Secondary Logo

Journal Logo

Early Effects of Medicare's Bundled Payment for Care Improvement Program for Lumbar Fusion

Martin, Brook I. PhD, MPH; Lurie, Jon D. MD, MS; Farrokhi, Farrokh R. MD; McGuire, Kevin J. MD, MS§; Mirza, Sohail K. MD, MPH

doi: 10.1097/BRS.0000000000002404

Study Design. Retrospective analysis of Medicare claims linked to hospital participation in the Center for Medicare and Medicaid Innovation's episode-based Bundled Payment for Care Improvement (BPCI) program for lumbar fusion.

Objective. To describe the early effects of BPCI participation for lumbar fusion on 90-day reimbursement, procedure volume, reoperation, and readmission.

Summary of Background Data. Initiated on January 1, 2013, BPCI's voluntary bundle payment program provides a predetermined payment for services related to a Diagnosis-Related Group-defined “triggering event” over a defined time period. As an alternative to fee-for-service, these reforms shift the financial risk of care on to hospitals.

Methods. We identified fee-for-service beneficiaries over age 65 undergoing a lumbar fusion in 2012 or 2013, corresponding to the years before and after BPCI initiation. Hospitals were grouped based on program participation status as nonparticipants, preparatory, or risk-bearing. Generalized estimating equation models adjusting for patient age, sex, race, comorbidity, and hospital size were used to compare changes in episode costs, procedure volume, and safety indicators based on hospital BPCI participation.

Results. We included 89,605 beneficiaries undergoing lumbar fusion, including 36% seen by a preparatory hospital and 7% from a risk-bearing hospital. The mean age of the cohort was 73.4 years, with 59% women, 92% White, and 22% with a Charlson Comorbidity Index of 2 or more. Participant hospitals had greater procedure volume, bed size, and total discharges. Relative to nonparticipants, risk-bearing hospitals had a slightly increased fusion procedure volume from 2012 to 2013 (3.4% increase vs. 1.6% decrease, P = 0.119), did not reduce 90-day episode of care costs (0.4% decrease vs. 2.9% decrease, P = 0.044), increased 90-day readmission rate (+2.7% vs. −10.7%, P = 0.043), and increased repeat surgery rates (+30.6% vs. +7.1% points, P = 0.043).

Conclusion. These early, unintended trends suggest an imperative for continued monitoring of BPCI in lumbar fusion.

Level of Evidence: 3

Department of Orthopedics, University of Utah, Salt Lake City, UT

Department of Orthopedics, The Dartmouth Institute for Health Policy and Clinical Practice, Lebanon, NH

Virginia Mason Medical Center, Seattle, WA

§Department of Orthopedic Surgery, The Dartmouth Institute for Health Policy and Clinical Practice, Lebanon, NH

The Dartmouth Institute for Health Policy and Clinical Practice, Lebanon, NH.

Address correspondence and reprint requests to Brook I. Martin, PhD, MPH, Research Associate Professor, Department of Orthopedics, University of Utah, 590 Wakara Way, Salt Lake City, UT 84108; E-mail:

Received 25 April, 2017

Revised 28 July, 2017

Accepted 15 August, 2017

The manuscript submitted does not contain information about medical device(s)/drug(s).

The Agency for Healthcare Research and Quality (AHRQ), grant numbers 5U19HS024075-02 and 5K12HS021695-02, and the National Institute of Arthritis, Musculoskeletal, and Skin Disease, grant 4P60AR062799-05 funds were received in support of this work.

Relevant financial activities outside the submitted work: consultancy, grants.

Key provisions of the Patient Protection and Affordable Care Act include alternative payment models that are intended to provide incentives for improved outcomes and to shift away from fee-for-service payment.1,2 Through its Bundled Payment for Care Improvement (BPCI) program, the Center for Medicare and Medicaid Innovation (CMMI) is piloting episode-based bundled payments, setting a predetermined reimbursement for all services related to a targeted diagnosis or procedure over a defined time period.3 Unlike traditional hospital Diagnosis-Related Group (DRG) payments, episode-based bundled payments models also include reimbursement for postacute care and professional fees. To succeed, hospitals must provide services below the predetermined payment target. The intent of bundled payment programs is to foster joint accountability among providers, hospitals, and clinics to coordinate care, eliminate unnecessary services, and improve quality by reducing readmissions, reoperations, or other adverse outcomes.

