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Playing the Long Game: Why Northwestern Is Participating in Joint Replacement in BPCI Advanced Despite Projected Losses


Even though Northwestern Medicine is projected to sustain a loss in the new Bundled Payments for Care Improvement Advanced, it plans to participate because doing so will position Northwestern Medicine as best possible to manage future challenges in episodes of care.

This article was cowritten with Hannah Alphs Jackson, MD, MHSA, director of managed care at Northwestern Medicine; Brian Walsh, vice president of managed care at Northwestern Medicine; and David Manning, MD, vice chair of the Department of Orthopaedic Surgery and associate professor of orthopaedic surgery at Northwestern Medicine.

On October 1, 2018, the Center for Medicare and Medicaid Innovation (CMMI) launched the next iteration of Bundled Payments for Care Improvement (BPCI), BPCI Advanced. Under this program, participants may select between 1 and 32 clinical episodes for which to accept financial risk, meaning they are accountable for the care and associated healthcare expenditures beneficiaries receive across a 90-day post-discharge period. If Medicare payments for services provided to beneficiaries during this time exceed a target price, the participant must pay back the difference to Medicare.

Meanwhile, if payments fall below the target price, participants are eligible to receive the difference as savings. Northwestern Medicine (NM) is participating in BPCI Advanced with the major joint replacement of the lower extremity (MJRLE) episode. It is doing so despite the fact that it is projected to sustain a loss in this episode based on the current data made available to it by CMMI. This article explains NM’s decision and strategy for participation, as well as thoughts regarding the long-term sustainability of bundled payment programs.


Like many healthcare organizations, NM chose to enter its first Medicare bundled payment program with the MJRLE episode. Relative to other conditions, such as simple pneumonia, MJRLE is often viewed as comparatively easier to operationalize in a bundled payment model due to the relatively low variation in patient acuity, the mostly elective nature of the procedure, which lends to easier patient identification, easily identifiable efficiency opportunities, and ease of mapping out optimal care pathways from before the procedure to well after the procedure.

NM entered the original BPCI in 2015 and successfully executed a multidisciplinary, pre- and postoperative clinical pathway across the clinical care continuum with high provider adherence rates for MJRLE patients. Early in the program, performance was uneven, and it even experience a few quarters of losses, but its financial performance improved and became more consistent as it executed and refined interventions. To date, NM has averaged 4% quarterly savings rate in BPCI MJRLE episodes.

Despite this fact, when NM received its preliminary BPCI Advanced target prices, it found itself in an unfortunately similar position as many other health systems with previous success in BPCI MJRLE or the mandatory Comprehensive Care for Joint Replacement (CCJR) program. When NM compared average episode payments from the most recent full year of BPCI Advanced baseline data (Q4 2015—Q3 2016) with the 2018 preliminary target prices, NM was projected to lose approximately 9% over the course of a year.

Why Is Northwestern Medicine Projected to Lose Money?

How is it that NM could generate average savings of 4% in one program, but be projected to lose 9% in another program for the same 90-day MJRLE episode? The answer comes down to the target price methodology. Under the original BPCI program, participants’ target prices were based on their own historical average episode payments. The methodology utilized for BPCI Advanced is much more complex. Instead of focusing on a provider’s own historical experience alone, BPCI Advanced utilizes national data with regional and provider-specific adjustments. Rather than a simple historical average, BPCI Advanced utilizes 2 compound log normal models to estimate the impact of various patient and provider-level factors on episode spending. These models generate parameter estimates, which are ultimately used to calculate the three major components of the target price calculation (Figure 1). Together, the components generate a target price that is adjusted for patient case mix and the hospital’s historical efficiency and trended forward based on the episode utilization of like providers in a regional peer comparison group. Albeit complex, CMMI is to be applauded for developing the most sophisticated and comprehensive risk adjustment methodology featured in a Medicare bundled payment model to date. The modification also appropriately acknowledges the need to move beyond purely historical averages, as over time efficient providers would be disincentivized to participate.

So, back to the original question: what about this methodology makes it more difficult for NM to achieve savings in the MJRLE episode? One of the main drivers is the peer adjusted trend (PAT) factor, which is based on the utilization of like providers in a census region. NM’s MJRLE episode has a PAT factor of less than 0.90, which essentially means that the utilization and corresponding expenditures for the MJRLE episodes initiated by providers in NM’s peer comparison group were lower than what CMMI predicted. In other words, like NM, providers in this peer group have already become more efficient at delivering care to patients receiving MJRLEs. Additionally, the PAT factor effect is likely to compound over time as providers continue to pursue efficiencies in the MJRLE care pathway, and the resultant target price will continue to decline. Similar arguments can be made for the standardized baseline spending (SBS) figure, which will decline based on an individual provider’s progress.

