year and 
updating the risk adjustment coefficients, we would be able to more 
accurately risk adjust at the episode level for all categories of 
beneficiaries at reconciliation.
    At reconciliation, after actual performance year episode costs are 
capped at the proposed 99th percentile consistent with our proposal to 
update the methodology used in deriving the high episode spending cap 
amount, the transformed risk adjustment coefficients for the two 
variables from the log-linear regression would be applied to 
beneficiary level target prices based on the applicable episode region, 
MS-DRG, and hip fracture status. However, since the age and the CMS-HCC 
condition count variables are inherently included in the regional 
target price, as regions with a higher proportion of older 
beneficiaries or beneficiaries with higher CMS-HCC condition counts 
tend to have higher average episode costs, we propose to apply a 
normalization factor to remove the overall impact of adjusting for age 
and CMS-HCC condition count on the national average target price. This 
normalization factor would be the national mean of the target price for 
all episode types divided by the national mean of the risk-adjusted 
target price. For example, if the average target price for all episodes 
(average of all 36 MS-DRG 470 no fracture, MS-DRG 470 fracture, MS-DRG 
469 no fracture and MS-DRG 469 fracture applied to all episodes in a 
year) is $22,000 and the average of target prices for the same set of 
episodes once risk adjustments are applied is $23,158 then the 
normalization factor would be computed as 0.95 ($22,000 divided by 
$23,158). We would then apply the normalization factor to the 
previously calculated, beneficiary-level, risk adjusted target prices 
specific to each episode region, MS-DRG, and hip fracture status 
combination. These normalized target prices would then be further 
adjusted for market trends (as proposed at Sec.  510.301) and quality 
performance (as specified at Sec.  510.300), prior to being compared to 
the episode costs (after episode costs are reduced for high episode 
spending as specified at Sec.  510.300 and/or extreme and 
uncontrollable conditions under Sec.  510.305).
    For example, a 70-year-old beneficiary with an HCC count of 4, 
located in the West North Central Division, region 4, has an MS-DRG 470 
no fracture episode during performance year 6. Assume that the total 
actual cost for this episode was

[[Page 10530]]

$17,900, which for purposes of this example we will assume is under the 
high cost episode cap amount and thus no capping needs to be applied to 
the actual costs and that the beneficiary was treated at a CJR hospital 
with a composite quality score of `Good' with a 1.5 percent withhold.
    Assuming the target price for region 4 DRG 470 no fracture is 
$17,550 (reflects a 3 percent quality withhold), the normalization 
factor in effect for performance year 6 is 0.95, and the market trend 
factor is 1.023, the target price applied for reconciling this episode 
would be computed as follows:
    Step 1. Risk adjust the target--Assuming the value shown in Table 
4: Risk Factor Multipliers for CJR for All Age Bracket and HCC Count 
Combinations of this proposed rule are in effect for purposes of this 
example, locate the appropriate risk adjustment co-efficient 
combination for an HCC of 4 and age of 70 which is listed as 1.191 and 
multiply the target price of $17,550 by that value:

$17,550 * 1.191 = $20,902.05

    Step 2. Normalize the risk adjusted target price by multiplying it 
by the normalization factor of 0.95:

$20,902.05 * .95 = $19,856.95

    Step 3. Apply the market trend factor:

$19,856.95 * 1.023 = $20,313.66

    Step 4. Adjust the price to reflect the hospital's composite 
quality score category of `Good' (1.5% withhold rather than 3%) by 
restoring 3% and then adjusting to withhold 1.5%:

$20,313.66 * 100/97 = $20,941.91
$20,941.91 * .985 = $20,627.79

    Once the applicable risk adjusted, normalized, trend adjusted and 
quality adjusted target price is computed, the actual episode costs of 
$17,900 would be compared to the target of $20,627.79 and this episode 
would therefore show a savings of $2,727.79. We previously considered 
making risk adjustments based on a participant hospital's average HCC 
score for patients with anchor hospitalizations (80 FR 73338). However, 
we did not propose this policy because the HCC score was developed for 
applications in generalized population health and might not be 
appropriate for use in predicting expenditures for specific clinical 
episodes over a shorter period of time. We are instead proposing to use 
the CMS-HCC condition count and age variables as risk adjustment 
factors, as we believe that these variables do improve the 
predictability to our target pricing, even though they are not as fully 
as comprehensive as the HCC score variable. As noted in the ``e\x\'' 
column of Table 3, the risk adjustment coefficients vary across groups 
consistent with expected increases in severity, and the coefficients 
are monotonic with respect to expected severity (with the exception of 
the under-65 age group, which is expected to be relatively expensive 
due to the high volume of disabled beneficiaries in that age group). 
Additionally, we are proposing to use CMS-HCC condition count and age 
because based on internal regression analyses using the coefficients 
from Table 3, those factors contribute an additional 7.1 percent of 
statistically significant predictability to our target price 
calculation. This improved accuracy in target pricing is especially 
important since early evaluation results from CJR that indicate a 
higher proportion of episodes are exceeding the high-cost episode cap 
than initially anticipated. Using the values from Table 3, we 
constructed Table 4 to illustrate the risk factor permutations for each 
Age Bracket and HCC count category. For performance years 6, 7 and 8, 
we are proposing to publish updated versions of Tables 3 and 4 on the 
CMS website prior to the beginning of each performance year based on 
the data from the applicable baseline calendar year in order to 
communicate the specific risk factors applicable in a given performance 
year.

             Table 4--Risk Factor Multipliers for CJR for All Age Bracket and HCC Count Combinations
----------------------------------------------------------------------------------------------------------------
                                   CMS-HCC Count   CMS-HCC Count   CMS-HCC Count   CMS-HCC Count   CMS-HCC Count
           Age bracket                  = 4             = 3             = 2             = 1             = 0
----------------------------------------------------------------------------------------------------------------
Age 85+.........................           1.401           1.285           1.228           1.171           1.116
Age 75 to 85....................           1.271           1.166           1.114           1.063           1.013
Age 65 to 74....................           1.191           1.092           1.044           0.996           0.949
Age Under 65....................           1.255           1.151             1.1           1.049               1
----------------------------------------------------------------------------------------------------------------

    Our intent with the proposed risk adjustment methodology is to 
reduce the need for application of the high-cost episode cap by more 
accurately setting and adjusting target prices, although our proposed 
new methodology for deriving the high episode spending cap amount may 
also reduce instances when the cap applies. This approach is responsive 
to commenters in past CJR proposed rules that indicated the accuracy of 
target prices benefits participants by increasing financial 
predictability of participation in the model.
    We also considered proposing, as a risk adjustment variable, a 
beneficiary's dual-eligibility status in Medicare and Medicaid, or a 
variable to potentially control for social determinants of health and 
patient economic demographics. However, after including the CMS-HCC 
condition count and age variables in regression model, the subsequent 
addition of the dual-eligibility status variable was negligible in 
terms of enhancing ability of the methodology to accurately predict 
changes in target price (that is, as shown in Table 3 its p-value was 
0.4748, demonstrating that there is weak evidence to suggest that the 
dual eligibility status variable alone has a statistically significant 
effect on episode costs). As previously noted, other variables 
considered but not chosen due to similar lack of additive predictive 
power were rural or urban designation of the participant hospital and 
ZIP Code level. While we are not proposing to include dual-eligibility 
status as a risk adjustment variable, we seek comment on the inclusion 
of this and other risk adjustment variables in the model to account for 
such patient characteristics. Additionally, we chose binary variables 
to represent the risk adjustment factors since it is a generally 
accepted common practice in similar regression analyses, and for 
simplicity purposes in our model. However, we seek comment on 
alternative methods for expressing these factors in our exponential 
risk adjustment model.
5. Changes to Methodology for Determining the High Episode Spending Cap 
Amount at Reconciliation
    As discussed in section II.B.5. of this proposed rule, the high 
episode spending cap amount was designed to prevent providers from 
being held responsible for catastrophic spending amounts that they 
could not reasonably have been expected to prevent, such as post-acute 
care, related hospital readmissions, and other items and services 
related to the LEJR episode, by

[[Page 10531]]

capping costs for those episodes at 2 standard deviations above the 
regional mean episode price in calculating the target price and in 
comparing actual episode payments during the performance year to the 
target prices. However, the current methodology for setting the high 
episode spending cap amount has not been as successful when applied to 
actual performance period episode spending at reconciliation, 
illustrated by the fact that we have observed a high percentage of 
episodes exceed the cap during reconciliation, which indicates that the 
cap may not reflect true outlier costs. This may be partly explained by 
the fact that the TKA and THA procedure episode costs are not 
distributed normally. As discussed in section II.B.5. of this proposed 
rule, many LEJR episodes fall above 2 standard deviations from the mean 
at reconciliation (a much greater deviation than would occur if the 
costs were distributed normally). As a result, for performance years 6 
through 8, we propose to change our method of calculating the high 
episode spending cap amount applied during reconciliation by 
calculating high episode spending cap amounts based on the 99th 
percentile of costs. Similar to the current methodology, the high 
episode spending cap amounts applied during reconciliation for each MS-
DRG/permitted OP TKA/THA and hip fracture combination would be derived 
from performance year regional spending. Total episode costs above the 
99th percentile would be capped at the 99th percentile amount, and 
these capped episode amounts would be used when comparing performance 
year costs to target prices during reconciliation. We expect that this 
method of calculation will result in high episode spending cap amounts 
that more accurately represent the cost of infrequent and potentially 
non-preventable complications for each category of episode, which the 
participant hospital could not have reasonably controlled and for which 
we do not want to penalize the participant hospital. We are proposing 
conforming changes to Sec.  510.200.
6. Changes to Trend Factor Calculation
    A limitation of the target price methodology we have discovered and 
are proposing to address as part of this change and extension is the 
absence of a trend factor calculation at reconciliation to incorporate 
and be responsive to ongoing practice changes in the joint replacement 
space. When we designed the original target price methodology, we did 
not anticipate the nationwide downward trend in use of post-acute care 
services. This decrease in use, corresponding to a decrease in average 
LEJR episode prices, was seen in both CJR and non-CJR hospitals, 
representing an underlying trend in LEJR episode spending patterns that 
was neither specific to, nor driven by, CJR participants. This 
generalized downward trend was not incorporated into CJR target prices, 
leading to artificially inflated target prices for CJR episodes. Our 
goal is to reward CJR participant hospitals for decreased spending 
based on improved coordination and quality of care related to their 
participation in the CJR model, not to reward decreases in spending 
that likely would have occurred even in the absence of the model, as 
evidenced by comparably decreased spending in non-CJR hospitals. If the 
CJR model were to continue to provide artificially inflated target 
prices, the model would not decrease Medicare spending over time.
    Another major change that is not accounted for in CJR target price 
methodology is the recent restructuring of the SNF payment system in 
the FY 2019 SNF PPS final rule (83 FR 39162). The original CJR 
methodology assumed that the SNF payment system would retain the same 
structure, but would update prices on an annual basis, which would be 
reflected in the trend factor. However, effective October 1, 2018, we 
finalized a policy to change the case-mix methodology used to set 
payment rates for SNFs, which will be implemented starting on October 
1, 2019 (83 FR 39162). The existing case-mix classification 
methodology, the Resource Utilization Group, Version IV (RUG-IV) model 
will be replaced by a new case-mix methodology called the Patient-
Driven Payment Model (PDPM). The new case mix methodology is designed 
to focus on the patient's condition and resulting needs for care, 
rather than on the amount of care provided, in order to determine 
Medicare payment. This structural change to the SNF payment system 
means that, if we were to try to adapt the existing CJR trend factor 
methodology, prior year SNF spending can no longer be simply updated, 
but rather would need to be translated to reflect a different SNF 
payment methodology. A similar payment system change was finalized for 
the Home Health Prospective Payment System (HH PPS) in the CY 2019 HH 
PPS final rule (83 FR 56406) which updated the period of care and other 
methodological components of the HH PPS effective January 1, 2020. 
Similar to the FY 2019 SNF PPS updates, we anticipate the new strategy 
proposed in this section of this rule would account for these trends.
    The inability to integrate both generalized spending trends not 
driven by CJR, and major payment system changes, in combination with 
the fact that OP TKA data were not available prior to 2018, have led us 
to propose a new way to account for trend in CJR target prices.
    Rather than the national update factor and biannual Medicare 
prospective payment and fee schedule update methodology we currently 
apply to historical episode spending in order to trend target prices 
forward prospectively (80 FR 73342), we propose to calculate a market 
trend factor at the time of reconciliation by calculating the ratio of 
performance period spending to baseline period spending, and applying 
the resulting ratio to the target price.
    Specifically, after the beneficiary-level, risk adjusted target 
prices are normalized, as described in section II.B.5. of this proposed 
rule, the next step before reconciling expenditures would be to apply a 
market trend factor to the target prices. The market trend factor would 
be the regional/MS-DRG/fracture mean cost for episodes occurring during 
the performance year divided by the regional/MS-DRG/fracture mean cost 
for episodes occurring during the target price base year. For example, 
the performance year 6 market trend factor for MS-DRG 470 without hip 
fracture in Region 1 would be calculated as the Region 1 mean episode 
costs for MS-DRG 470 without hip fracture episodes ending between 
January 1, 2021, to December 31, 2021, divided by the Region 1 mean 
episode costs for MS-DRG 470 without hip fracture episode ending 
between January 1, 2019, to December 31, 2019. As a result, we would 
calculate 36 market trend factors during reconciliation, one for each 
MS-DRG/fracture status and region combination. These market trend 
updates would then be applied to the normalized target prices discussed 
in section II.B.5. of this proposed rule. The resulting target prices 
would be the final target prices used when reconciling performance year 
episode costs. We proposed utilizing the regional mean episode costs as 
a basis for the market trend factor update calculation, but we seek 
comment on alternatively using the regional median episode costs for 
this calculation.
    Combined with our proposal to use 1 year of baseline data to 
calculate CJR target prices for performance years 6 to 8 (discussed in 
section II.B.3. of this proposed rule), the proposed changes to