Bundled payment demonstrations appear to reduce episode costs, leading advocates to suggest that they could slow the rate of Medicare spending and improve patient care if implemented in a large population.4,5 However, hospital self-selection into these voluntary plans likely favors high-volume hospitals that have the resources to analyze their potential opportunities, implement necessary changes, negotiate market shares, and absorb financial risk. To provide care at or below the predetermined payment level, providers might select patients that maximize gain-sharing, overstate the severity of disease and comorbidity, minimize the intensity of services, outsource care to other facilities, or delay postacute services until the episode-of-care has ended.1,6–8 In addition, academic medical centers, safety net, and small-volume hospitals could be disadvantaged under these plans.9 Such unintended consequences highlight the need for a careful independent evaluation of the impact of bundled payment plans.10 We sought to examine the early effects of BPCI on lumbar fusion, comparing changes in hospital volume, safety, and episode costs based on hospital participation status.

Back to Top | Article Outline


Types of Bundled Payment Programs

The CMMI initially offered four voluntary bundle payment models; three involving hospitals and one for nursing homes (Table 1). We focused on “Model 2,” which includes reimbursement for services through a defined postacute period subsequent to a specific “triggering” events, and had the largest enrollment among hospitals. Hospitals were allowed to choose from 48 clinical triggering events, defined by DRG and select the duration of the episode (30, 60, or 90 days). The preparatory period was implemented on January 1, 2013, with a subset of hospitals electing for the risk-bearing contracts, first initiated on October 1, 2013. Under this plan, hospitals continued to submit charges and receive fee-for-service payment from Medicare, but payments were subsequently reconciled with the prenegotiated target rate discounted at 2% to 3% for participation. Hospitals could contract with convening organizations or third-party administrators to manage their programs, and some received a waiver of Section 186(i) of the Social Security Act requiring a 3-day inpatient stay before coverage for skilled nursing facility services.



Back to Top | Article Outline


We performed a retrospective analysis of 2012 and 2013 Medicare claims linked to public reports of hospital participation in CMMI's Bundle Payment Program. We focused on the BPCI bundle for lumbar fusion, a high-volume procedure with high variability in hospital and postacute care costs that is a common target for payment reform.11,12 Based on the nature of hospitals’ participation in BPCI for lumbar fusion, we examined differences in patient and hospital characteristics, and compared changes in fusion procedure volume, 90-day episode-of-care, and surgical safety after the program initiation.

Back to Top | Article Outline


The Medicare Inpatient Research Identifiable File was used to identify admissions involving DRG for “non-cervical spinal fusion” in 2012 or 2013. The inpatient RIF is a claims-level database that includes DRG, dates of service, Medicare payment amount, and diagnosis and procedure codes from the International Classification of Diseases, Ninth Revision, Clinical Modification.13 We linked each triggering admission to all subsequent hospital outpatient, skilled nursing facility, home health agency, ambulatory medical care, and professional claims occurring within 90 days to capture payments related to these services. We did not include payments for durable medical equipment or prescription medications. The Master Beneficiary Summary file was used to define cohort eligibility and to describe patient demographics, and the American Hospital Association Annual Survey from 2012 was used to summarize hospital bed count and total discharges.14

Triggering admissions were grouped by whether the hospital performing the operation enrolled in BPCI's Model 2 Preparatory (“Prep”) or Risk-bearing (“Risk”) program for lumbar fusion, as publically reported on March 19, 2015.15 Although the status of risk-bearing hospitals was known on January 1, 2013, their contracts did not start until October 2013. As such, our study compares the episode-of-care reimbursement among hospitals that signed on to the risk-bearing contracts during the lead up to the initiation of the reconciliation contracts, but before the start of actual financial risk.