Why Northwestern Is Moving Forward

With all this in mind, readers are probably, rightfully, wondering why NM decided to participate in BPCI Advanced with the MJRLE episode. The answer boils down to a few key points:

  1. NM believes further opportunity exists to better coordinate care for MJRLE patients. During BPCI, it made great strides towards optimizing the immediate pre- and postoperative period for MJRLE patients. NM engaged physicians through data sharing and education, identified and conducted risk assessments to ascertain the appropriate discharge setting for patients, proactively educated patients on their care pathway in order to help set informed expectations, and partnered with skilled nursing facilities to coordinate care for patients and set quality goals. Process iteration has revealed what works and where roadblocks lie. NM has yet to meet all of its quality and utilization goals, but NM believes that lessons learned during BPCI have enabled it to develop the plans and infrastructure necessary to attain these goals during BPCI Advanced.
  2. NM believes the pursuit of these opportunities will enable us, at a minimum, to breakeven. Generating buy-in to engage in a new model is difficult if stakeholders believe that the economics of the model are so stacked against them that no matter what they do, losses are a certainty. If NM is able to meet its quality and utilization goals for the MJRLE population, it is projected to eventually breakeven in the MJRLE episode.
  3. New competencies are necessary to succeed in a rapidly shifting reimbursement landscape. Finally, the BPCI Advanced MJRLE episode is not the end game. NM strives to develop the competencies necessary to effectively manage patient care within and beyond its walls for all patient populations. As time goes on, the economic incentives established by payers will increasingly align with this goal. HHS Secretary Azar recently signaled his intent to release additional mandatory bundles while CMS Administrator Verma has touted the benefits of Medicare Advantage. The lessons NM learns and capabilities it develops from managing the Medicare MJRLE population will be applied to the broader orthopedics population, as well as to other disease groups in the future.
  4. NM has momentum. NM participated in the BPCI original MJRLE episode for 2.5 years, and it took considerable time to build the infrastructure and clinical engagement necessary to generate success. After spending more than 2 years sharing data and results with physicians, more and more NM physicians understand the role of alternative payment models (APMs) and how they can translate to care changes for patients. NM does not want to lose this crucial engagement.

A Parting Thought on Sustainability

This article was written in the context of NM’s current preliminary MJRLE target price. While the final target price will be updated to reflect Medicare rate changes and its patient case mix, NM doesn’t expect its projection to change significantly as a result. However, CMS is set to rebase targets for performance year 2020, meaning it will alter the baseline to include more recent years—years that reflect a higher portion of providers pursuing efficiencies in the MJRLE care pathway. It is possible that following this change, NM (and many other BPCI Advanced participants) may be forced to withdraw from the MJRLE episode due to unavoidable significant financial losses.

CMMI can prevent this with refinements to the target price methodology. Potential changes include:

  1. Do not rebase; utilize the 2013-2016 period as a fixed baseline for the entirety of BPCI Advanced.
  2. If CMMI does rebase, simply elongate the baseline by one year (add on 2017) instead of shifting the entire period forward (eliminating 2013 and potentially 2014).
  3. Apply a floor to the SBS and/or PAT factor.

All of these proposals seek to address the ever-present challenge of any APM’s benchmark methodology: how to prevent the race to the bottom. When a model adjusts a target price to reflect a single provider’s or group of providers’ historical efficiency, the target will continue to decline as providers become more efficient. However, there is a floor to this efficiency beyond which decreases in utilization necessary to match a declining target price would likely threaten the quality of patient care. Thus, a floor must exist in target price methodologies.


APMs such as BPCI Advanced play an important role in healthcare. It is likely innovation will occur at NM as a result of participation and that performance will continue to improve. Its efforts and the lessons learned via participation will position NM as best possible to manage future challenges in joint replacement and other episodes of care. However, the threat and realization of significant financial losses will stifle innovation and performance improvement if NM and others withdraw from participation. There is a floor to possible efficiencies in care, and CMS must acknowledge this fact as it refines target price methodologies.

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