[[Page 10532]]

our trend factor calculation methodology will allow us to capture both 
trends in spending patterns and payment system updates in a simplified, 
retrospective manner.
7. Changes to Composite Quality Score Adjustment
    When setting an episode target price for a participant hospital, we 
currently apply a 3 percentage point discount to establish the episode 
target price that applies to the participant hospital's episodes during 
that performance year. We established this policy because we expect 
participant hospitals to have significant opportunity to improve the 
quality and efficiency of care furnished during episodes in comparison 
with historical practice, because this model facilitates the alignment 
of financial incentives among providers caring for beneficiaries 
throughout the episode. This discount serves as Medicare's portion of 
reduced expenditures from the episode, with any episode expenditure 
below the target price potentially available as reconciliation payments 
to the participant hospital where the anchor hospitalization occurred.
    For performance years 1 through 5, a one percentage point reduction 
is applied to the 3 percent discount factor for participant hospitals 
with good quality performance, defined as composite quality scores that 
are greater than or equal to 6.9 and less than or equal to 15.0. 
Additionally, for performance years 1 through 5, a 1.5 percentage point 
reduction is applied to the 3 percent discount factor for participant 
hospitals with excellent quality performance, defined as composite 
quality scores that are greater than 15.0.
    While we are not proposing to change the 3 percentage point 
discount factor, we are proposing to increase a participant hospital's 
ability to reduce the discount factor as a result of its composite 
quality score. We propose this change in recognition that the proposed 
changes to the target price calculation (discussed in section II.B. of 
this proposed rule), intended to increase the accuracy of target prices 
compared to actual performance period spending may also narrow the 
potential for participant hospitals to earn reconciliation payments. 
For performance years 1 and 2, a large majority of CJR participant 
hospitals received a reconciliation payment: 44 percent of CJR 
participant hospitals received reconciliation payments in both 
performance years and an additional 33 percent received a 
reconciliation payment in one of the two performance years; 23 percent 
never received reconciliation payments.
    Because of these more accurate target prices, and the fact that all 
participant hospitals would be at financial risk during performance 
years 6 through 8, we determined that a more generous composite quality 
score adjustment to the discount factor is appropriate. The composite 
quality score adjustment for performance years 1 through 5, with a 
maximum potential for a 1.5 percentage point reduction to the discount 
factor, could potentially force the target amounts calculated under the 
proposed methodology (discussed in section II.B. of this proposed rule) 
under an appropriate actual cost amount, which is not the intent of the 
model. While the discount factor was meant to serve as Medicare's 
portion of reduce expenditures from an episode, we determined that the 
proposed changes to the target price methodology are adequate to 
maintain an appropriate level of reduced expenditures for Medicare 
while rewarding participant hospitals with high composite quality 
score. For further information on the anticipated model savings as a 
result of the proposed target price changes, see section IV.C. of this 
proposed rule.
    As a result, we are proposing that, for performance years 6 through 
8, a 1.5 percentage point reduction be applied to the 3 percent 
discount factor for participant hospitals with good quality 
performance, defined as composite quality scores that are greater than 
or equal to 6.9 and less than or equal to 15.0. Additionally, we are 
proposing that a 3 percentage point reduction be applied to the 3 
percent discount factor for participant hospitals with excellent 
quality performance, defined as composite quality scores that are 
greater than 15.0. That is, for participant hospitals with excellent 
quality performance, the 3 percentage point discount factor would 
effectively be eliminated for the applicable performance year.

D. Three-Year Extension (PYs 6 Through 8)

    As noted in sections II. and III. of this proposed rule, we are 
proposing changes to the CJR target price methodology and the 
reconciliation process primarily to account for the removal of TKA and 
THA procedures from the IPO list and analysis of the reconciliation 
process for CJR performance years 1 to 2 that indicates the process is 
not functioning as initially intended (for example, a larger number of 
episodes are being capped by the high episode spending cap amount than 
we anticipated). We are proposing to extend the CJR model for an 
additional 3 years to run through December 31, 2023, to allow 
sufficient time to evaluate the impact of the changes we are proposing 
to resolve these concerns. CMS proposes that, while PY6 episodes would 
end on or after January 1, 2021, PY6 episodes would start as of the 
later of October 4, 2020 or the date on which the final rule becomes 
effective. We solicit comment on our proposed start date of PY 6. We 
have determined that this additional time is needed to complete the 
model test to generate the necessary evaluation findings for an 
expansion. Extending the model for 3 additional performance years will 
allow the Innovation Center to test and evaluate these the model while 
promoting the alignment of quality with financial accountability. We 
propose to change the regulations under 42 CFR part 510 to reflect this 
extension.
    The changes and extension will apply only to those participant 
hospitals with a CMS Certification Number (CCN) primary address in the 
34 mandatory MSAs, excluding participant hospitals in those mandatory 
MSAs that are ``low-volume hospitals'' or that have received a 
notification from CMS dated prior to October 4, 2020 that they have 
been designated as ``rural hospitals'' (each as defined in 42 CFR 
510.2) and that voluntarily elected to participate in the CJR model for 
performance years 3 through 5. We are not proposing to provide any 
additional opt-in period for these hospitals (low-volume hospitals and 
rural hospitals with a CCN primary address in a mandatory MSA) or for 
any hospitals with a CCN primary address located in the 33 voluntary 
MSAs and therefore, participation of these hospitals in the model will 
end at the end of performance year 5. We originally designed the CJR 
model to require participation by hospitals in order to avoid the 
selection bias inherent to any model in which providers may choose 
whether to participate (80 FR 73278). Narrowing participation for 
hospitals in the 34 mandatory MSAs during the proposed 3 year extension 
will allow CMS to minimize selection bias while evaluating the impact 
of the changes proposed in this rule. In the December 2017 CJR final 
rule (82 FR 57074), CMS finalized a policy to exclude rural and low 
volume hospitals from the CJR model. Although we allowed for a one time 
voluntary opt-in for rural and low-volume hospitals for performance 
years 3 to 5, very few hospitals, 86 out of close to 400 eligible 
providers, opted to continue participating in years 3 to 5.

[[Page 10533]]

The cost to evaluate the small voluntary arm of the model for years 6-8 
would be excessive relative to the information we could glean from the 
small sample size. We already have evaluation data on voluntary LEJR 
bundled payment model participation from the Bundled Payments for Care 
Improvement (BPCI) model, which ended on September 30, 2018 and we are 
actively gathering more data on LEJR bundles from both the current CJR 
model performance years 3 through 5 and from the BPCI Advanced Model 
which is currently running. All national hospitals were able to 
volunteer for Bundled Payments for Care Improvement Advanced (BCPI 
Advanced), a voluntary bundled payment model which tests the same DRG's 
as CJR. We believe that BPCI Advanced is an ideal fit for hospitals 
seeking to voluntarily participate in a clinical episode-based payment 
model for LEJR. Specifically, among other episodes it offers, BPCI 
Advanced offers a LEJR episode for BPCI Advanced which includes 
outpatient TKA procedures as of January 1, 2020. BPCI Advanced is also 
voluntary, and held its application period for participation as of 
January 1, 2020 during the spring and summer of 2019. This application 
period was open to acute care hospitals, physician group practices, and 
other entities such as post-acute care providers and while CJR 
participant hospitals could not elect LEJR participation for 2020, 
selecting to participate in at least one other BPCI Advanced bundled 
payment episode for 2020 would allow these providers to add LEJR 
episode participation at the end of CJR performance year 5. Since the 
CJR model, under our existing regulations, would end on December 31, 
2020, we anticipate that any participant hospitals interested in 
pursuing voluntary participation in a bundled payment model already 
would have applied to participate in BPCI Advanced.
    We have decided to use the notification date of the rural 
reclassification approval letter as the determining factor of 
participation in the CJR model for PY 6 through PY 8, since it is an 
objective factor for determining participation based on rural 
reclassification. Thus, for PY 6 through PY 8, hospitals who applied 
for rural reclassification pursuant to 42 CFR 412.103 and have been 
notified by CMS before October 4, 2020 that their application for rural 
status has been approved will no longer be participating in the model 
beginning PY 6 (that is, for any episodes beginning on or after October 
4, 2020). Participant hospitals reclassified as rural that are notified 
that their application for rural status has been approved on or after 
October 4, 2020 (even if the effective date of the rural 
reclassification is retroactively effective to before October 4, 2020) 
will continue to participate in the CJR model for PY 6 through PY 8 and 
will remain the financially accountable entities for PY 6 through PY 8.
    Rural reclassification requests that are submitted in accordance 
with Sec.  412.103 could take several months to be reviewed and 
approved by the CMS Regional Office. The CMS model team will make every 
effort to post an accurate list of performance year 5participant 
hospitals identified as having rural status prior to October 4, 2020 on 
the CJR model page (https://innovation.cms.gov/initiatives/cjr) and 
will conduct email and/or phone outreach with these providers. Because 
the rural reclassification review process occurs on a rolling basis, we 
acknowledge that a delay in communication and notification may occur 
between the CMS Regional Office and the CJR model team. Accordingly, if 
hospitals who have been notified of their rural status before October 
4, 2020 receive communications from the CJR model team that suggest 
their continued participation in the CJR model, it is only due to the 
delay in CMS internal communications between the CMS Regional Office 
and the CJR model team. The CJR model team will discontinue model 
communications to hospitals that were notified of rural status by CMS 
prior to October 4, 2020 as soon as the CJR model team is informed of 
the hospital's rural status. Any hospital who is notified of rural 
status prior to October 4, 2020 should disregard these CJR model 
communications as they do not suggest the hospital's continued 
participation in the model for proposed PY 6 through PY 8.

E. Participant Hospital Detailed Notification and Discharge Planning 
Notice

1. Participant Hospital Notification
    Under current regulations, the participant hospital detailed 
notification informs Medicare beneficiaries of their inclusion in the 
CJR model and provides an in-paper, detailed explanation of the model, 
either upon admission to the participant hospital if the admission is 
not scheduled in advance, or as soon as the admission is scheduled. In 
this proposed rule, as discussed in section II.A.2. of this proposed 
rule, we are proposing to change the definition of an `episode of care' 
to include outpatient procedures, for which the beneficiary would not 
be admitted to the participant hospital. We are also proposing to add 
the definition of `anchor procedure' to mean a TKA or THA procedure 
that is permitted and reimbursable by Medicare when performed in the 
outpatient setting and billed through the OPPS. We believe that the 
beneficiary should be notified of his or her inclusion in the CJR model 
whether the procedure takes place in an inpatient or outpatient 
setting. Therefore, we propose changes for the participant hospital 
detailed notification at 42 CFR 510.405(b)(1) to clarify that if the 
anchor procedure or anchor hospitalization is scheduled in advance, 
then the participant hospital must provide notice as soon as the anchor 
procedure or anchor hospitalization is scheduled. Further, we propose 
if the anchor procedure or anchor hospitalization is not scheduled in 
advance, then the notification must be provided on the date of the 
anchor procedure or date of admission to the anchor hospitalization.
    Lastly, we currently state that in circumstances where, due to the 
patient's condition, it is not feasible to provide the detailed 
notification when scheduled or upon admission, the notification must be 
provided to the beneficiary or his or her representative as soon as is 
reasonably practicable but no later than discharge from the participant 
hospital accountable for the CJR episode. We are proposing to clarify 
that this policy applies only to inpatient hospital admissions. The 
purpose of this policy is to promote hospital care for the beneficiary 
first if it is not reasonably practicable to provide the notification 
upon admission. For example, if a beneficiary requires emergent care, 
the focus of the hospital should not be on providing a notification, 
but on the beneficiary. In contrast, outpatient procedures are 
generally scheduled and non-emergent. Therefore, we not believe this 
policy is applicable to outpatient procedures, and do not propose to 
allow this type of beneficiary notification in cases of outpatient 
procedures.
    We believe these proposals would require changes to the participant 
hospital detailed notification provided on the CJR web page and if 
these proposals are finalized, CMS would update the participant 
hospital notification provided accordingly.
2. Discharge Planning Notice
    Under current regulations, a participant hospital must provide the 
beneficiary with a written notice of any potential financial liability 
associated with non-covered services recommended or presented as an 
option as part of discharge planning, no later

[[Page 10534]]

than the time that the beneficiary discusses a particular post-acute 
care option or at the time the beneficiary is discharged, whichever 
occurs earlier (42 CFR 510.405(b)(3)). Given our proposal in section 
II.A.2. of this proposed rule to change the definition of an `episode 
of care' to include outpatient procedures, for which the beneficiary 
would not be admitted to the participant hospital, we propose to 
clarify the requirements of the discharge planning notice. We believe 
the beneficiary must be notified of his or her possible financial 
liability associated with non-covered post-acute care whether the 
procedure takes place in an inpatient or outpatient setting. Therefore, 
we propose that a participant hospital must provide the beneficiary 
with a written notice of any potential financial liability associated 
with non-covered services recommended or presented as an option as part 
of discharge planning, no later than the time that the beneficiary 
discusses a particular post-acute care option or at the time the 
beneficiary is discharged from an anchor procedure or anchor 
hospitalization, whichever occurs earlier.

F. Quality Measures and Reporting

    The two quality measures included in the CJR model are the total 
hip arthroplasty and/or total knee arthroplasty (THA/TKA) Complications 
measure (NQF #1550) and the Hospital Consumer Assessment of Healthcare 
Providers and Systems (HCAHPS) Survey measure (NQF #0166). The model 
also incentivizes the submission of THA/TKA patient-reported outcomes 
(PRO) and limited risk variable data. We are proposing to advance the 
Complications and HCAHPS performance periods for model years 6 through 
8 in alignment with the performance periods used for performance years 
1 through 5. For PRO, we are also proposing to advance the performance 
periods in alignment with previous performance periods as well as make 
changes to the thresholds for successful submission. We propose to make 
these changes to the thresholds for successful submission as 
participant hospitals gain experience with PRO and to continue the 
trend of increased thresholds set by the earlier performance years of 
the model. These proposed changes are outlined in the table.