Back to Top | Article Outline

Patient Characteristics

We included fee-for-service beneficiaries, age 65 years or older, eligible for Medicare through the Old Age and Survivors Insurance program, and excluded those who had entitlement through Medicare Advantage (not included as part of BPCI), end-state renal disease, or Social Security Disability Insurance programs because of lack of population-level data for these heterogeneous groups. We did not specifically examine dual eligible beneficiaries. A previously validated algorithm was used to refine surgical indications for lumbar fusion to adjust for specific degenerative pathology, and to exclude patients with spinal fractures, spinal cord injuries, and cancer because these are more commonly defined by a separate triggering events.16 Patient age, sex, race, and comorbidity were included in multivariable analysis as covariates.

Back to Top | Article Outline


The primary outcome was global Medicare payment through a 90-day episode-of-care. To account for inflation, we applied the US Bureau of Economic Analysis Implicit Gross Domestic Product Price Deflator to convert 2012 payments to their 2013 equivalents.17 Secondary dichotomous outcomes included 90-day reoperation, all-cause readmission, device complications, wound problems, and life-threatening complications, identified from diagnosis and procedure codes submitted following each index surgery.18 Specific vertebral levels of fusion cannot be identified on the basis of claims data; however, reoperations were restricted to the lumbar region.

Back to Top | Article Outline


Generalized estimating equation regression was used to compare 90-day episode costs by hospital BPCI participation status, adjusting for patient age, sex, race, comorbidity, log-hospital bed size, and log-total discharges. Comorbidity was calculated using Quan's “enhanced” version of the Charlson Comorbidity Index.19,20 Differences in reimbursement were attributed to the BPCI groups based on interpreting the coefficients for the interactions between year and BPCI participation status, equivalent to a difference-in-difference analysis. We adjusted standard errors to account for the potential nonindependence of patients treated within the same hospital. When comparing changes in outcomes, we only included patients enrolled from January through September of each year to ensure that all index cases had a minimum of 90 days of surveillance. Similar models were used to describe changes in the cost trajectories over time based on bundle participation status, separately estimating acute and postacute care costs at 30-day intervals throughout the full episode of care. Logistic regression models were used to compare changes in repeat operations, all-cause readmission, and surgical safety indicators based on hospital BPCI participation, adjusting for patient age, sex, race, comorbidity, and log-hospital bed size and log-total discharges. Analyses were performed using Stata-MP-v14.2 (College Station, TX) and hypothesis testing based on a two-sided alpha of 0.05.

Back to Top | Article Outline


Hospital and Patient Characteristics

A total of 2050 hospitals provided lumbar fusion trigger cases in 2013, of which 671 (32.7%) participated in the BPCI's preparatory program and 102 (5.0%) in the risk-bearing program. The majority of participant hospitals selected a 90-day bundle with a 2% discount, and more than 60% received a waiver of the 3-day admission rule (Table 2). Hospitals participating in BPCI had larger procedure volumes, greater bed counts, and more discharges. Risk-bearing hospitals were, on average, larger by these three metrics than preparatory hospitals. In addition, the mean annual adjusted volume of lumbar fusion for Medicare beneficiaries in 2012 among nonparticipant hospitals was 24.3 cases, compared to 30.1 among BPCI preparatory hospitals, and 36.4 among risk-bearing hospitals.



After exclusions, a total of 52,329 patients had lumbar fusion in 2013, including 19,265 (36.8%) from a hospital participating in the preparatory program, and 3843 (7.3%) in the risk-bearing program. The distribution of patient age, sex, and comorbidity was similar between participant and nonparticipant hospitals, and from 2012 (pre-BPCI initiation) to 2013 (post-BPCI initiation). A greater proportion of non-White beneficiaries were treated at risk-bearing hospitals (P = 0.006).

