Risk Adjustment May Lessen Penalties On Hospitals Treating Complex Cardiac Patients Under Medicare’s Bundled Payments

To reduce variation in spending, Medicare has considered implementing a cardiac bundled payment program for acute myocardial infarction and coronary artery bypass graft. Because the proposed program does not account for patient risk factors when calculating hospital penalties or rewards ("reconciliation payments"), it might unfairly penalize certain hospitals. We estimated the impact of adjusting for patients' medical complexity and social risk on reconciliation payments for Medicare beneficiaries hospitalized for the two conditions in the period 2011-13. Average spending per episode was $29,394. Accounting for medical complexity substantially narrowed the gap in reconciliation payments between hospitals with high medical severity (from a penalty of $1,809 to one of $820, or a net reduction of $989), safety-net hospitals (from a penalty of $217 to one of $87, a reduction of $130), and minority-serving hospitals (from a penalty of $70 to a reward of $56, an improvement of $126) and their counterparts. Accounting for social risk alone narrowed these gaps but had minimal incremental effects after medical complexity was accounted for. Risk adjustment may preserve incentives to care for patients with complex conditions under Medicare bundled payment programs.