  Table 5--Proposed Potential Performance Periods for Pre- and Post-Operative THA/TKA Voluntary Data Submission
----------------------------------------------------------------------------------------------------------------
                                                Duration of
                                                    the          Patient population         Requirements for
       Model year         Performance period    performance     eligible for THA/TKA       successful THA/TKA
                                                  period           voluntary data            voluntary data
                                                 (months)            submission                submission
----------------------------------------------------------------------------------------------------------------
2021...................  July 1, 2019                     24  All patients undergoing   Submit POST-operative
                          through June 30,                     elective primary THA/     data on primary
                          2020.                                TKA procedures            elective THA/TKA
                                                               performed between July    procedures for >=80% or
                                                               1, 2019 and June 30,      >=200 procedures
                                                               2020.                     performed between July
                                                                                         1, 2019 and June 30,
                                                                                         2020.
2021...................  July 1, 2020         ..............  All patients undergoing   Submit PRE-operative
                          through June 30,                     elective primary THA/     data on primary
                          2021.                                TKA procedures            elective THA/TKA
                                                               performed between July    procedures for >=90% or
                                                               1, 2020 and June 30,      >=500 procedures
                                                               2021.                     performed between July
                                                                                         1, 2020 and June 30,
                                                                                         2021.
2022...................  July 1, 2020                     24  All patients undergoing   Submit POST-operative
                          through June 30,                     elective primary THA/     data on primary
                          2021.                                TKA procedures            elective THA/TKA
                                                               performed between July    procedures for >=90% or
                                                               1, 2020 and June 30,      >=500 procedures
                                                               2021.                     performed between July
                                                                                         1, 2020 and June 30,
                                                                                         2021.
2022...................  July 1, 2021         ..............  All patients undergoing   Submit PRE-operative
                          through June 30,                     elective primary THA/     data on primary
                          2022.                                TKA procedures            elective THA/TKA
                                                               performed between July    procedures for 100% or
                                                               1, 2021 and June 30,      >=1,000 procedures
                                                               2022.                     performed between July
                                                                                         1, 2021 and June 30,
                                                                                         2022.
2023...................  July 1, 2021                     24  All patients undergoing   Submit POST-operative
                          through June 30,                     elective primary THA/     data on primary
                          2022.                                TKA procedures            elective THA/TKA
                                                               performed between July    procedures for 100% or
                                                               1, 2021 and June 30,      >=1,000 procedures
                                                               2022.                     performed between July
                                                                                         1, 2021 and June 30,
                                                                                         2022.
2023...................  July 1, 2022                     24  All patients undergoing   Submit PRE-operative
                          through June 30,                     elective primary THA/     data on primary
                          2023.                                TKA procedures            elective THA/TKA
                                                               performed between July    procedures for 100% or
                                                               1, 2022 and June 30,      >=1,000 procedures
                                                               2023.                     performed between July
                                                                                         1, 2022 and June 30,
                                                                                         2023.
----------------------------------------------------------------------------------------------------------------

G. Financial Arrangements: Elimination of 50 Percent Cap on Gainsharing 
Payments, Distribution Payments, and Downstream Distribution Payments

    Currently, participant hospitals may engage in financial 
arrangements under the CJR model. Starting with the November 2015 CJR 
final rule (80 FR 73412 through 73437) participant hospitals have been 
allowed to enter into sharing arrangements to make gainsharing payments 
to certain providers and suppliers with which they were collaboratively 
caring for CJR beneficiaries and to allow CJR collaborators that are 
physician group practices to enter into distribution arrangements to 
share those gainsharing payments with certain PGP members. In the EPM 
final rule (82 FR 180) we finalized a full replacement of the prior CJR 
regulations in order to revise and refine these requirements to allow 
for--(1) participant hospitals to enter into sharing arrangements with 
additional categories of CJR collaborators, including certain ACOs, 
hospitals, CAHs, non-physician provider group practices (NPPGPs) and 
therapy group practices (TGPs); (2) ACOs, PGPs, NPPCGs and TGPs that 
are CJR collaborators to enter into distribution arrangements with 
certain entities and individuals; and (3) PGPs, NPPGPs and TGPs that 
received distribution payments from ACOs to enter into downstream 
distribution arrangements to share distribution payments with certain 
of their members. We believe these opportunities outlined in the EPM 
final rule (82 FR 531 through 554) for the individuals and entities 
that engage in beneficiary care, care redesign and care management to 
share in the financial risk and rewards of the CJR

[[Page 10535]]

model promote accountability for the quality, cost, and overall care 
for CJR beneficiaries.
    In order to ensure that goals of the CJR model are met, and to 
ensure program integrity and protection from abuse, the CJR model has 
many requirements for these financial arrangements. According to Sec.  
510.2 a gainsharing payment means a payment from a participant hospital 
to a CJR collaborator, under a sharing arrangement, composed of only 
reconciliation payments or internal cost savings or both; a 
distribution payment means a payment from a CJR collaborator that is an 
ACO, PGP, NPPGP, or TGP to a collaboration agent, under a distribution 
arrangement, composed only of gainsharing payments; and a downstream 
distribution payment means a payment from a collaboration agent that is 
both a PGP, NPPGP, or TGP and an ACO participant to a downstream 
collaboration agent, under a downstream distribution arrangement, 
composed only of distribution payments. Among other requirements, the 
CJR model has always included a cap on certain gainsharing payments and 
distribution payments to physicians, non-physician practitioners, and 
PGPs equal to 50 percent of the total Medicare approved amounts under 
the Physician Fee Schedule for items and services that are furnished to 
beneficiaries by that individual or entity during the performance year. 
As the CJR model has evolved, this cap has been retained and broadened 
to apply to gainsharing payments to NPPGPs, to distribution payments to 
non-physician practitioners, PGPs and NPPGPs, and to downstream 
distribution payments to non-physician practitioners and physicians. 
Accordingly, under the current regulations at Sec.  510.500(c)(4)(i) 
and (ii), the total amount of gainsharing payments for a performance 
year paid to physicians, non-physician practitioners, physician group 
practices (PGPs), and non-physician practitioner group practices 
(NPPGPs) must not exceed 50 percent of the total Medicare approved 
amounts under the Physician Fee Schedule for items and services that 
are furnished to beneficiaries during episodes that occurred during the 
same performance year for which the CJR participant hospital accrued 
the internal cost savings or earned the reconciliation payment that 
comprises the gainsharing payment being made. Distribution payments to 
these individuals and entities are similarly limited as specified in 
Sec.  510.505(b)(8)(i) and (ii), and downstream distribution payments 
are similarly limited as specified in Sec.  510.506(b)(8). However, 
based on comments received over the course of this model, our 
experience over time and our desire to allow consistent flexibilities 
across models, we are proposing to eliminate these caps for episodes 
ending after December 31, 2020.
    The need for the caps has been the subject of extensive comment 
since the start of the CJR model. In the initial CJR proposal in July 
2015 (80 FR 41198) we emphasized that the payment arrangements must be 
actually and proportionally related to the care of the beneficiaries in 
the CJR model and proposed a cap on gainsharing payments to individual 
physicians, non-physician practitioners, and PGPs equal to 50 percent 
of the Medicare-approved amounts under the PFS for items and services 
billed by that individual or PGP and furnished to the participant 
hospital's CJR beneficiaries. As discussed in the November 2015 CJR 
final rule (80 FR 73420 through 73422), many commenters opposed the 
proposed cap on the total amount of gainsharing payments for a calendar 
year that could be paid to a PGP or an individual physician or non-
physician practitioner who is a CJR collaborator, arguing that the 50 
percent figure is arbitrary and should be removed. Other commenters 
asserted that a PGP that is a CJR collaborator should have the freedom 
to determine the most appropriate way to distribute gainsharing 
payments, given the multiple disciplines involved in patient care. 
Additionally, some commenters requested that internal cost savings be 
treated separately from reconciliation payments under the cap on 
gainsharing payments. Other commenters urged CMS to apply the same cap 
to the CJR model as is applied to Model 2 of the BPCI initiative. In 
our response, we acknowledged the many perspectives of the commenters 
on the proposed cap on gainsharing payments to physicians, non-
physician practitioners, and PGPs in the CJR model. We stated that the 
purpose of the cap is to serve as a safeguard against the potential 
risks of stinting, steering, and denial of medically necessary care due 
to financial arrangements specifically allowed under the CJR model by 
providing an upper limit on the potential additional funds a physician, 
non-physician practitioner, or PGP can receive for their engagement 
with participant hospitals in caring for CJR model beneficiaries beyond 
the FFS payments that those suppliers are also paid and that are 
included in the actual episode spending calculation for the episodes. 
Moreover, we affirmed our intent to align the cap in CJR with the 50 
percent cap on gainsharing payments to physicians and non-physician 
practitioners in the BPCI initiative, and noted that participants in 
BPCI had not voiced significant complaints that this moderate financial 
limitation had hampered their ability to engage physicians and non-
physician practitioners in care redesign to improve episode quality and 
reduce costs. Accordingly, we concluded the 50 percent cap on 
gainsharing payments was an appropriate condition for the CJR model at 
that time. This final rule also established a framework for 
distribution payments and applied the cap to those payments as well.
    In August 2016, when we proposed to expand the range of permissible 
financial arrangements to include additional parties and to allow for 
downstream distribution arrangements, we proposed to apply the 50 
percent cap to those payment arrangements well. As discussed in the 
January 2017 EPM final rule (82 FR 458 through 460), commenters were 
again of mixed views on these caps. While several commenters, including 
MedPAC, supported the caps, most commenters either recommended that CMS 
eliminate the caps for PGPs, eliminate the caps altogether for PGPs, 
physicians, and non-physician practitioners, or apply the caps on a 
different basis than CMS' proposal of 50 percent of the Medicare-
approved amounts under the PFS for items and services furnished by the 
physician or non-physician practitioner. In our response, we stated our 
continued belief that the caps served as a safeguard against the 
potential risks of stinting, steering, and denial of medically 
necessary care due to financial arrangements specifically allowed under 
the model. We again emphasized that we applied the 50 percent cap in 
both the CJR model and the BPCI initiative, and participants in neither 
model had voiced significant complaints that this financial limitation 
had hampered their ability to engage physicians, non-physician 
practitioners, and PGPs in care redesign to improve episode quality and 
reduce costs.
    In our subsequent CJR rulemaking, we did not propose changes to the 
caps, but as described in the December 2017 final rule (82 FR 57083), 
we again received comments both for and against these policies. Several 
commenters supported the current 50 percent gainsharing cap. Other 
commenters offered a variety of recommendations for changing the 
gainsharing limitations. In our response, we stated that we would 
continue to consider the issues raised by

[[Page 10536]]

commenters as we moved forward with CJR and other models. Based on 
further consideration, we believe the commenters who opposed the caps 
presented the more compelling policy argument that these caps are 
arbitrary and limiting.
    The burdens associated with caps in the CJR model outweigh the 
potential benefits of these payment limitations. The caps were adopted 
and retained based on the belief that these limits on the potential 
financial rewards available via gainsharing payments, distribution 
payments and downstream distribution payments were needed to prevent 
physicians and non-physician practitioners from stinting, steering, and 
denial of medically necessary care. However, as we have continued to 
monitor the CJR participant hospitals and CJR claims data we have not 
seen evidence suggesting that the financial arrangements in the CJR 
model have adversely impacted beneficiary access to care. We believe 
other limitations on the financial arrangements in the CJR model, 
including the express prohibitions in the CJR regulations on financial 
arrangements to induce clinicians to reduce or limit medically 
necessary services or restrict the ability of a clinician to make 
decisions in the best interests of its patients, are sufficient and 
more reasonably targeted restrictions to prevent financial arrangements 
from resulting in the harms the caps were intended to address.
    Moreover, as commenters have consistently noted over the years, the 
caps in the CJR model constrain options to incentivize the clinicians 
who are supporting the care of CJR beneficiaries and participant 
hospitals and others incur administrative burden to monitor their 
compliance with these caps. Commenters previously argued that CJR 
collaborators should have the freedom to determine the most appropriate 
way to distribute gainsharing payments. Commenters contend the cap 
dampens the ability of gainsharing to support physician behavior change 
by reducing payments to a nominal amount. Accordingly, we believe 
maintaining these caps is unnecessary and unduly burdensome on the 
participant hospitals participating in the CJR model.
    Additionally, we note that in 2018 we revised our policies for BPCI 
Advanced such that BPCI Advanced Participants may execute an amendment, 
which would, among other things, eliminate the 50 percent cap on NPRA 
Shared Payments and Partner Distribution Payments (https://innovation.cms.gov/Files/x/bpciadvanced-my3-mutual-amendment.pdf). 
Previously, commenters stated that having different policies between 
models could create the potential for an uneven playing field. 
Accordingly, the elimination of the caps in the CJR model would advance 
our longstanding policy goal of consistency across the CJR and BPCI 
Advanced models. We believe that if the CJR model and BPCI Advanced 
model do not align, a consequence may be confusion among participants 
and sharing arrangements may not be used therefore impeding the CJR 
model's goal to support better and more efficient care for 
beneficiaries undergoing hip and knee replacements.
    We are proposing 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) for episodes that begin on or after 
January 1, 2021. We have proposed for these changes to apply to 
episodes on or after January 1, 2021 to align with the timing for the 
other policy changes in this proposed rule.
    We seek comment on our proposals to eliminate the 50 percent cap on 
gainsharing payments, distribution payments, and downstream 
distribution payments when the recipient of these payments are a 
physician, non-physician practitioner, physician group practice (PGP), 
or non-physician practitioner group practice (NPPGP).

H. Waivers of Medicare Program Rules

    In the November 2015 final rule (80 FR 73273), we stated that it 
may be necessary and appropriate to provide additional flexibilities to 
participant hospitals in the model, as well as other providers that 
furnish services to beneficiaries in CJR episodes. The purpose of such 
flexibilities is to increase CJR episode quality and decrease episode 
spending or internal costs or both of providers and suppliers that 
results in better, more coordinated care for beneficiaries and improved 
financial efficiencies for Medicare, providers, and beneficiaries. 
These additional flexibilities were implemented through our waiver 
authority under section 1115A of the Act, which affords broad authority 
for the Secretary to waive Medicare program requirements as may be 
necessary solely for purposes of carrying out section 1115A of the Act 
with respect to testing models.
    Section 510.610 of the regulations waives the 3-day hospital stay 
requirement before a beneficiary may be discharged from a hospital to a 
qualified SNF, which we define as a SNF that is rated an overall of 3 
stars or better for 7 of the last 12 months on the Nursing Home Compare 
website, but only if the SNF is identified on the applicable calendar 
quarter list of qualified SNFs at the time of the CJR beneficiary's 
admission to the SNF. The calendar quarter list of qualified SNFs is 
available under Participant Resources on the CJR model web page at 
https://innovation.cms.gov/initiatives/CJR. This waiver applies to 
episodes being tested under the CJR model beginning in performance year 
2. All other Medicare rules for coverage and payment of Part A-covered 
SNF services continue to apply.
    In the December 2017 final rule (82 FR 180), we added additional 
protections in the event a CJR beneficiary is discharged to a SNF 
without a qualifying 3-day inpatient stay, but the SNF is not on the 
qualified list as of the date of admission to the SNF, and the 
participant hospital has failed to provide a discharge planning notice, 
as specified in Sec.  [thinsp]510.405(b)(3). We specified that in that 
situation, that CMS will make no payment to the SNF for such services; 
the SNF will not charge the beneficiary for the expenses incurred for 
such services; the SNF must return to the beneficiary any monies 
collected for such services; and the hospital must be responsible for 
the cost of the uncovered SNF stay.
    In this proposed rule, we propose to extend these additional 
flexibilities to hospitals furnishing services to beneficiaries in the 
outpatient setting as well. As discussed in section II.A.2. of this 
proposed rule, we are proposing to change the definition of an `episode 
of care' to include outpatient procedures. We are also proposing to add 
the definition of `anchor procedure' to mean a TKA or THA procedure 
that is permitted and reimbursable by Medicare when performed in the 
outpatient setting and billed through the OPPS. Therefore, based upon 
this proposal, when we use the term ``discharge'' under the Medicare 
Program Rule waivers, we intend for this term to apply to both anchor 
hospitalizations and anchor procedures.
    We do not anticipate that a beneficiary who receives a LEJR 
procedure in the outpatient setting will need a SNF stay. However, in 
the event that a participant hospital performs an LEJR procedure in the 
outpatient setting and due to unforeseen circumstances, the 
beneficiaries needs a SNF stay and has not had a qualifying 3-day 
inpatient stay, we do not want the beneficiary to be held financially 
liable for these costs. In accordance with section 1861(i) of

[[Page 10537]]

the Act, beneficiaries must have a prior inpatient hospital stay of no 
fewer than 3-consecutive days in order to be eligible for Medicare 
coverage of inpatient SNF care. We refer to this as the SNF 3-day rule. 
If this requirement is not met, then the beneficiary may be liable for 
the cost of the SNF stay. Additionally, we want to protect 
beneficiaries in the event that a participant hospital makes a choice 
that is based on billing, rather than on clinical needs. While this 
behavior is prohibited under the model and would actionable under Sec.  
510.410, we are proposing to add this additional safeguard so that a 
beneficiary would not be responsible for the expense. We propose to 
amend Sec.  510.610 by redesignating paragraphs (a) as (a)(1) and 
(a)(2), (a)(1) as (a)(2) and (a)(2) as (a)(3) and amending paragraph 
(b)(1) to reflect these proposals.
    Additionally, Sec.  510.600 of the regulations waives the direct 
supervision requirement to allow clinical staff to furnish certain 
post-discharge home visits under the general, rather than direct, 
supervision of a physician or non-physician practitioners. This waiver 
allows a CJR beneficiary who does not qualify for home health benefits 
to receive up to 9 post-discharge visits in his or her home or place of 
residence any time during the episode. All other Medicare rules for 
coverage and payment of services incident to a physician's service 
continue to apply. We propose to update Sec.  510.600 (b)(1) so that 
this program rule waiver applies for LEJR procedures performed in the 
outpatient setting as well. As mentioned previously, when we use the 
term ``discharge'' under the Medicare Program Rule waivers, we intend 
for this term to apply to both anchor hospitalizations and anchor 
procedures.
    We seek comment on our proposals to apply CMS program rule waivers 
to LEJR procedures performed in the outpatient setting.