Back to Top | Article Outline

Procedure Volumes

From 2012 to 2013, the aggregate volume of fusion procedures among nonparticipant hospitals decreased 489 cases (−1.6%), whereas the volume among preparatory hospitals increased by 227 cases (+1.2%, P = 0.158), and the volume of risk-bearing hospitals increased by 128 cases (+3.4%, P = 0.119; Figure 1). Aggregated to the hospital level, the mean decrease in procedure volume among nonparticipant hospitals was 1.6%, compared to a mean volume increase of 2.7% among preparatory hospitals (P = 0.608), and 1.9% among risk-bearing hospitals (P = 0.865).

Figure 1

Figure 1

Back to Top | Article Outline

Episode of Care Costs

During the program's preliminary year, hospital participation in BPCI did not yield significant reductions in episode of care costs for lumbar fusions. From 2012 to 2013, the mean 90-day episode-of-care payments among nonparticipant hospitals decreased 2.9% ($−1149 reduction, P = <0.001 within group), whereas payments to hospitals in the preparatory program decreased similarly (3.5%; $−1338; P = <0.001 within group, P = 0.448 compared to nonparticipants), and those among risk-bearing hospitals were essentially unchanged, which differed significantly from the reduction seen in the nonparticipant group (−0.4%; $−163; P = 0.726 within group, and P = 0.044 compared to nonparticipants; Table 3). Longitudinal payment trajectories reveal that the relative inpatient payments increased more from 2012 to 2013 among beneficiaries who received their operation at a risk-bearing hospital, but that postacute care payments did not differ based on BPCI participation status (Figure 2).



Figure 2

Figure 2

Back to Top | Article Outline

Surgical Safety Indicators

Rates of repeat spine operation and all-cause readmission among hospitals participating in BPCI risk-bearing program for lumbar fusion were lower in 2012 compared to those of nonparticipants and preparatory hospitals (Table 3). However, from 2012 to 2013 the rates for BPCI hospitals worsened, whereas those of preparatory and nonparticipants hospitals improved. Even after adjusting for age, sex, race, comorbidity, and hospital size, repeat spine surgery and all-cause readmission increased from 2012 to 2013 among risk-bearing hospitals relative nonparticipant hospitals (P = 0.043). Changes in rates of device complications, wound problems, and life-threatening complications based on hospital BPCI participation status were similar and not statistically significant (not shown).

Back to Top | Article Outline


Early findings suggest slight trends toward unintended and potentially harmful effects of the BPCI program for lumbar fusion. Relative to nonparticipant hospitals, risk-bearing hospitals in BPCI's lumbar fusion bundle program failed to achieve cost reductions similar to that of preparatory and nonparticipant hospitals, and from 2012 to 2013 slightly increased procedure volume, readmission, and repeat surgery rates. Because these early data suggest an increase in reoperation and readmission without evidence of cost reductions, it appears that risk-bearing hospitals struggled with implementation during the lead-in period. It is also possible that their initially lower readmission and reoperation rates in 2012 enticed them into BPCI participation (and the converse for nonparticipants) and the changes seen represent regression to the mean. Their relatively higher costs during the lead-in period may factor into a higher target payment during the risk-bearing period. In any event, given these disconcerting trends, ongoing monitoring of the program's effects on patient outcomes, costs, and safety, particularly under the risk-bearing contracts, should be prioritized.

Our findings confirm prior research showing BPCI participant hospitals had greater procedure volume, bed size, and number of total discharges, relative to nonparticipating hospitals.21,22 Larger hospitals may have more resources to absorb increased financial risks and less need for “stop loss” protections.8 The slightly increased volume among risk-bearing hospitals might be attributed to the ability to streamline clinical pathways and reduce length of stay, and thus improving efficiency, enabling increased capacity, and serving an unmet need. On the contrary, it may also reflect hospitals’ imperative to increase volume to make up for lost revenue in the emerging payment environment.23 The preferential participation of high-volume hospitals in BPCI, along with their corresponding increases in volume, might signal an emerging trend toward greater consolidation of these specialty procedures.24,25 The lack of 90-day episode costs reduction among risk-bearing hospitals may be due to the heterogeneous mix of surgical indications and procedure types included in the lumbar fusion bundles, as well as an increasing use of procedures spanning multiple vertebral levels, and involving stabilizing instrumentation in the Medicare population.18,26

