Value-based mandates linked to higher hospital admin costs

A new study links mandatory participation in value-based payment models to higher hospital administrative costs as hospitals nationwide prepare for a new, nationwide bundled payments model.

The study published in JAMA Health Forum this week analyzed hospital administrative costs from Medicare cost report data for fiscal years 2006 and 2020. The data revealed that hospitals required to participate in certain value-based payment models run the Centers for Medicare and Medicaid Services had greater administrative costs.

Those costs totaled more than $3 billion annually for hospitals in the mandatory models, according to the study.

Researchers from the Brown University School of Public Health said the added costs were salary-related, which likely stemmed from expanded administrative staffing and workflows that hospitals stood up to meet value-based payment program requirements, including quality reporting, care coordination and data management and analytics.

Hospitals across the U.S. have had to participate in CMS-run value-based payment models since the early 2010s, including the Hospital Value-Based Purchasing program, the Hospital Readmissions Reduction Program and the Hospital-Acquired Condition Reduction Program.

The CMS also introduced the Comprehensive Care for Joint Replacement Model in 2016, which applied a bundled payment model to hip and knee surgeries. The agency required nearly all acute-care hospitals in selected regions to participate through 2024.

In the study of over 4,000 hospitals, about 65% participated in a mandatory value-based payment program starting in the early 2010s. Another 357 hospitals in the study participated in the CJR Model.

Participants and nonparticipants had similar administrative costs during a baseline period, researchers said. However, those costs increased consistently among hospitals required to participate in the mandatory value-based payment models relative to three control groups that were not included in the models (hospitals in Maryland, critical access hospitals and long-term care hospitals.

CJR Model hospitals also exhibited an upward trend in administrative costs relative to nonparticipating hospitals, researchers reported. Specifically, participation was associated with a $1.4 million annual increase in administrative costs per hospital.

Overall, researchers found that mandatory participation corresponded to a 6.3% increase in administrative costs compared to the 2012 baseline and a 7.9% increase relative to the 2015 baseline cost among hospitals participating in the CRJ Model.

Notably, these associations were larger among hospitals with higher levels of Medicare Advantage penetration.

Researchers theorized that administrative responses to these programs happen gradually rather than immediately upon implementation. In other words, hospitals need time to fully understand model requirements, train and expand staff and adjust workflows.

They said this was supported by the finding that exiting the CJR model was associated with a $0.85 million per hospital drop in annual administrative costs, and event-study estimates revealed a gradual decline after model termination.

This study comes on the heels of a CMS announcement expanding the CJR Model nationwide. The model, now known as the CJR-X, will require most hospitals nationwide to participate in the bundled payments model by 2028.

However, leading healthcare industry groups, including the American Hospital Association, have opposed the model's mandatory nature, claiming it will strain resource-strapped hospitals that lack the financial capacity to absorb additional administrative costs.

The CMS, however, said the CJR-X will build on the success of its predecessor, which saved over $112 million for Medicare from 2021 through 2023 alone. The agency estimates the new model will reduce Medicare's costs by $725 million over its first five performance years.

But Brown researchers explained that their study should help the CMS determine whether increasing administrative costs truly improves hospitals' clinical outcomes and care coordination.

"It is important for CMS to streamline the reporting process and harmonize the quality metrics across programs by consolidating duplicative measures and standardizing submission through a cohesive system," they said.

"Currently, hospitals report to multiple portals and track similar measures under different programs, creating redundancy and confusion. Aligning measure definitions and scoring across programs could reduce administrative complexity and lessen the analytic and strategic planning demands each program imposes on hospitals."

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.