I. Appeal Procedures

    In the November 2015 final rule (80 FR 73411), we finalized an 
appeal process for participant hospitals to dispute matters that are 
not precluded from administrative or judicial review. Under Sec.  
510.310(a), a participant hospital may appeal certain calculations 
related to payment by submitting a timely notice of calculation error. 
Participant hospitals must provide written notice of a calculation 
error within 45 days of the date the reconciliation report is issued if 
they believe a calculation error was made. A participant hospital may 
appeal CMS' response to the notice of a calculation error by requesting 
reconsideration review by a CMS official. The request for a 
reconsideration review must be received by CMS within 10 calendar days 
of the response to the notice of a calculation error. The 
reconsideration review request must provide a detailed explanation of 
the basis for the dispute and include supporting documentation for the 
participant hospital's assertion that CMS or its representatives did 
not accurately calculate the NPRA the reconciliation payment, or the 
repayment amount in accordance with Sec.  510.305. The reconsideration 
review is an on-the-record review (a review of briefs and evidence 
only); it is not an in-person hearing. Under the process we finalized 
in 2015, a CMS reconsideration official notifies the hospital in 
writing within 15 calendar days of receiving the participant hospital's 
reconsideration review request of the date, time, and location of the 
review; the issues in dispute; the review procedures; and the 
procedures (including format and deadlines) for submission of evidence 
(the ``Scheduling Notice''). The CMS reconsideration official must take 
all reasonable efforts to schedule the review to occur no later than 30 
calendar days after the date of the Scheduling Notice. The Medicare 
Shared Savings Program appeal provisions at Sec.  425.804(b), (c), and 
(e) are applicable to reviews conducted pursuant to the reconsideration 
review process for CJR. The CMS reconsideration official issues a 
written determination within 30 days of the review. The determination 
is final and binding.
    In this proposed rule, we propose to revise the Sec.  510.310(b)(4) 
to clarify that the reconsideration review process is an on-the-record 
review, not an in-person review. The existing language at Sec.  
510.310(b)(4)(i) requires the reconsideration official to give 
hospitals the date, time, and location of the review. While we believe 
providing participant hospitals with information about the review is 
important, after careful review of the language we believe this 
language could cause confusion as to whether the participant hospital 
needs to attend the reconsideration review and whether the CJR model 
team will receive the Scheduling Notice and notice of the review 
procedures. Therefore, we are proposing to remove paragraph (b)(4)(i) 
and to revise the introductory text of paragraph (b)(4) to clarify that 
the reconsideration official must notify both CMS and the hospital of 
the issues in dispute, the review procedures, and the procedures for 
submission of briefs and evidence. Additionally, we propose to modify 
Sec.  510.310(b)(4)(iv) (which will be renumbered Sec.  
510.310(b)(4)(iii)) to clarify that the parties may submit briefs and 
evidence in support of their positions. The reconsideration official 
will conduct an on-the-record review of the briefs and evidence 
provided by the parties. We propose to make conforming changes to 
delete Sec.  510.310(b)(5) (as it references a scheduled review in 
accordance with Sec.  510.310(b)(4)(i), which we are proposing to 
delete) and to revise Sec.  510.310(b)(7) (which will be renumbered 
Sec.  510.310(b)(6)) to state that the CMS reconsideration official 
issues a written determination within 30 days of the deadline for 
submission of all briefs and evidence.
    We seek comment on our proposal.

J. Request for Comment on New LEJR-Focused Models That Would Include 
ASCs and That Could Involve Shared Financial Accountability

    While we continue to believe that the CJR model is helping to 
improve care for joint replacements in the inpatient and outpatient 
hospital setting, we recognize that lower joint procedures are 
gradually being transitioned into Ambulatory Surgical Centers (ASCs). 
Specifically, in the CY 2020 OPPS/ASC final rule (84 FR 61253), CMS 
finalized a proposal to add TKAs to the ASC covered procedures list. 
Continued improvements and advances in medical technologies and 
surgical techniques may make ASCs an appropriate setting for THAs at a 
future point in time. Given that trends in care settings continue to 
transition in this direction, we are soliciting comment on how we might 
best conceptualize and design a future bundled payment model focused on 
LEJR procedures performed in the ASC setting. Further, while the CJR 
model established hospitals as the financially accountable entity, we 
seek comment on how a new model could better recognize the role of the 
surgeons and clinicians in LEJR episodes. Who should participate in the 
model and should the reconciliation payment and/or repayment 
obligations be shared between the facility and the rendering surgeon to 
better encourage collaboration? Are there any other clinicians who 
should share directly in the financial accountability? In general, 
would a prospective bundled payment or a retrospective target price 
benchmarked payment model approach work best? What types of quality 
measures would participants need to track and report? Should the model 
be ASC specific or site neutral such that

[[Page 10538]]

inpatient, outpatient and ASC service sites would be paid the same 
rate, regardless of where the procedure was performed?

K. Coordination With Other Agencies

    Impacts created by payment changes under this model are entirely 
internal to HHS operations; coordination with other agencies is not 
required outside of the usual coordination involved in the publication 
of all HHS regulatory changes.

III. Collection of Information Requirements

    As stated in section 1115A(d)(3) of the Act, Chapter 35 of title 
44, United States Code, shall not apply to the testing and evaluation 
of models under section 1115A of the Act. As a result, the information 
collection requirements contained in this proposed rule need not be 
reviewed by the Office of Management and Budget. However, we have 
summarized the anticipated information collection requirements in the 
Regulatory Impact Analysis section of this proposed rule.

IV. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999) and the Congressional Review Act (CRA) (5 U.S.C. 
804(2)), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
This proposed rule proposes the change and extension of the CJR model; 
these provisions impact a subset of hospitals under the IPPS. The 
Office of Management and Budget has designated this proposed rule as an 
``economically significant'' rule under E.O. 12866 and a ``major rule'' 
under the Congressional Review Act (CRA).

B. Statement of Need

    Initial reports from the Innovation Center evaluation contractor as 
well as an independent study in the New England Journal of Medicine \6\ 
indicate that the model in performance year 1 and 2 resulted in modest 
cost reductions with quality of care maintained and no increases in 
case complication. Specifically, for performance year 1, without 
considering net reconciliation payments earned under the CJR model, the 
Innovation Center evaluation contractor observed that the total episode 
payments decreased 3.3 percent, or $910 per episode, more for CJR 
episodes than control group episodes in the difference in difference 
analysis.\7\ Further, the second annual CJR evaluation report, released 
on June 27, 2019, has found that CJR episode payments decreased by 3.7 
percent more over the first 2 years of the CJR model. These decreases 
in payments have likely reduced Medicare program spending over the 
first two performance years of the model by an estimated $17.4 million 
(with a range of Medicare losses of $41.1 million to Medicare savings 
of $75.9 million, due to uncertainty in per episode savings).\8\ From 
these observations, it appears that continuing to bundle lower joint 
payments will assist the Innovation Center in meeting its goal to 
reduce expenditures while preserving or enhancing the quality of care.
---------------------------------------------------------------------------

    \6\ 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.
    \7\ For the CJR first annual evaluation at a glance and full 
report see https://innovation.cms.gov/Files/reports/cjr-fg-firstannrpt.pdf and https://innovation.cms.gov/Files/reports/cjr-firstannrpt.pdf.
    \8\ For the CJR second annual evaluation at a glance and full 
report see https://innovation.cms.gov/Files/reports/cjr-fg-secondannrpt.pdf and https://innovation.cms.gov/Files/reports/cjr-secondannrpt.pdf.
---------------------------------------------------------------------------

    However, since these initial evaluation results, the traditional 
Medicare FFS program has shifted, and we have determined that the 
proposed changes are necessary for the following reasons. First, to 
address changes in the CY 2018 OPPS final rule (65 FR 18455) to the IPO 
list (published annually in OPPS rule) to remove the TKA procedure 
code, as well as the recent removal of the THA procedure code from the 
IPO list in the CY 2020 OPPS final rule (84 FR 61353), we are proposing 
to change the definition of an `episode of care' to include outpatient 
procedures for TKAs and THAs. Additionally, we believe it is necessary 
to adjust target pricing to ensure that target prices better capture 
spending trends and changes, by using more recent historical spending 
data that includes outpatient TKA and inpatient TKA/THA claims, as well 
as outpatient THA claims that will become available beginning in CY 
2020, and in order to parallel the proposed changes to the 
reconciliation process with the changes we propose to the target price 
calculations. We are also proposing to conduct one reconciliation per 
CJR performance year, which would be initiated 6 months following the 
end of a CJR performance period. This change is intended to reduce the 
administrative burden of an additional reconciliation for Medicare and 
CJR participant hospitals. In an effort to remain consistent with the 
new BPCI Advanced initiative, we are proposing 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) for 
episodes that begin on or after January 1, 2021 to remain consistent 
with the other policy changes made in this proposed rule. We believe 
that participant hospitals, CJR collaborators, collaboration agents, 
and downstream collaboration agents are now accustomed to the episode-
based CJR payment methodology and that administrative burden should be 
reduced and further flexibility should be offered to allow hospitals to 
share internal savings or earned reconciliation payments by removing 
the gainsharing cap. We propose to adjust the composite quality score 
discount in recognition that the proposed changes to the target price 
calculation (discussed in section II.B. of this proposed rule), 
intended to increase the accuracy of target prices compared to actual 
performance period spending may also narrow the potential for 
participant hospitals to earn reconciliation payments. Because of these 
more accurate target prices, and the fact that all participant 
hospitals would be at financial risk during performance years 6 through 
8, we determined that a more generous composite quality score 
adjustment to the discount factor is appropriate for hospitals ranked 
in the good and excellent CJR quality categories.
    We believe a 3-year extension is necessary to allow for enough time 
and information to reasonably evaluate the

[[Page 10539]]

proposed changes we discuss previously. Extending the model for a term 
of 3 years would allow the Innovation Center to test and evaluate the 
proposed changes while promoting the alignment of quality with 
financial accountability.

C. Anticipated Effects

    In prior sections of this proposed rule, we discuss our proposals 
to amend the regulations governing the CJR model. We present the 
following estimated overall impact of the proposed changes during the 
3-year proposed extension. Table 7 summarizes the estimated impact for 
the proposed changes to the CJR model for the proposed 3-year extension 
of the model from January 1, 2021 through December 31, 2023.
    There are approximately 470 providers participating in CJR as of 
October 2019. By limiting participation to the non-rural, non-low 
volume providers physically located in the 34 mandatory MSAs, we expect 
approximately 350 participants in the CJR model for the proposed 3-year 
extension, dependent on changes in rural reclassification status or 
mergers. Specifically, we anticipate removing around 75 providers 
located in the 33 MSAs that were changed to voluntary and that we could 
also remove around 45 providers for rural reclassification status. For 
purposes of modeling this impact, using the 2018 Medicare claims data 
pulled from the Chronic Conditions Warehouse in April of 2019 and 
limiting the analysis to non-rural, non-low volume providers located in 
the 34 mandatory MSAs, we had 330 eligible providers with CJR episode 
claims data. Projected CJR episode volume increases follow Medicare 
enrollment assumptions included in the 2019 Medicare Trustees Report. 
Price updates for 2018 to 2020 follow FFS unit cost increases by 
service category for 2018 to 2020. The weights for each service 
category were developed using 2018 episode spending data. For 2021 to 
2023, price updates were assumed to equal the market basket minus 
multifactor productivity (MFP) growth, or roughly the approximate price 
update that is built into the Trustees Report model.
    We are assuming that participants would reduce episode spending by 
1 percent in 2021 compared to their respective regions. In 2022 and 
2023, we assume that participant hospitals' spending would grow at the 
same rate as their respective regions. We make these assumptions given 
that the most recent CJR evaluation report showed that participant 
hospitals reduced spending by 3.7 percent during the first 2 years of 
CJR. Specifically, we are assuming that participant hospitals will have 
more difficulty producing additional savings over time. Since LEJR 
episode costs have been declining, there is some uncertainty around how 
much more efficient participant hospitals, clinicians and the 
associated post-acute care providers can be in terms of further 
reducing the costs of LEJR episodes. However, as the CJR model shares 
the extra savings back to participant hospitals, we do not anticipate 
large changes in the impact analysis as a result of changes in the 
assumption that participant hospitals would have difficulty produce 
additional savings over time. We are assuming that if the CJR model 
were not extended, participant hospitals would increase their episode 
spending by 1.9 percent as a response to the model ending, which is 
half of the savings shown by the evaluation for the first 2 years of 
CJR.
    We note that we did not make any assumptions about behavioral 
changes in the post-acute care space that may result from significant 
payment policy changes finalized in the FY 2019 SNF (83 FR 39162) and 
CY 2019 HH (83 FR 56406) rules for implementation with FY 2020 and CY 
2020 respectively as we do not yet have any claims experience with 
these new methodologies in place. Behavioral changes stemming from 
these policies could have impacts upon our CJR savings estimate that we 
are unable to quantify at this time.
    TKA procedures in the ambulatory surgery center (ASC) setting are 
eligible for Medicare payment as of January 1, 2020. Since ASC 
procedures are not included in the proposed CJR model extension, we 
note that the number of CJR TKA episodes could decrease as a result of 
this policy change. However, given that we had no claims experience 
from which to draw at the time we prepared this impact analysis, we did 
not have a basis from which to estimate this potential decrease in TKA 
episodes. Therefore, assumptions resulting from this payment change 
have not been included in this financial impact estimate. In the OPPS 
CY 2020 Final rule (84 FR 61388), we stated that we agreed with 
commenters who stated that the majority of Medicare beneficiaries would 
not be suitable candidates to receive TKA procedures in an ASC setting, 
noting that factors such as age, comorbidity, and body mass index are 
among the many factors that must be taken into account to determine if 
performing a TKA procedure in an ASC would be appropriate for a 
particular Medicare beneficiary. However,we further stated that we 
believe there are a small number of less medically complex 
beneficiaries that could appropriately receive the TKA procedure in an 
ASC setting and that we believe physicians should continue to play an 
important role in exercising their clinical judgment when making site-
of-service determinations, including for TKA. Therefore, while we are 
unable to estimate volume changes due to the change to allow TKA 
procedures in the ASC setting, we anticipate that the volume, if any, 
would likely be small such that only the magnitude of this CJR impact 
estimate would change.
    Total hip arthroplasty procedures were removed from the Inpatient 
Only List, effective January 1, 2020. We acknowledge that it is 
possible that this change could result in reductions in hip procedure 
costs should some percentage of inpatient THA procedures move into the 
OPPS setting over the next several years. We note that we did not make 
any specific assumptions about decreasing episode costs for any of the 
hip episodes used in this impact analysis. However, we also note that 
since target prices are subject to a retrospective trend adjustment, 
the effects of this payment change to allow THA procedures in the OPPS 
setting should be captured in the target price resulting in a minimal 
financial impact to the CJR model.
    The calculations shown in Table 7 below estimated that, in total, 
the proposed changes to the CJR model would result in a net Medicare 
program savings of approximately $269 million over the 3 proposed 
performance years (2021 through 2023). We seek comment on our 
assumptions and approach.
    The following table summarizes the anticipated qualitative impact 
of each of the discrete provisions of this proposed rule. Although we 
are unable to provide discrete estimates of costs, savings, and 
transfers associated with each of these provisions at this time, we 
will provide a more detailed cost-benefit impact analysis of these 
discrete provisions in the final rule. This table includes a 
qualitative estimate of the costs/savings imposed on non-federal 
entities (that is, participating medical facilities) as well as 
transfers of federal funds relative to the original CJR model 
provisions. The ``Notes'' column provides additional background when 
necessary.