Limitations with difference-in-difference analysis include the assumption of a common trend across groups and attributing observed changes between groups to BPCI participation status. We examined global reimbursements instead of examining only those for services specifically related to spinal care. Our study only examines the first year of the BPCI program, before the actual risk-bearing contracts were initiated. Thus, additional years of data are needed to examine whether the trends we identified hold true under the BPCI risk-bearing contracts.

Bundle payment programs in orthopedics involve significant levels of financial risk and complicated contractual and reporting arrangements, requiring new institutional investments to meet quality improvement efforts.27–34 Achieving cost reduction in spine may require concurrent strategies that have been adopted for other conditions,35,36 such as redesigning care paths, reducing length of stay, adopting guideline-concordant decision support, integrating measurement processes into electronic medical records,36 coordinating postacute care with skilled nursing facilities and home health agencies,37 and standardize surgical implants.38

Back to Top | Article Outline


1. Miller HD. From volume to value: better ways to pay for health care. Health Aff (Millwood) 2009; 28:1418–1428.
2. Centers for Medicare & Medicaid Services. FactSheet: Bundled Payment for Care Improvement Initiative (BPCI). Available from: Accessed August 9, 2017.
3. Mukherji SK, Fockler T. Bundled payment. J Am Coll Radiol 2014; 11:566–571.
4. Hussey PS, Eibner C, Ridgely MS, et al. Controlling U.S. health care spending—separating promising from unpromising approaches. N Engl J Med 2009; 361:2109–2111.
5. Nelson L. Lessons from Medicare's Demonstration Projects on Value-Based Payment. 2012. Health and Human Resources Division, Congressional Budget Office. Available from: Accessed August 9, 2017.
6. Satin DJ, Miles J. Performance-based bundled payments: potential benefits and burdens. Minn Med 2009; 92:33–35.
7. Medicare Payment Advisory Commission. Payment Policies for inpatient readmissions, in Report to Congress: Promoting Greater Efficiency in Medicine. MEDPAC, Editor. 2007. Available at: Accessed August 9, 2017.
8. Guterman S, Davis K, Schoenbaum S, et al. Using Medicare payment policy to transform the health system: a framework for improving performance. Health Aff (Millwood) 2009; 28:w238–w250.
9. Robinow A. The Potential of Global Payment: Insights From the Field. 2011. The Commonwealth Fund. Available from:∼/media/Files/Publications/Fund%20Report/2010/Feb/1373_Robinow_potential_global_payment.pdf.
10. Cutler DM, Ghosh K. The potential for cost savings through bundled episode payments. N Engl J Med 2012; 366:1075–1077.
11. Miller DC, Gust C, Birkmeyer JD, et al. Large variations in Medicare payments for surgery highlight savings potential from bundled payment programs. Health Aff (Millwood) 2011; 30:2107–2115.
12. Schoenfeld AJ, et al. Variations in Medicare payments for episodes of spine surgery. Spine J 2014; 14:2793–2798.
13. Center for Disease Control and Prevention. International Classification of Diseases, Ninth Revision, Clinical Modification. 2010. Available from: Accessed August 9, 2017.
14. American Hospital Association. Annual Survey. 2012. Available from: Accessed August 9, 2017.
15. Center for Medicare and Medicaid Innovation. Where Innovation is Happening. Available from: Accessed August 9, 2017.
16. Martin BI, Lurie JD, Tosteson AN, et al. Indications for spine surgery: validation of an administrative coding algorithm to classify degenerative diagnoses. Spine (Phila Pa 1976) 2014; 39:769–779.
17. Bureau of Economic Analysis, U.S. Department of Commerce. GDP Implicit Price Deflator. Available from: Accessed August 9, 2017.
