CMS Proposes Knee and Hip Replacements

The Inpatient Prospective Payment System (IPPS) Proposed Rule for the 2027 fiscal year (FY) signals another major acceleration in Medicare’s transition toward mandatory value-based care.

Among the most significant proposals is the Centers for Medicare & Medicaid Services (CMS) plan to expand the Comprehensive Care for Joint Replacement (CJR) Model nationwide through a redesigned version referred to as CJR-X. While many organizations may view this as a return of a familiar bundled payment program, such as those already in the Transforming Episode Accountability Model (TEAM), the Proposed Rule will force all hospitals into episode-based accountability.

CMS is proposing that CJR-X begin Oct. 1, 2027, aligning performance years with the federal fiscal year. CMS has indicated that this change is intended to better synchronize future policy updates with the annual IPPS rulemaking cycle, as they continue to make modifications. Hospitals already participating in TEAM, specifically those with lower extremity joint replacement (LEJR) episodes, would be exempt from CJR-X until TEAM concludes.

According to CMS, the original CJR model generated $112.7 million in Medicare savings during performance years six and seven while maintaining quality outcomes, including stable emergency department utilization, readmissions, mortality, and complication rates. CMS now appears ready to operationalize these lessons nationally.

Under the Proposed Rule, eligible beneficiaries would include those enrolled in Medicare Parts A and B who have Medicare as the primary payer, thus not encompassing those enrolled in Medicare Advantage (MA) or other managed care arrangements. CMS also proposes excluding Medicare beneficiaries as a result of end-stage renal disease (ESRD).

This exclusion of MA beneficiaries is operationally important. While many hospitals are heavily focused on MA utilization management (UM) challenges today, CJR-X remains rooted in traditional Medicare Fee-for-Service (FFS) payment methodologies. Organizations will need to manage two parallel realities: dealing with increasingly restrictive MA authorization oversight while simultaneously assuming broader financial accountability for FFS joint replacement episodes.

Additional Beneficiary Notification Form Proposed

One of the more operationally impactful proposals involves beneficiary notification requirements. CMS is proposing that hospitals participating in CJR-X provide written notification to every eligible beneficiary prior to discharge from the anchor hospitalization or outpatient anchor procedure. The notification must explain the CJR-X model, reinforce beneficiary freedom of choice, describe data-sharing practices, explain access to claims data through Blue Button, and disclose any financial relationships between the hospital and CJR collaborators.

This requirement elevates the importance of discharge planning and patient education workflows. Hospitals will need standardized processes to ensure compliant delivery of this new notification, documentation of receipt, and alignment with broader patient choice obligations under the Conditions of Participation. Case management and patient registration departments will likely become central operational owners of this process.

The proposed episode design is expansive. CMS proposes including all Medicare Part A and Part B services furnished during the 90-day post-discharge period related to the LEJR episode. This includes physician services, inpatient and outpatient hospital care, skilled nursing facility (SNF) services, inpatient rehabilitation, home health, outpatient therapy, hospice, durable medical equipment (DME), laboratory services, and Part B drugs and biologics, unless specifically excluded. For case management and utilization review (UR) teams, this further reinforces the need to move beyond siloed discharge planning models, toward longitudinal episode management strategies. The traditional hospital-only mindset is increasingly incompatible with CMS’s value-based direction.

CMS proposes excluding certain readmissions and diagnosis categories, including oncology, trauma, organ transplant, ventricular shunt cases, and select Major Diagnostic Categories such as pregnancy, newborns, HIV, and ophthalmologic disorders. CMS also proposes excluding certain high-cost technologies, including IPPS new technology add-on payments and Outpatient Prospective Payment System (OPPS) pass-through device payments.

CMS has also proposed canceling bundled qualifying episodes if the beneficiary dies during the 90-day period, loses eligibility criteria (such as changes in coverage), experiences an extreme and uncontrollable circumstance event (natural disaster), or enters overlapping TEAM-related episode scenarios. While these provisions offer some financial protection, they also introduce additional documentation and tracking complexity for organizations managing episode reconciliation.

Thus, the post-discharge management plus the quality reporting requirements will also pull in new quality management team members.

SNF Three-Day Waiver

One of the benefits of this program is CMS’s proposal to utilize the three-day SNF waiver program for this patient population. Under CJR-X, hospitals could discharge eligible beneficiaries to SNFs without a qualifying three-day inpatient stay. However, the SNF must meet CMS quality requirements, including maintaining at least a three-star overall rating for seven of the previous twelve months. This proposal carries significant implications for discharge planning and post-acute network strategy.

Hospitals will need active oversight of SNF quality ratings, stronger preferred provider network management, and real-time visibility into qualifying facilities.

Failure to appropriately discharge patients to qualified SNFs could result in denied SNF payments – and financial liability shifting back to the hospital. It was very clear in the proposed ruling that hospitals, not patients, would “eat” this cost if a patient is sent to a SNF facility outside of the waiver guidelines prior to their three-day inpatient stay. CMS described in the ruling a potential patient notice for those going to a SNF under a CJR-X episode of care; however, it was unclear how this was going to be operationalized, or if this would come directly from CMS as an official form.

For many organizations, this further accelerates the evolution of case management from a reactive inpatient discharge function to a proactive population health and post-acute strategy role. Hospitals participating in CJR-X will likely need stronger integration between case management, quality, physician advisors, finance, analytics, and post-acute care navigation teams.

Physician advisor programs may also see expanded responsibilities under CJR-X. Historically focused on status determination and denial prevention, physician advisors could increasingly become involved in episode stewardship, post-acute utilization oversight, avoidable readmission reduction, and alignment of clinical documentation supporting episode complexity and resource utilization.

This proposal reinforces CMS’s broader strategic direction across value-based care initiatives. The operational alignment between CJR-X and TEAM demonstrate CMS’s intention to standardize episode-based methodologies across multiple mandatory models. Although still only under the “proposed” phase, with some minor adjustments or refinements likely pending, it will be important to anticipate that this program is coming.