[[Page 10540]]



Table 6--Qualitative Anticipated Impacts by Proposed Provision Relative to Original CJR Model Policies 2021-2023
----------------------------------------------------------------------------------------------------------------
           Provision                    Costs/savings                 Transfers                   Notes
----------------------------------------------------------------------------------------------------------------
Changes to episode definition    Cost......................  ..........................  The bulk of data used
 to include OP TKA/THA.                                                                   to set target prices
                                                                                          under original CJR
                                                                                          methodology would not
                                                                                          include many OPPS knee
                                                                                          episodes and would
                                                                                          include no OPPS hip
                                                                                          episodes until
                                                                                          proposed PY7.
                                                                                          Therefore, if we were
                                                                                          to make no changes to
                                                                                          the current CJR target
                                                                                          price methodology and
                                                                                          were only to add OP
                                                                                          TKA/THA procedures to
                                                                                          the CJR episode
                                                                                          definition, targets
                                                                                          would be based on
                                                                                          inpatient
                                                                                          hospitalization costs
                                                                                          and subsequent post
                                                                                          acute care and would
                                                                                          likely be
                                                                                          inappropriately high
                                                                                          relative to OPPS
                                                                                          episode costs.
Freezing hip fracture list and   Zero Impact...............  ..........................  We have not needed to
 episode exclusions list.                                                                 update the fracture/
                                                                                          episode exclusion list
                                                                                          to any degree of
                                                                                          significance for the
                                                                                          first 5 years of CJR
                                                                                          and do not anticipate
                                                                                          changes in the next 3
                                                                                          years so we assume
                                                                                          this will have a zero
                                                                                          impact.
Capping high episode spending    Savings...................  ..........................  The 99th percentile
 at the 99th percentile (rather                                                           high episode cap will
 than two standard deviation                                                              be higher than the 2
 methodology).                                                                            standard deviations of
                                                                                          mean episode cost such
                                                                                          that more costs per
                                                                                          episode will be
                                                                                          considered relative to
                                                                                          the target and
                                                                                          reconciliation
                                                                                          payments may decrease
                                                                                          slightly while
                                                                                          reconciliation
                                                                                          obligations may
                                                                                          increase slightly.
Use of the most recently         Savings...................  ..........................  Updating the target
 available one year of data to                                                            price data set to use
 calculate target prices                                                                  a time period closer
 (rather than most recent three                                                           to the model, removing
 years of data), removal of                                                               anchor weighting and
 regional and hospital anchor                                                             discontinuing the FFS
 weighting factor(s) from                                                                 updating (in favor of
 target price calculation, and                                                            a trend update at
 discontinuing twice annual                                                               reconciliation) should
 updates to the target prices                                                             ensure the targets are
 to account for changes in the                                                            better aligned to
 Medicare prospective payment                                                             actual expected
 systems and fee schedule rates.                                                          episode spending.
Applying a market trend factor   Cost or Savings Trend       ..........................  The trend factor will
 (that is, the regional MS-DRG/   Ratio.                                                  incorporate all
 fracture mean cost of episodes                                                           differences in average
 occurring during the                                                                     episode costs between
 performance year divided by                                                              year used for target
 the regional MS-DRG/fracture                                                             price and actual model
 mean cost for episodes                                                                   so to the extent FFS
 occurring during the target                                                              payment updates have
 price base year).                                                                        increased, the trend
                                                                                          could be greater than
                                                                                          1 which could increase
                                                                                          targets and the model
                                                                                          cost; if, despite FFS
                                                                                          increases overall,
                                                                                          episode spending
                                                                                          decreases then targets
                                                                                          will decrease and
                                                                                          savings will result.
Incorporating a risk adjustment  Zero Impact...............  ..........................  This risk adjustment is
 for beneficiary specific CMS-                                                            designed to increase
 HCC condition count and age                                                              target prices somewhat
 bracket.                                                                                 for beneficiaries with
                                                                                          increasing age and/or
                                                                                          HCCs; it will lower
                                                                                          targets somewhat for
                                                                                          younger beneficiaries
                                                                                          with fewer or no HCCs.
                                                                                          The presumption is
                                                                                          that episode costs for
                                                                                          older, more complex
                                                                                          beneficiaries should
                                                                                          be higher than average
                                                                                          and for younger, less
                                                                                          complex beneficiaries
                                                                                          they should be lower
                                                                                          than average so we
                                                                                          anticipate a net
                                                                                          impact of zero for
                                                                                          this provision.
Increasing hospital quality      Zero Impact...............  ..........................  We believe this
 incentive payments (that is, a                                                           provision will be
 1.5 percentage point reduction                                                           redistributive among
 to the applicable discount                                                               participants but that
 factor for participant                                                                   it will not have an
 hospitals with ``good''                                                                  overall impact on the
 quality performance and a 3                                                              model given the other
 percentage point reduction to                                                            changes we are
 the applicable discount factor                                                           proposing to the
 for participant hospitals with                                                           pricing methodology.
 ``excellent'' quality
 performance).
Excluding opt-in low-volume and  Savings...................  ..........................  We assume that those
 rural hospitals with a CCN                                                               participants who
 primary address in a mandatory                                                           voluntarily opted to
 MSA and excluding opt-in                                                                 continue in CJR as of
 hospitals with a CCN primary                                                             PY3 were doing well in
 address in a voluntary MSA.                                                              the CJR model and that
                                                                                          removing them from the
                                                                                          model will likely
                                                                                          result in a smaller
                                                                                          reconciliation payout
                                                                                          which will create some
                                                                                          savings relative to
                                                                                          current CJR
                                                                                          reconciliation
                                                                                          spending.
----------------------------------------------------------------------------------------------------------------

    Burden reductions should result from the three other proposals we 
are making in this rule. Specifically, our proposal to move from two to 
one reconciliation should effectively cut the level of effort 
participants and the agency need to

[[Page 10541]]

expend on reconciliation in half. Assuming a rate of $33.89 per hour 
for an accountant (https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm) and an average of 15 hours to review each 
report for each of the 474 participant hospitals at 2 months then again 
at 14 months could cost approximately $481,916. Moving to only one 
report for each performance year should reduce that cost by $240,958 to 
approximately $240,958. Likewise, accounting hours necessary to ensure 
that no physician received more than 50 percent of his or her total 
billing for Medicare-approved amounts under the PFS for items and 
services furnished by that physician or non-physician practitioner to 
the participant hospital's CJR beneficiaries during CJR episodes that 
occurred during the same performance year for which the participant 
hospital accrued internal cost savings or earned a reconciliation 
payment will no longer be necessary should our proposal to remove the 
50 percent cap be finalized. Given our most recent review, 159 CJR 
participants have CJR collaborators that are physicians. Assuming an 
average of 10 collaborators per participant and 20 hours to review each 
collaborator's Part B claim totals by accountants at an hourly rate of 
$33.89, each participant could have spent approximately $6,778 on the 
reviews for a total of $1.1 million across all 159 participants with 
CJR collaborators. Our proposal to remove the 50 percent cap should 
therefore reflect a burden reduction around $1.1 million. While we are 
unable to quantify the burden reduction to be had by our proposals to 
modify beneficiary notice requirements for model inclusion, discharge 
planning notices, and our extension of waivers for Medicare program 
rules, we believe having uniform requirements regardless of procedure 
setting for CJR beneficiaries will help participants to streamline the 
administrative procedures they put in place for the CJR model and that 
this streamlining will reduce the effort participants need to expend in 
complying with the CJR model regulations.

               Table 7--Financial Impact for the Proposed Changes and Three-Year Extension of CJR
                         [Figures are in $ millions, negative values represent savings]
----------------------------------------------------------------------------------------------------------------
                      Year                             2021            2022            2023            Total
----------------------------------------------------------------------------------------------------------------
Episode Spending with Model.....................          $1,505          $1,582          $1,661          $4,748
Episode Spending without Model..................           1,533           1,623           1,703           4,859
Reconciliation..................................             -50             -53             -55            -158
                                                 ---------------------------------------------------------------
    Total Impact................................             -78             -94             -97            -269
----------------------------------------------------------------------------------------------------------------
Note: Totals do not necessarily equal the sums of rounded components.

    Our analysis presented the transfer payment effects of the proposed 
rule to the best of our ability.
    The following table summarizes the financial impact of the proposal 
across three relevant years as well as two alternative scenarios: (1) 
If the CJR model were discontinued; and (2) if the CJR model were 
extended with changes to the episode definition to include OP TKA/THA 
but no other proposed changes. This table includes the full amount of 
FFS episode payments and any rows that show the model extending also 
includes any reconciliation payments related to the model. This table 
shows costs/savings (costs are represented as positive amounts and 
savings as negative amounts) imposed on non-federal entities (that is, 
participating medical facilities) as well as net transfers of federal 
funds (that is, increases in Medicare program expenditures are 
indicated as positive amounts and decreases in Medicare program 
expenditures are indicated as negative amounts).

 Table 8--Net Financial Impacts Under Proposal and Alternative Scenarios
                        ($ in millions) 2021-2023
------------------------------------------------------------------------
                Scenario                  Costs/benefits     Transfers
------------------------------------------------------------------------
Net financial impact of extending CJR                  0           4,626
 model with all proposed changes........
Net financial impact of extending CJR                  0           4,965
 model including OP TKA/THA in episode
 definition, but including no other
 proposed changes.......................
Net financial impact of ending CJR model               0           4,859
------------------------------------------------------------------------
Note: Row 1 of Table 8 reflects the value shown in Table 7 row 1
  (episode spending with model) less the reconciliation payment amount
  shown in row 3 of Table 7. Row 3 of Table 8 shows the total spend
  without the model as shown in Table 7.

D. Effects on Beneficiaries

    We believe the refinements to the CJR model proposed in this 
proposed rule would not materially alter the potential effects of the 
model on beneficiaries. We believe the proposed changes would not alter 
the effects of the model on beneficiaries because the proposed changes 
predominantly alter how hospitals interact with the model, rather than 
how beneficiaries receive care. We do not expect that CJR hospitals 
will conduct a larger share of LEJR procedures in the outpatient 
setting than non-CJR hospitals. We believe that the combination of our 
proposed episode-level risk adjustment methodology, with the fact that 
sicker patients who are inappropriately treated in the outpatient 
setting would potentially have complications requiring readmissions or 
other expensive post-acute care as a result of the inappropriate care 
setting for the original procedure, will incentivize physicians to make 
the appropriate clinical judgment based on the individual beneficiary's 
needs.

E. Effects on Small Rural Hospitals

    The change and extension are focused on high cost urban area MSAs 
and exclude participant hospitals that are rural hospitals as of 
December 31, 2020 from participation. We note that the hospitals with 
rural status that opted to continue to participate in the CJR model 
after February 1, 2018 were all rural based on urban to rural 
reclassifications governed by Sec.  412.103 and were also qualified as 
rural referral centers (RRCs) (see Sec.  412.96). RRCs are high-volume 
acute care hospitals that treat a large

[[Page 10542]]

number of complicated cases. Therefore, we do not believe this model 
will have an impact on small rural hospitals.

F. Effects on Small Entities

    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. We estimated that most hospitals and most 
other providers and suppliers are small entities, either by virtue of 
their nonprofit status or by qualifying as small businesses under the 
Small Business Administration's size standards (revenues of less than 
$7.5 to $38.5 million in any 1 year; NAIC Sector-62 series). States and 
individuals are not included in the definition of a small entity. For 
details, see the Small Business Administration's website at https://www.sba.gov/content/smallbusiness-size-standards. For purposes of the 
RFA, we generally consider all hospitals and other providers and 
suppliers to be small entities. We believe that the provisions of this 
proposed rule relating to acute care hospitals will have some effects 
on a substantial number of other providers involved in these episodes 
of care including surgeons and other physicians, SNFs, physical 
therapists, and other providers. Although we acknowledge that many of 
the affected entities are small entities, and the analysis discussed 
throughout this proposed rule discusses aspects of the CJR model that 
may or would affect them, we have no reason to assume that these 
effects would reach the threshold level of 3 percent of revenues used 
by HHS to identify what are likely to be ``significant'' impacts. We 
assume that all or almost all of these entities will continue to serve 
these patients, and to receive payments commensurate with their cost of 
care. Hospitals currently experience frequent changes to payment (for 
example, as both hospital affiliations and preferred provider networks 
change) that may impact revenue, and we have no reason to assume that 
this will change significantly under the changes proposed in this 
proposed rule.

G. Regulatory Review Costs

    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the proposed rule, we assume that at least one 
individual at most participant providers currently participating in 
CJR, that is approximately 470, will review this proposed rule. We 
acknowledge that this assumption may understate or overstate the costs 
of reviewing this proposed rule. It is possible that not all commenters 
will review the rule in detail, and it is also possible that some 
reviewers may not choose to comment on the proposed rule. However, for 
the purposes of our estimate we assume that each reviewer reads 
approximately 100 percent of the rule.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $109.36 per hour, including overhead and fringe benefits 
https://www.bls.gov/oes/current/oes_nat.htm. Assuming an average 
reading speed, we estimate that it would take approximately 2.3 hours 
for the staff to review the proposed rule. For each entity that reviews 
the rule, the estimated cost is $251.53 (2.3 hours x $109.36). 
Therefore, we estimate that the total cost of reviewing this rule is 
$118,336 ($251.78 x 470 reviewers).