18. Deyo RA, Mirza SK, Martin BI, et al. Trends, major medical complications, and charges associated with surgery for lumbar spinal stenosis in older adults. JAMA 2010; 303:1259–1265.
19. Quan H, Parsons GA, Ghali WA. Validity of information on comorbidity derived rom ICD-9-CCM administrative data. Med Care 2002; 40:675–685.
20. Deyo RA, Cherkin DC, Ciol MA. Adapting a clinical comorbidity index for use with ICD-9-CM administrative databases. J Clin Epidemiol 1992; 45:613–619.
21. Tsai TC, Joynt KE, Wild RC, et al. Medicare's bundled payment initiative: most hospitals are focused on a few high-volume conditions. Health Aff (Millwood) 2015; 34:371–380.
22. Levy JM. Evaluation of the Medicare Acute Care Episode (ACE) Demonstration: Final Evaluation Report. 5/31/2013. Available from: Accessed August 9, 2017.
23. Weeks WB, Rauh SS, Wadsworth EB, et al. The unintended consequences of bundled payments. Ann Intern Med 2013; 158:62–64.
24. Weeks WB, Greene RA, Weinstein JN. Potential advantages of health system consolidation and integration. Am J Med 2015; 128:1050–1051.
25. Antonova E, Boye ME, Sen N, et al. Can bundled payment improve quality and efficiency of care for patients with hip fractures? J Aging Soc Policy 2015; 27:1–20.
26. Martin BI, Mirza SK, Franklin GM, et al. Hospital and surgeon variation in complications and repeat surgery following incident lumbar fusion for common degenerative diagnoses. Health Serv Res 2013; 48:1–25.
27. Pearce JW, Harris JM. The Medicare bundled payment pilot program participation considerations. Healthc Financ Manage 2010; 64:52–56. 58, 60.
28. Reynolds M. Medicare bundled payment program: meaningful risk and limited reward. Healthc Financ Manage 2011; 65:50–52. 54.
29. Mulvany C. Opportunities and risks of participating in the CMMI bundled payment program. Healthc Financ Manage 2011; 65:34–36.
30. Losina E, Barrett J, Baron JA, et al. Utilization of low-volume hospitals for total hip replacement. Arthritis Rheum 2004; 51:836–842.
31. Losina E, Barrett E, Mahomed NN, et al. Early failures of total hip replacement: effect of surgeon volume. Arthritis Rheum 2004; 50:1338–1343.
32. Katz JN, Phillips CB, Baron JA, et al. Association of hospital and surgeon volume of total hip replacement with functional status and satisfaction three years following surgery. Arthritis Rheum 2003; 48:560–568.
33. Solomon DH, Losina E, Baron JA, et al. Contribution of hospital characteristics to the volume-outcome relationship: dislocation and infection following total hip replacement surgery. Arthritis Rheum 2002; 46:2436–2444.
34. Katz JN, Losina E, Barrett J, et al. Association between hospital and surgeon procedure volume and outcomes of total hip replacement in the United States medicare population. J Bone Joint Surg Am 2001; 83-A:1622–1629.
35. Doran JP, Zabinski SJ. Bundled payment initiatives for Medicare and non-Medicare total joint arthroplasty patients at a community hospital: bundles in the real world. J Arthroplasty 2015; 30:353–355.
36. Iorio R. Strategies and tactics for successful implementation of bundled payments: bundled payment for care improvement at a large, urban, academic medical center. J Arthroplasty 2015; 30:349–350.
37. Stansbury J, White G. Care Redesign: An Essential Feature of Bundled Payment. Issue Brief, No 11. September 2013. Available from: Accessed August 9, 2017.
38. Cantlupe J. How Bundled Payments Pay off in Joint-replacement. HealthLeaders Media. 2012. Available from: Accessed August 9, 2017.

bundle payment program; Center for Medicare and Medicaid Innovation; episode-based costs; episode-of-care; low back pain; lumbar fusion; readmission; reference pricing; repeat spine surgery

Copyright © 2018 Wolters Kluwer Health, Inc. All rights reserved.