CMS projects its newly finalized Comprehensive Care for Joint Replacement Expanded model will save Medicare $736 million over its first five performance years, according to the fiscal year 2027 Inpatient Prospective Payment System final rule.
The mandatory nationwide model, known as CJR-X, takes effect Jan. 1, 2028. The $736 million estimate appears in Appendix A of the 2,704-page rule and provides a closer look at how CMS expects the model to affect Medicare spending and hospital reimbursement.
“Knee, hip, and ankle replacements are important for helping seniors preserve their mobility and overall well-being,” CMS Administrator Mehmet Oz, MD, said in a July 31 news release. “Expanding the joint replacement pilot program to support more of our seniors will help match financial incentives in Medicare with improved health outcomes, safeguard taxpayer resources and ensure patients experience a positive, comprehensive care journey throughout the surgical process.”
Five things to know:
1. Projected savings rise each year. CMS projects $129 million in Medicare savings in performance year 1, which runs Jan. 1 through Dec. 31, 2028. Savings rise to $133 million in year 2, $137 million in year 3, $166 million in year 4 and $171 million in year 5. Baseline episode spending grows from $8 billion in year 1 to $12.7 billion in year 5.
As a share of baseline spending, savings hold at 1.6% for the first three years before falling to 1.3% in years 4 and 5. CMS attributes the shift in part to hospitals transitioning from the Transforming Episode Accountability Model, which ends Dec. 31, 2030, into CJR-X in 2031. The agency assumes those hospitals will generate no additional savings because their previous spending reductions will already be reflected in the CJR-X baseline.
2. CMS projects savings even without changes in hospital behavior. CMS assumes participants will reduce episode spending by 1% in year 1 and maintain that reduction. But the agency’s sensitivity analysis shows that even with no change in hospital behavior, Medicare would still save 1% of baseline spending in each of the first three years and 0.7% in years 4 and 5.
That means more than half of the projected savings rate in each year would come from the model’s pricing mechanics rather than additional reductions in episode spending.
A commenter raised a similar concern, arguing CMS’ analysis projected savings from automatic and compounding payment reductions unrelated to care improvement. CMS disagreed with that characterization, citing its regional target price methodology and capped retrospective trend adjustments.
Under a scenario in which hospitals reduce spending by 3%, savings reach 2.9% of baseline spending in the early years. CMS said savings do not increase proportionally with spending reductions because more episode spending becomes subject to stop-loss limits as target prices tighten.
3. Hospitals are projected to repay Medicare $1.9 billion. Over five years, CMS expects to pay $1.463 billion in reconciliation payments to CJR-X participants and collect $1.855 billion in repayments from them. That amounts to about $392 million in net repayments to Medicare before accounting for assumed reductions in episode spending. In year 1 alone, CMS projects $241 million in reconciliation payments to hospitals and $307 million in repayments to Medicare.
4. Hospitals enter downside risk immediately. Participants will take full two-sided risk beginning on the first day of performance year 1.
Commenters asked CMS for a three-year runway before downside risk, a phased-in discount factor, phased geographic expansion and an informational-only first year. CMS declined those requests, saying phased approaches would add operational complexity and weaken incentives for participants to begin care redesign early.
CMS instead pointed to several protections included in the final model: a three-month delay to the Jan. 1, 2028, start date; a 2% discount factor instead of the 3% used for joint replacement episodes under the original CJR model; improved target price risk adjustment; and an exclusion from reconciliation for hospitals with fewer than 31 lower extremity joint replacement episodes during the baseline period.
Most participants will face 20% stop-loss and stop-gain limits, according to CMS. Safety-net hospitals, rural hospitals, Medicare-dependent small rural hospitals and sole community hospitals will have a 5% stop-loss limit. The average quality-adjusted discount CMS modeled is 1.3%.
5. The original CJR model had a mixed savings record. The evidence CMS cites in support of nationwide expansion is uneven. The first four years of the original CJR model generated an estimated $72 million in Medicare savings, but the results were not statistically significant.
Performance year 5 generated $95.4 million in statistically significant losses to Medicare after COVID-19-era adjustments waived downside risk and increased reconciliation payments, offsetting the earlier savings. The $112.7 million in net savings CMS cites covers performance years 6 and 7.
CMS also assumes that about half of the 3.4% savings previously achieved by CJR hospitals returned as higher Medicare spending during the gap between the original model’s end in December 2024 and CJR-X’s 2028 launch because hospitals did not sustain all of those reductions without the model in place. Mandatory CJR participants account for about 12% of episode spending in the CJR-X baseline.
The model’s pricing and target methodology means Medicare can generate savings even without additional reductions in episode spending. That will likely increase the pressure on hospitals to strengthen episode management before CJR-X launches in 2028.
Click here to access the final rule.
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