H. Accounting Statement

    As required by OMB Circular A-4 under Executive Order 12866 
(available at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf) in Table 9, we have prepared an accounting 
statement showing the classification of transfers, benefits, and costs 
associated with the provisions in this proposed rule. The accounting 
statement is based on estimates provided in this regulatory impact 
analysis. As described in Table 7, we estimate the proposed 3-year 
extension and changes to the CJR model will result in savings to the 
federal government of $269 million over the 3 performance years of the 
model from 2021 to 2023. The following Table 9 shows the annualized 
change in (A) net federal monetary transfers, and (B) potential 
reconciliation payments to participating hospitals net of repayments 
from participant hospitals that is associated with the provisions of 
this proposed rule as compared to baseline. In Table 9, the annualized 
change in payments based on a 7-percent and 3-percent discount rate, 
results in net federal monetary transfer from the participant IPPS 
hospitals to the federal government of $83 million and $86 million 
respectively.

                                 Table 9--Accounting Statement Estimated Impacts
                                      [Estimate amounts are in $ millions]
----------------------------------------------------------------------------------------------------------------
                                                                                       Units
                                                                 -----------------------------------------------
                    Category                         Estimates                     Discount rate      Period
                                                                    Year dollar         (%)           covered
----------------------------------------------------------------------------------------------------------------
Transfers:
    Annualized Monetized ($million/year)........              83            2019               7       2121-2023
                                                              86            2019               3       2121-2023
                                                 ---------------------------------------------------------------
From Whom to Whom...............................              Participant IPPS to Federal Government
----------------------------------------------------------------------------------------------------------------

    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2018, that 
threshold is approximately $154 million. This rule will have no 
consequential effect on state, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on state 
or local governments, the requirements of Executive Order 13132 are not 
applicable.

[[Page 10543]]

    Executive Order 13771 (January 30, 2017) requires that the costs 
associated with significant new regulations ``to the extent permitted 
by law, be offset by the elimination of existing costs associated with 
at least two prior regulations.'' The E.O. 13771 designation of this 
rule will be informed by public comments received.

I. Analysis of Regulatory Alternatives

    As noted previously, Executive Orders 12866 and 13563 direct 
agencies to assess all costs and benefits of available regulatory 
alternatives. In developing this proposed rule, we considered a number 
of regulatory alternatives. These include--
     Broadening or modifying the types of entities that may 
convene an episode under the CJR model;
     Calculating coefficients separately for each region or 
applying risk-standardization to the regional target price prior to 
applying the beneficiary-specific risk score (as noted earlier in 
section II.C.4. of this proposed rule ``Additional Episode-Level Risk 
Adjustment''); and
     Utilizing the regional median episode costs as a basis for 
the market trend factor update calculation, rather than the regional 
mean episode costs for this calculation (as noted earlier in section 
II.C.6. of this proposed rule ``Changes to Trend Factor Calculation'')
    These regulatory alternatives and their potential costs and 
benefits are explored in more detail later in this section.
    In developing this proposed rule, as we believe it would be good 
for the CMS innovation center to consider a wider range of participants 
for future LEJR models, we considered broadening and modifying the 
types of entities that may initiate an episode under the CJR model. 
However, the CJR model as established in notice and comment rulemaking, 
limited participants to hospitals. As the impetus for proposing this 
extension was that the active model is currently showing promise in 
terms of reducing costs while maintaining quality and we wished to 
continue that momentum, we were limited by timing. New participant 
types for the CJR model would require more lead time to put in place 
preparations for entering the model and this would necessitate a long 
delay between the end of performance year 5 and the initiation of 
performance year 6, which would really be performance year 1 for new 
participants. Further, we would likely have needed to reconsider and 
broaden the geographic scope of the model were we to extend participant 
types since the original model geography was based on hospital specific 
criteria. Further, we believe that broadening and modifying who may 
initiate an episode would unnecessarily complicate the evaluation and 
limit the generalizability of the results affecting the ability of this 
model being certified in the future. Therefore, we did not propose to 
include additional participants in this proposed CJR model extension 
but rather are soliciting comment in section II.J. of this proposed 
rule on how a future LEJR model that incorporated other entities in 
addition to hospitals might be structured.
    In developing our risk adjustment methodology approach, although we 
are proposing to calculate coefficients at the national level, we also 
considered calculating coefficients separately for each region or 
applying risk-standardization to the regional target price prior to 
applying the beneficiary-specific risk score (as noted earlier in 
section II.C.4. of this proposed rule ``Additional Episode-Level Risk 
Adjustment''). As we believe regional differences in risk for HCC count 
and age should already be accounted for via our region/MS-DRG/hip 
fracture pricing strategy we are proposing the computationally less 
complex national approach although we are seeking comment on a regional 
calculation of coefficients.
    Finally, in developing our proposed methodology for the market 
trend factor update calculation, we considered utilizing the regional 
median episode costs as a basis for the market trend factor update 
calculation, as medians are generally recognized as a better measure of 
central tendency. However, we did not propose to use the median in the 
market trend factor update as discussed in section II.C.6. of this 
proposed rule ``Changes to Trend Factor Calculation'' of this proposed 
rule because we thought it would be more appropriate to use the mean 
here such that the low and high data points of pricing were captured 
and reflected in the trend. Further, using the mean keeps the trend 
calculation aligned with the methodology for deriving the target prices 
for the model as the target prices use the mean rather than the median.

V. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

List of Subjects in 42 CFR Part 510

    Administrative Practice and Procedure, Health facilities, Health 
professions, Medicare, and Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as follows:

PART 510--COMPREHENSIVE CARE FOR JOINT REPLACEMENT MODEL

0
1. The authority citation for part 510 is revised to read as follows:

    Authority: 42 U.S.C. 1302, 1315(a), and 1395hh.

0
2. Section 510.2 is amended by--
0
a. Adding definitions in alphabetical order for ``Age bracket risk 
adjustment factor'', ``Anchor procedure'', ``BPCI Advanced'', and 
``CMS-HCC condition count risk adjustment factor'';
0
b. Revising the definition of ``Episode of care (or Episode)'' and 
``Net payment reconcilation amount (NPRA)'';
0
c. Adding definitions in alphabetical order for ``OPPS'' and ``OP THA/
OP TKA'';
0
d. Revising the definitions of ``Participant hospital'', ``Quality 
improvement points'', and ``Reconcilation payment''; and
0
e. Adding a definition in alphabetical order for ``Reconciliation 
target price''.
    The additions and revisions read as follows:


Sec.  510.2  Definitions.

* * * * *
    Age bracket risk adjustment factor means the coefficient of risk 
associated with a patient's age bracket, calculated as described in 
510.301(a)(1).
* * * * *
    Anchor procedure means a Total Knee Arthroplasty (TKA) or Total Hip 
Arthroplasty (THA) procedure that is permitted and reimbursable by 
Medicare when performed in the outpatient setting and billed through 
the OPPS.
* * * * *
    BPCI Advanced stands for the Bundled Payments for Care Improvement 
Advanced Model
* * * * *
    CMS-HCC condition count risk adjustment factor means the 
coefficient of risk associated with a patient's total number of CMS 
Hierarchical Condition Categories, calculated as described in Sec.  
510.301(a)(1).
* * * * *
    Episode of care (or Episode) means all Medicare Part A and B items 
and services described in Sec.  510.200(b) (and

[[Page 10544]]

excluding the items and services described in Sec.  510.200(d)) that 
are furnished to a beneficiary described in Sec.  510.205 during the 
time period that begins with the beneficiary's admission to an anchor 
hospitalization or, on and after October 4, 2020, the date of admission 
to an anchor hospitalization or the date of the anchor procedure, as 
applicable, and ends on the 90th day after either of the following, as 
applicable:
    (1) The date of discharge from the anchor hospitalization (with the 
day of discharge itself being counted as the first day of the 90-day 
post-discharge period).
    (2) The date of service for the anchor procedure, as applicable.
* * * * *
    Net payment reconciliation amount (NPRA) means the amount 
determined in accordance with Sec.  510.305(e) and (m).
* * * * *
    OPPS stands for the outpatient prospective payment system.
    OP THA/OP TKA means a total hip arthroplasty or total knee 
arthroplasty, respectively, each as performed in the outpatient 
setting.
* * * * *
    Participant hospital means one of the following:
    (1) During performance years 1 and 2 of the CJR model and the 
period from January 1, 2018 to January 31, 2018 of performance year 3, 
a hospital (other than a hospital excepted under Sec.  510.100(b)) with 
a CCN primary address located in one of the geographic areas selected 
for participation in the CJR model in accordance with Sec.  510.105.
    (2) Between February 1, 2018 and December 31, 2020, a hospital 
(other than a hospital excepted under Sec.  510.100(b)) that is one of 
the following:
    (i) A hospital with a CCN primary address located in a mandatory 
MSA as of February 1, 2018 that is not a rural hospital or a low-volume 
hospital on that date.
    (ii) A hospital that is a rural hospital or low-volume hospital 
with a CCN primary address located in a mandatory MSA that makes an 
election to participate in the CJR model in accordance with Sec.  
510.115.
    (iii) A hospital with a CCN primary address located in a voluntary 
MSA that makes an election to participate in the CJR model in 
accordance with Sec.  510.115.
    (3) Beginning January 1, 2021, a hospital (that is not a rural 
hospital or a low-volume hospital as defined in Sec.  510.2 as of 
October 4, 2020 (based on the date of the CMS notification letter and 
not the effective date of the rural reclassification, if applicable)) 
with a CCN primary address located in a mandatory MSA.
* * * * *
    Quality improvement points are points that CMS adds to a 
participant hospital's composite quality score for a measure if the 
hospital's performance percentile on an individual quality measure for 
performance years 2 through 8 increases from the previous performance 
year by at least 2 deciles on the performance percentile scale, as 
described in Sec.  510.315(d). For performance year 1, CMS adds quality 
improvement points to a participant hospital's composite quality score 
for a measure if the hospital's performance percentile on an individual 
quality measure increases from the corresponding time period in the 
previous year by at least 2 deciles on the performance percentile 
scale, as described in Sec.  510.315(d).
* * * * *
    Reconciliation payment means a payment made by CMS to a CJR 
participant hospital as determined in accordance with Sec.  510.305(f) 
and (l).
* * * * *
    Reconciliation target price means, for performance years 6 through 
8, the target price applied to an episode at reconciliation, as 
determined in accordance with Sec.  510.301.
* * * * *
0
3. Section 510.100 is amended by revising paragraph (a) to read as 
follows:


Sec.  510.100   Episodes being tested.

    (a) Initiation of an episode. An episode is initiated when, with 
respect to a beneficiary described in Sec.  510.205--
    (1) The participant hospital admits the beneficiary for an anchor 
hospitalization; or
    (2) On or after October 4, 2020, the participant hospital admits 
the beneficiary for an anchor hospitalization, or an anchor procedure 
is performed at the participant hospital.
* * * * *
0
4. Section 510.105 is amended by adding paragraphs (a)(3) to read as 
follows:


Sec.  510.105   Geographic areas.

    (a) * * *
    (3) Beginning with performance year 6, only the 34 selected MSAs 
designated as mandatory participation MSAs as of performance year 3.
* * * * *
0
5. Section 510.120 is amended by revising paragraph (a) introductory 
text to read as follows:


Sec.  510.120   CJR participant hospital CEHRT track requirements.

    (a) CJR CEHRT use. For performance years 2 through 8, CJR 
participant hospitals choose either of the following:
* * * * *
0
6. Section 510.200 is amended by--
0
a. Revising paragraphs (a), (c), (d)(4) introductory text, and (d)(6);
0
b. Adding paragraph (d)(7);
0
c. Revising paragraphs (e)(1) and (2) and paragraphs (e)(3) 
introductory text and (e)(4) introductory text; and
0
d. Adding paragraph (e)(5).
    The revisions and additions read as follows:


Sec.  510.200   Time periods, included and excluded services, and 
attribution.

    (a) Time periods. All episodes must begin on or after April 1, 2016 
and end on or before December 31, 2023.
* * * * *
    (c) Episode attribution. All items and services included in the 
episode are attributed to the participant hospital at which the anchor 
hospitalization or anchor procedure, as applicable, occurs.
    (d) * * *
    (4) Items and services unrelated to the anchor hospitalization or 
the anchor procedure. Excluded services include, but are not limited 
to, the following:
* * * * *
    (6) For performance years 1 through 5 only, payments for otherwise 
included items and services in excess of 2 standard deviations above 
the mean regional episode payment in accordance with Sec.  
510.300(b)(5).
    (7) For performance years 6 through 8 only, payments for otherwise 
included items and services in excess of the 99th percentile of 
regional spending, ranked within each region, for each of the four MS-
DRG/permitted OP TKA/THA/hip fracture target price categories, as 
specified in Sec.  510.300(a)(1) and (6), for performance years 6 
through 8, in accordance with Sec.  510.300(b)(5).
    (e) * * *
    (1) The list of excluded MS-DRGs, ICD-CM diagnosis codes, and CMS 
model PBPM payments are posted on the CMS website.
* * * * *
    (2) For performance years 1 through 5 only, on an annual basis, or 
more frequently as needed, CMS updates the list of excluded services to 
reflect annual coding changes or other issues brought to CMS' 
attention.
    (3) For performance years 1 through 5 only, CMS applies the 
following standards when revising the list of excluded services for 
reasons other than to reflect annual coding changes:
* * * * *

[[Page 10545]]

    (4) For performance years 1 through 5 only, CMS posts the following 
to the CMS website:
* * * * *
    (5) For performance years 6 through 8, the list of excluded 
services posted on the CMS website as it appears at the beginning of 
performance year 5 will not be updated.
0
7. Section 510.210 is amended by revising paragraphs (a) and (b)(1)(ii) 
to read as follows:


Sec.  510.210   Determination of the episode.

    (a) General. (1) An episode begins with the admission of a Medicare 
beneficiary described in Sec.  510.205 to a participant hospital for an 
anchor hospitalization and ends on the 90th day after the date of 
discharge, with the day of discharge itself being counted as the first 
day in the 90-day post-discharge period.
    (2) On or after October 4, 2020, an episode--
    (i) Begins and ends in the manner specified in paragraph (a)(1) of 
this section; or
    (ii) Begins on the date of service of an anchor procedure furnished 
to a Medicare beneficiary described in Sec.  510.205 and ends on the 
90th day after the date of service of the anchor procedure.
    (b) * * *
    (1) * * *
    (ii) Is readmitted to any participant hospital for another anchor 
hospitalization, or, on or after October 4, 2020, receives an anchor 
procedure at any participant hospital.
* * * * *
0
8. Section 510.300 is amended by--
0
a. Revising paragraphs (a)(2) and (4);
0
b. Adding paragraphs (a)(6) and (b)(1)(iv) through (vi); and
0
c. Revising paragraphs (b)(2)(iii), (b)(5), and (c)(3)(iii).
    The revisions and additions read as follows:


Sec.  510.300   Determination of episode quality-adjusted target 
prices.

    (a) * * *
    (2) Applicable time period for performance year episode quality-
adjusted target prices. For performance years 1 through 5, episode 
quality-adjusted target prices are updated to account for Medicare 
payment updates no less than 2 times per year, for updated quality-
adjusted target prices effective October 1 and January 1, and at other 
intervals if necessary.
* * * * *
    (4) Identifying episodes with hip fracture. CMS develops a list of 
ICD-CM hip fracture diagnosis codes that, when reported in the 
principal diagnosis code files on the claim for the anchor 
hospitalization or anchor procedure, represent a bone fracture for 
which a hip replacement procedure, either a partial hip arthroplasty or 
a total hip arthroplasty, could be the primary surgical treatment. The 
list of ICD-CM hip fracture diagnosis codes used to identify hip 
fracture episodes for performance years 1 through 5 can be found on the 
CMS website.
    (i) For performance years 1 through 5 only, on an annual basis, or 
more frequently as needed, CMS updates the list of ICD-CM hip fracture 
diagnosis codes to reflect coding changes or other issues brought to 
CMS' attention.
    (ii) For performance years 1 through 5 only, CMS applies the 
following standards when revising the list of ICD-CM hip fracture 
diagnosis codes.
    (A) The ICD-CM diagnosis code is sufficiently specific that it 
represents a bone fracture for which a physician could determine that a 
hip replacement procedure, either a PHA or a THA, could be the primary 
surgical treatment.
    (B) The ICD-CM diagnosis code is the primary reason (that is, 
principal diagnosis code) for the anchor hospitalization or anchor 
procedure.
    (iii) For performance years 1 through 5 only, CMS posts the 
following to the CMS website:
    (A) Potential ICD-CM hip fracture diagnosis codes for public 
comment; and
    (B) A final ICD-CM hip fracture diagnosis code list after 
consideration of public comment.
    (iv) For performance years 6 through 8, the hip fracture diagnosis 
code list posted at https://innovation.cms.gov/Files/worksheets/cjr-icd10hipfracturecodes.xlsx as it appears at the beginning of 
performance year 5 will not be updated.
* * * * *
    (6) For episodes beginning on or after October 4, 2020 that are 
initiated by an anchor procedure, permitted OP TKAs and OP THAs will be 
grouped with MS-DRG 470 episodes as follows:
    (i) Permitted OP THAs with hip fracture group with MS-DRG 470 with 
hip fracture.
    (ii) Permitted OP THAs without hip fracture and permitted OP TKAs 
group with MS-DRG 470 without hip fracture.
    (b) * * *
    (1) * * *
    (iv) Episodes beginning in 2019 for performance year 6.
    (v) Episodes beginning in 2020 for performance year 7.
    (vi) Episodes beginning in 2021 for performance year 8.
    (2) * * *
    (iii) Regional historical episode payments for performance years 4 
through 8.
* * * * *
    (5) Exception for high episode spending. (i) For performance years 
1 through 5, episode payments are capped at 2 standard deviations above 
the mean regional episode payment for both the hospital-specific and 
regional components of the quality-adjusted target price.
    (ii) For performance years 6 through 8, episode payments are capped 
at the 99th percentile of regional spending for each of the four MS-
DRG/permitted OP TKA/THA/hip fracture categories, as specified in Sec.  
510.300(a)(1) and (6).
* * * * *
    (c) * * *
    (3) * * *
    (iii) In performance years 4 through 8, 3.0 percent.
* * * * *
0
 9. Section 510.301 is added to read as follows:


Sec.  510.301   Determination of reconciliation target prices.

    Beginning with performance year 6, the quality-adjusted target 
price computed under Sec.  510.300 is further adjusted for risk and 
trend as described in this section to arrive at the reconciliation 
target price amount. Specifically:
    (a) Risk adjustment. (1) The beneficiary-level target prices 
computed under Sec.  510.300 is be risk adjusted by a CMS-HCC condition 
count risk adjustment factor and an age bracket risk adjustment factor. 
Both factors are binary, yes/no variables, meaning that a beneficiary 
either does or does not meet the criteria for a specific variable.
    (i) The CMS-HCC condition count risk adjustment factor uses five 
variables, representing beneficiaries with zero, one, two, three, or 
four or more CMS-HCC conditions.
    (ii) The age bracket risk adjustment factor uses four variables, 
representing beneficiaries aged less than 65 years, 65 to 74 years, 75 
years to 84 years, or 85 years or more.
    (2) Both factors are computed annually prior to the start of each 
performance year 6 through 8 via a linear regression analysis. The 
annual regression analysis is computed using the one year of claims 
data applicable to that performance years' target price calculation as 
specified in Sec.  510.300(b) and the most recently available CMS-HCC 
yearly file.
    (i) For performance year 6, CMS uses the CMS-HHC yearly file for CY 
2019;
    (ii) For performance year 7, CMS uses the CMS-HHC yearly file for 
CY 2020;

[[Page 10546]]

    (iii) For performance year 8, CMS uses the CMS-HHC yearly file for 
CY 2021.
    (3)(i) The dependent variable in the annual regression that 
produces the risk adjustment coefficients is equal to the difference 
between the log transformed target price calculated under Sec.  510.300 
and the capped episode costs as described in Sec.  510.300(b)(5)(ii).
    (ii) The independent variables are binary values assigned to each 
CMS-HCC condition count variable and each age bracket variable.
    (iii) Using these variables, the annual regression produces 
exponentiated coefficients to determine the anticipated marginal effect 
of each risk adjustment factor on episode costs. CMS transforms, or 
exponentiate, these coefficients in order to ``reverse'' the previous 
logarithmic transformation, and the resulting coefficients are be the 
CMS-HCC condition count risk adjustment factor and the age bracket risk 
adjustment factor that would be used during reconciliation for the 
subsequent performance year.
    (4)(i) At the time of reconciliation, the beneficiary-level target 
prices computed under Sec.  510.300 is risk adjusted by applying the 
applicable CMS-HCC condition count risk adjustment factor and the age 
bracket risk adjustment factor specific to the beneficiary in the 
episode.
    (ii) For the CMS-HCC condition count risk adjustment factor, 
applicable means the coefficient that applies to the CMS-HCC condition 
count for the beneficiary in the episode; for the age bracket risk 
adjustment factor, applicable means the coefficient for the age bracket 
into which the beneficiary falls on the first day of the episode.
    (5)(i) The risk-adjusted target prices are normalized at 
reconciliation to remove the overall impact of adjusting for age and 
CMS-HCC condition count on the national average target price.
    (ii) The normalization factor is the national mean of the target 
price for all episode types divided by the national mean of the risk-
adjusted target price.
    (iii) CMS applies the normalization factor to the previously 
calculated, beneficiary-level, risk-adjusted target prices specific to 
each episode region, MS-DRG, and hip fracture status combination (as 
specified in paragraph (a)(4) of this section).
    (iv) These normalized target prices are then further adjusted for 
market trends (as specified in paragraph (b) of this section) and 
quality performance (as specified at Sec.  510.300), prior to being 
compared to the episode costs (after episode costs are reduced for high 
episode spending as specified at Sec.  510.300 and/or extreme and 
uncontrollable conditions under Sec.  510.305).
    (b) Market trend adjustment factor. (1) The risk-adjusted quality-
adjusted target price computed under Sec.  510.300 and paragraph (a) of 
this section is further adjusted for market trend changes at the 
region, MS-DRG/permitted OP TKA/THA/hip fracture level.
    (2) This adjustment is accomplished by multiplying each risk-
adjusted quality-adjusted target price computed under Sec.  510.300 and 
paragraph (a) of this section by the applicable market trend adjustment 
factor.
    (3) The applicable market trend adjustment factor is calculated as 
the percent difference between the average regional MS-DRG fracture 
episode costs computed using the performance year claims data and 
comparison average regional MS-DRG fracture episode costs computed 
using historical calendar year claims data used to calculate the 
regional target prices in effect for that performance year.
0
10. Section 510.305 is amended by--
0
a. Revising paragraph (b), the paragraph (d) subject heading, and 
paragraphs (d)(1) introductory text, (e) introductory text, and 
(e)(1)(i);
0
b. Adding paragraphs (f)(1)(iv) through (vi);
0
c. Revising paragraphs (i), (j)(1) introductory text, and (j)(2); and
0
d. Adding paragraphs (l) and (m).
    The revisions and additions read as follows:


Sec.  510.305   Determination of the NPRA and reconciliation process.

* * * * *
    (b) Reconciliation. (1) For performance years 1 through 5, CMS uses 
a series of reconciliation processes, which CMS performs as described 
in paragraphs (d) and (f) of this section after the end of each 
performance year, to establish final payment amounts to participant 
hospitals for CJR episodes for a given performance year.
    (2) For performance years 6 through 8, CMS conducts one 
reconciliation process, which CMS performs as described in paragraphs 
(l) and (m) of this section after the end of each performance year, to 
establish final payment amounts to participant hospitals for CJR 
episodes for a given performance year.
    (3) Following the end of each performance year, for performance 
years 1 through 8, CMS determines actual episode payments for each 
episode for the performance year (other than episodes that have been 
canceled in accordance with Sec.  510.210(b)) and determines the amount 
of a reconciliation payment or repayment amount.
* * * * *
    (d) Annual reconciliation for performance years 1 through 5. (1) 
Beginning 2 months after the end of each of performance years 1 through 
5, CMS does all of the following:
* * * * *
    (e) Calculation of the NPRA for performance years 1 through 5. By 
comparing the quality-adjusted target prices described in Sec.  510.300 
and the participant hospital's actual episode spending for the 
performance year and applying the adjustments in paragraph (e)(1)(v) of 
this section, CMS establishes an NPRA for each participant hospital for 
each of performance years 1 through 5.
    (1) * * *
    (i) Determines actual episode payments for each episode included in 
the performance year (other than episodes that have been canceled in 
accordance with Sec.  510.210(b)) using claims data that is available 2 
months after the end of the performance year. Actual episode payments 
are capped at the amount determined in accordance with paragraph 
(b)(5)(i) of this section for the performance year or the amount 
determined in paragraph (k) of this section for episodes affected by 
extreme and uncontrollable circumstances.
* * * * *
    (f) * * *
    (1) * * *
    (iv) In each case as subject to paragraph (f)(1)(iii) of this 
section, results from the performance year 5 reconciliation as 
described in paragraph (i) of this section and the performance year 5 
post-episode spending and ACO overlap calculations as described in 
paragraph (j) of this section are added to the performance year 6 NPRA 
in order to determine the reconciliation payment or repayment amount.
    (v) Results from the performance year 6 reconciliation as described 
in paragraph (m) of this section and the performance year 6 post-
episode spending and ACO overlap calculations as described in paragraph 
(j) of this section are added to the performance year 6 NPRA in order 
to determine the reconciliation payment or repayment amount.
    (vi) Results from the performance year 7 reconciliation as 
described in paragraphs (m) of this section and the performance year 7 
post-episode spending and ACO overlap calculations as described in 
paragraph (j) of this section are added to the performance year 8 NPRA 
in order to determine the

[[Page 10547]]

reconciliation payment or repayment amount.
    (vii) The reconciliation or repayment amount will be assessed 
independently for performance year 8 in 2024.
* * * * *
    (i) Subsequent reconciliation calculation. (1) For performance 
years 1 through 5, 14 months after the end of each performance year 1 
through 5, CMS performs an additional calculation, using claims data 
available at that time, to account for final claims run-out and any 
additional episode cancelations due to overlap between the CJR model 
and other CMS models and programs, or for other reasons as specified in 
Sec.  510.210(b).
    (2) The subsequent calculation for performance years 1 through 4 
occurs concurrently with the first reconciliation process for the 
following performance year.
    (i) If the result of the subsequent calculation is different than 
zero, CMS applies the stop-loss and stop-gain limits in paragraph (e) 
of this section to the aggregate calculation of the amounts described 
in paragraphs (e)(1)(iv) and (i)(1) of this section for that 
performance year (the initial reconciliation and the subsequent 
reconciliation calculation) to ensure such amount does not exceed the 
applicable stop-loss or stop-gain limits.
    (ii) Because performance year 5 is the last year for which a 
subsequent reconciliation will occur, that subsequent reconciliation 
will be conducted slightly before the performance year 6 reconciliation 
described in paragraph (m) of this section, and any amounts different 
than zero that do not exceed the applicable stop-loss or stop-gain 
limits will be included when calculating reconciliation for performance 
year 6 and prior to issuing a reconciliation payment or demanding a 
repayment amount.
    (j) * * *
    (1) In order to account for shared savings payments, CMS reduces 
the reconciliation payment or increase the repayment amount for the 
subsequent performance year (for years 1 through 8) by the amount of 
the participant hospital's discount percentage that is paid to the ACO 
in the prior performance year as shared savings. (This amount will be 
assessed independently for performance year 8 in 2025.) This adjustment 
is made only when the participant hospital is a participant or 
provider/supplier in the ACO and the beneficiary in the CJR episode is 
assigned to one of the following ACO models or programs:
* * * * *
    (2) If the average post-episode Medicare Parts A and B payments for 
a participant hospital in the prior performance year is greater than 3 
standard deviations above the regional average post-episode payments 
for the same performance year, then the spending amount exceeding 3 
standard deviations above the regional average post-episode payments 
for the same performance year is subtracted from the net reconciliation 
or added to the repayment amount for the subsequent performance year 
for performance years 1 through 7, and assessed independently for 
performance year 8.
* * * * *
    (l) Annual reconciliation for performance years 6 through 8. (1) 
Beginning 6 months after the end of each of performance years 6 through 
8, CMS does all of the following:
    (i) Performs a reconciliation calculation to establish an NPRA for 
each participant hospital.
    (ii) For participant hospitals that experience a reorganization 
event in which one or more hospitals reorganize under the CCN of a 
participant hospital performs--
    (A) Separate reconciliation calculations for each predecessor 
participant hospital for episodes where the anchor hospitalization 
admission or the anchor procedure occurred before the effective date of 
the reorganization event; and
    (B) Reconciliation calculations for each new or surviving 
participant hospital for episodes where the anchor hospitalization 
admission or anchor procedure occurred on or after the effective date 
of the reorganization event.
    (2) CMS--
    (i) Calculates the NPRA for each participant hospital in accordance 
with paragraph (m) of this section including the adjustments provided 
for in paragraph (m)(1)(iv) of this section; and
    (ii) Assesses whether participant hospitals meet specified quality 
requirements under Sec.  510.315.
    (m) Calculation of the NPRA for performance years 6 through 8. By 
comparing the reconciliation target prices described in Sec.  510.301 
and the participant hospital's actual episode spending for the 
performance year and applying the adjustments in paragraph (m)(1)(v) of 
this section, CMS establishes an NPRA for each participant hospital for 
each of performance years 6 through 8.
    (1) In calculating the NPRA for each participant hospital for each 
performance year, CMS does the following:
    (i) Determines actual episode payments for each episode included in 
the performance year (other than episodes that have been canceled in 
accordance with Sec.  510.210(b)) using claims data that is available 6 
months after the end of the performance year. Actual episode payments 
are capped at the amount determined in accordance with Sec.  
510.300(b)(5)(ii) for the performance year or the amount determined in 
paragraph (k) of this section for episodes affected by extreme and 
uncontrollable circumstances.
    (ii) Multiplies each episode reconciliation target price by the 
number of episodes included in the performance year (other than 
episodes that have been canceled in accordance with Sec.  510.210(b)) 
to which that episode reconciliation target price applies.
    (iii) Aggregates the amounts computed in paragraph (m)(1)(ii) of 
this section for all episodes included in the performance year (other 
than episodes that have been canceled in accordance with Sec.  
510.210(b)).
    (iv) Subtracts the amount determined under paragraph (m)(1)(i) of 
this section from the amount determined under paragraph (m)(1)(iii) of 
this section.
    (v) Applies the following prior to determination of the 
reconciliation payment or repayment amount:
    (A) Except as provided in paragraph (m)(1)(v)(C) of this section, 
the total amount of the NPRA for a performance year cannot exceed 20 
percent of the amount calculated in paragraph (m)(1)(iii) of this 
section for the performance year. The post-episode spending and ACO 
overlap calculation amounts in paragraphs (j)(1) and (2) of this 
section are not subject to the limitation on loss.
    (B) The total amount of the NPRA for a performance year cannot 
exceed 20 percent of the amount calculated in paragraph (m)(1)(iii) of 
this section for the performance year. The post-episode spending and 
ACO overlap calculation amounts in paragraphs (j)(1) and (2) of this 
section are not subject to the limitation on gain.
    (C) Financial loss limits for rural hospitals, SCHs, MDHs, and RRCs 
for performance years 6 through 8. If a participant hospital is a rural 
hospital, SCH, MDH, or RRC, the amount cannot exceed 5 percent of the 
amount calculated in paragraph (m)(1)(iii) of this section.
    (2) [Reserved]
* * * * *
0
11. Section 510.310 is amended by --
0
a. Removing paragraph (b)(4)(i);

[[Page 10548]]

0
b. Redesignating paragraphs (b)(4)(ii) through (iv) as paragraphs 
(b)(4)(i) through (iii);
0
c. Revising newly redesignated paragraph (b)(4)(iii);
0
d. Removing paragraph (b)(5);
0
e. Redesignating paragraphs (b)(6) and (7) as paragraphs (b)(5) and 
(6); and
0
f. Revising newly redisgnated paragraph (b)(6).
    The revisions read as follows:


Sec.  510.310   Appeals process.

* * * * *
    (b) * * *
    (4) * * *
    (iii) The procedures (including format and deadlines) for 
submission of briefs and evidence.
* * * * *
    (6) The CMS reconsideration official will make all reasonable 
efforts to issue a written determination within 30 days of the deadline 
for submission of briefs and evidence. The determination is final and 
binding.
* * * * *
0
12. Section 510.315 is amended by revising paragraphs (d) and (f)(1) 
and (2) to read as follows:


Sec.  510.315   Composite quality scores for determining reconciliation 
payment eligibility and quality incentive payments.

* * * * *
    (d) Quality improvement points. (1) For performance year 1, if a 
participant hospital's quality performance percentile on an individual 
measure described in Sec.  510.400(a) increases from the corresponding 
time period in the previous year by at least 2 deciles on the 
performance percentile scale, then the hospitals is eligible to receive 
quality improvement points equal to 10 percent of the total available 
point for that individual measure up to a maximum composite quality 
score of 20 points.
    (2) For performance years 2 through 8, if a participant hospital's 
quality performance percentile on an individual measure described in 
Sec.  510.400(a) increases from the previous performance year by at 
least 2 deciles on the performance percentile scale, then the hospitals 
is eligible to receive quality improvement points equal to 10 percent 
of the total available point for that individual measure up to a 
maximum composite quality score of 20 points.
* * * * *
    (f) * * *
    (1) Performance years 1 through 5. For performance years 1 through 
5--
    (i) A 1.0 percentage point reduction to the effective discount 
factor or applicable discount factor for participant hospitals with 
good quality performance, defined as composite quality scores that are 
greater than or equal to 6.9 and less than or equal to 15.0; or
    (ii) A 1.5 percentage point reduction to the effective discount 
factor or applicable discount factor for participant hospitals with 
excellent quality performance, defined as composite quality scores that 
are greater than 15.0.
    (2) Performance years 6 through 8. For performance years 6 through 
8--
    (i) A 1.5-percentage point reduction to the effective discount 
factor or applicable discount factor for participant hospitals with 
good quality performance, defined as composite quality scores that are 
greater than or equal to 6.9 and less than or equal to 15.0; or
    (ii) A 3-percentage point reduction to the effective discount 
factor or applicable discount factor for participant hospitals with 
excellent quality performance, defined as composite quality scores that 
are greater than 15.0.
* * * * *
0
13. Section 510.400 is amended--
0
a. In paragraphs (b)(2)(i) and (ii) by removing the phrase ``over the 5 
years'' and adding in its place the phrase ``over the 8 years''; and
0
b. Adding paragraph (b)(4).
    The addition reads as follows:


Sec.  510.400   Quality measures and reporting.

* * * * *
    (b) * * *
    (4) For years 6 through 8 of the model the following data are 
requested by CMS for each performance period as follows:
    (i) Year 6 (2021). Submit--
    (A) Post-operative data on primary elective THA/TKA procedures for 
>=80% or >=200 procedures performed between July 1, 2019 and June 30, 
2020; and
    (B) Pre-operative data on primary elective THA/TKA procedures for 
>=90% or >=500 procedures performed between July 1, 2020 and June 30, 
2021.
    (ii) Year 7 (2022). Submit--
    (A) Post-operative data on primary elective THA/TKA procedures for 
90% or 500 procedures performed between July 1, 2020 
and June 30, 2021; and
    (B) Pre-operative data on primary elective THA/TKA procedures for 
100% or >=1,000 procedures performed between July 1, 2021 and June 30, 
2022.
    (iii) Year 8 (2023). Submit--
    (A) Post-operative data on primary elective THA/TKA procedures for 
100% or 1,000 procedures performed between July 1, 2021 and 
June 30, 2022; and
    (B) Pre-operative data on primary elective THA/TKA procedures for 
100% or 1,000 procedures performed between July 1, 2022 and 
June 30, 2023.
* * * * *
0
14. Section 510.405 is amended by revising paragraphs (b)(1) and (3) to 
read as follows:


Sec.  510.405   Beneficiary choice and beneficiary notification.

* * * * *
    (b) * * *
    (1) Participant hospital detailed notification. Each participant 
hospital must provide written notification to any Medicare beneficiary 
that meets the criteria in Sec.  510.205 of his or her inclusion in the 
CJR model.
    (i) Timing of notification. The notification must be delivered at 
the following times:
    (A) If the anchor procedure or anchor hospitalization is scheduled 
in advance, then the participant hospital must provide notice as soon 
as the anchor procedure or anchor hospitalization is scheduled.
    (B) If the anchor procedure or anchor hospitalization is not 
scheduled in advance, then the notification must be provided on the 
date of the anchor procedure or date of admission to the anchor 
hospitalization, as applicable.
    (C) In anchor hospitalization circumstances where, due to the 
patient's condition, it is not feasible to provide notification at the 
times specified in paragraphs (b)(1)(i)(A) or (B), the notification 
must be provided to the beneficiary or his or her representative as 
soon as is reasonably practicable, but no later than discharge from the 
participant hospital where the anchor hospitalization occurs.
    (D) The participant hospital must be able to generate a list of all 
beneficiaries receiving such notification, including the date on which 
the notification was provided to the beneficiary, to CMS or its 
designee upon request.
    (ii) Content of notification. The beneficiary notification must 
contain all of the following:
    (A) A detailed explanation of the model and how it might be 
expected to affect the beneficiary's care.
    (B) Notification that the beneficiary retains freedom of choice to 
choose providers and services.
    (C) Explanation of how patients can access care records and claims 
data through an available patient portal, and how they can share access 
to their Blue Button[supreg] electronic health information with 
caregivers.
    (D) A statement that all existing Medicare beneficiary protections 
continue to be available to the beneficiary. These include the ability 
to report concerns of substandard care to

[[Page 10549]]

Quality Improvement Organizations or the 1-800-MEDICARE helpline.
    (E) A list of the providers, suppliers, and ACOs with whom the CJR 
participant hospital has a sharing arrangement. This requirement may be 
fulfilled by the participant hospital including in the detailed 
notification a Web address where beneficiaries may access the list.
* * * * *
    (3) Discharge planning notice. A participant hospital must provide 
the beneficiary with a written notice of any potential financial 
liability associated with non-covered services recommended or presented 
as an option as part of discharge planning, no later than the time that 
the beneficiary discusses a particular post-acute care option or at the 
time the beneficiary is discharged from an anchor procedure or anchor 
hospitalization, whichever occurs earlier.
    (i) If the participant hospital knows or should have known that the 
beneficiary is considering or has decided to receive a non-covered 
post-acute care service or other non-covered associated service or 
supply, the participant hospital must notify the beneficiary that the 
service would not be covered by Medicare.
    (ii) If the participant hospital is discharging a beneficiary to a 
SNF prior to the occurrence of a 3-day hospital stay, and the 
beneficiary is being transferred to or is considering a SNF that would 
not qualify under the SNF 3-day waiver in Sec.  510.610, the 
participant hospital must notify the beneficiary in accordance with 
paragraph (b)(3)(i) of this section that the beneficiary will be 
responsible for payment for the services furnished by the SNF during 
that stay, except those services that would be covered by Medicare Part 
B during a non-covered inpatient SNF stay.
* * * * *
0
15. Section 510.500 is amended by revising paragraphs (c)(4)(i) and 
(ii) to read as follows:


Sec.  510.500   Sharing arrangements under the CJR model.

* * * * *
    (c) * * *
    (4) * * *
    (i) For episodes beginning on or after April 1, 2016 and ending on 
or before December 31, 2020, in the case of a CJR collaborator who is a 
physician or non-physician practitioner, 50 percent of the Medicare-
approved amounts under the PFS for items and services furnished by that 
physician or non-physician practitioner to the participant hospital's 
CJR beneficiaries during CJR episodes that occurred during the same 
performance year for which the participant hospital accrued the 
internal cost savings or earned the reconciliation payment that 
comprises the gainsharing payment being made.
    (ii) For episodes beginning on or after April 1, 2016 and ending on 
or before December 31, 2020, in the case of a CJR collaborator that is 
a PGP or NPPGP, 50 percent of the Medicare-approved amounts under the 
PFS for items and services billed by that PGP or NPPGP and furnished to 
the participant hospital's CJR beneficiaries by the PGP members or 
NPPGP members respectively during CJR episodes that occurred during the 
same performance year for which the participant hospital accrued the 
internal cost savings or earned the reconciliation payment that 
comprises the gainsharing payment being made.
* * * * *
0
16. Section 510.505 is amended by revising paragraphs (b)(8)(i) and 
(ii) to read as follows:


Sec.  510.505   Distribution arrangements.

* * * * *
    (b) * * *
    (8) * * *
    (i) For episodes beginning on or after April 1, 2016 and ending on 
or before December 31, 2020, in the case of a collaboration agent that 
is a physician or non-physician practitioner, 50 percent of the total 
Medicare-approved amounts under the PFS for items and services 
furnished by the collaboration agent to the participant hospital's CJR 
beneficiaries during CJR episodes that occurred during the same 
performance year for which the participant hospital accrued the 
internal cost savings or earned the reconciliation payment that 
comprises the gainsharing payment being distributed.
    (ii) For episodes beginning on or after April 1, 2016 and ending on 
or before December 31, 2020, in the case of a collaboration agent that 
is a PGP or NPPGP, 50 percent of the total Medicare-approved amounts 
under the PFS for items and services billed by that PGP or NPPGP for 
items and services furnished by PGP members or NPPGP member 
respectively to the participant hospital's CJR beneficiaries during CJR 
episodes that occurred during the same performance year for which the 
participant hospital accrued the internal cost savings or earned the 
reconciliation payment that comprises the gainsharing payment being 
distributed.
* * * * *
0
 17. Section 510.506 is amended by revising paragraph (b)(8) to read as 
follows:


Sec.  510.506   Downstream distribution arrangements.

* * * * *
    (b) * * *
    (8) Except for a downstream distribution payment from a PGP to a 
PGP member that complies with Sec.  411.352(g) of this chapter, for 
episodes beginning on or after April 1, 2016 and ending on or before 
December 31, 2020 the total amount of downstream distribution payments 
for a performance year paid to a downstream collaboration agent who is 
a physician or non-physician practitioner and is either a member of a 
PGP or a member of an NPPGP must not exceed 50 percent of the total 
Medicare-approved amounts under the PFS for items and services 
furnished by the downstream collaboration agent to the participant 
hospital's CJR beneficiaries during a CJR episode that occurred during 
the same performance year for which the participant hospital accrued 
the internal cost savings or earned the reconciliation payment that 
comprises the distribution payment being distributed.
* * * * *


Sec.  510.600   [Amended]

0
18. Section 510.600 is amended in paragraph (b)(1) by removing the 
phrase ``an anchor hospitalization'' and adding in its place the phrase 
``an anchor hospitalization or anchor procedure.''
0
19. Section 510.610 is amended--
0
a. By revising paragraph (a); and
0
b. In paragraph (b)(1), removing the phrase ``qualifying inpatient 
stay'' and adding in its place the phrase ``qualifying inpatient stay 
or anchor procedure''.
    The revision reads as follows:


Sec.  510.610   Waiver of SNF 3-day rule.

    (a) Waiver of the SNF 3-day rule--(1) Performance year--(i) 
Performance years 2 through 5. For episodes being tested in performance 
years 2 through 5 of the CJR model, CMS waives the SNF 3-day rule for 
coverage of a SNF stay for a beneficiary who is a CJR beneficiary on 
the date of discharge from the anchor hospitalization, but only if the 
SNF is identified on the applicable calendar quarter list of qualified 
SNFs at the time of the CJR beneficiary's admission to the SNF.
    (ii) Performance years 6 through 8. For episodes being tested in 
performance years 6 through 8 of the CJR model, CMS waives the SNF 3-
day rule for coverage of a SNF stay for a beneficiary who is a CJR 
beneficiary on the date of discharge from the anchor hospitalization or 
the date of service of the anchor procedure, as applicable, but only if 
the SNF is identified on the

[[Page 10550]]

applicable calendar quarter list of qualified SNFs at the time of the 
CJR beneficiary's admission to the SNF.
    (2) Determination of qualified SNFs. CMS determines the qualified 
SNFs for each calendar quarter based on a review of the most recent 
rolling 12 months of overall star ratings on the Five-Star Quality 
Rating System for SNFs on the Nursing Home Compare website. Qualified 
SNFs are rated an overall of 3 stars or better for at least 7 of the 12 
months.
    (3) Posting of qualified SNFs. CMS posts to the CMS website the 
list of qualified SNFs in advance of the calendar quarter.
* * * * *

    Dated: December 2, 2019.
Seema Verma,
Administrator, Centers for Medicare and Medicaid Services.

    Dated: December 19, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-03434 Filed 2-20-20; 4:15 pm]
 BILLING CODE 4120-01-P