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Participation in mandatory value-based payment programs is tied to higher annual administrative costs for hospitals, according to a comparative study published in JAMA Health Forum, documenting significant mandatory VBC administrative costs hospitals have absorbed since these programs began.
Which Programs Drove These Mandatory VBC Administrative Costs Hospitals Faced
The analysis reviewed Medicare cost report data for different types of hospitals that did and did not participate in three mandatory programs initiated by CMS under the Affordable Care Act: the Hospital Value-Based Purchasing program, Hospital Readmissions Reduction Program, and Hospital-Acquired Condition Reduction Program. Also compared were hospitals that did or didn’t participate in the Comprehensive Care for Joint Replacement model, for which CMS just the other week finalized an industry-opposed nationwide expansion for 2028.
The Scale of Costs Found From 2008 Through 2020
From 2008 through 2020, researchers found more than $3 billion in aggregated additional administrative costs across more than 2,800 hospitals that participated in the programs, with hundreds of thousands to millions of additional average annual per-facility costs, depending on hospital type and programs participated in.
What’s Behind This Rise in Mandatory VBC Administrative Costs for Hospitals
These increases, researchers wrote, suggest that participating hospitals needed to expand their staffing and workflows in order to meet program requirements, such as reporting, care coordination, clinical documentation and risk adjustment. “Our findings suggest that CMS’ mandatory value-based payment programs may increase hospitals’ administrative burden,” researchers from the Brown University School of Public Health wrote, later speculating that “similar trends likely extend to nonmandatory value-based models and other CMS programs that emphasize quality reporting.”
Breaking Down the Cost Comparisons by Hospital Type
The analysis compared the 2,820 hospitals that participated in HVBP, HRRP and HACRP to 42 general acute hospitals in Maryland, which are paid under a distinct payment system, 1,159 critical access hospitals, and 311 long-term acute care hospitals. These comparisons found annual administrative cost increases of $1.23 million for general acute hospitals, about $930,000 for critical access hospitals, and about $650,000 for long-term acute care hospitals.
How the CJR Model Contributed to Mandatory VBC Administrative Costs for Hospitals
For the CJR model, researchers pitted 357 participating hospitals against 2,029 nonparticipants and found that participation was associated with an annual $1.4 million per-hospital increase in administrative costs. For the 349 hospitals that participated in all four models, researchers found annual per-hospital administrative cost increases of $2.78 million compared to non-participating Maryland acute care hospitals, $2.62 million compared to critical access hospitals, and $2.06 million compared to long-term care hospitals.
Why These Findings Were Robust Across Different Cost Categories
Researchers noted that the increases were robust across different collections of salary-related administrative costs identified in hospitals’ cost reports, whereas estimated increases for nonsalary-related administrative costs were positive and larger in magnitude but not statistically significant. They also called out larger administrative cost increases among hospitals with greater Medicare Advantage penetration.
What Researchers Say This Means for Policymakers Weighing Mandatory VBC Administrative Costs
Researchers said their findings raise the “broader concern” that CMS’ analyses around spending efficiency aren’t capturing these costs. “Recognizing the implications of alternative payment models for administrative burden, policymakers should ensure that anticipated improvements in cost, quality, or access outweigh increases in resource-intensive complexity,” their study concludes.
CMS’s Own Framing of the CJR Model’s Success
Just these past several months, CMS officials have touted the CJR model, which ran from April 2016 through 2024, as the driver of over $100 million in savings while maintaining quality of care for patients. That model held hospitals responsible for government spending on Medicare patients’ joint replacement surgeries, hospital stays and the first 90 days of recovery, including follow-up care.
How This Connects to the Upcoming CJR-X Expansion
The latest Inpatient Prospective Payment System sets an expanded version of that mandatory episode-based payment model, CJR-X, up for national rollout beginning Jan. 1, 2028. This timing means the newly documented administrative cost burden from the original CJR model arrives just as CMS moves to expand a similar mandatory model nationwide.
Industry Pushback on the CJR-X Model
Hospital industry associations, in public comments submitted during rulemaking, told the agency that they generally support expanding the use of value-based models, but that “mandatory participation in the CJR-X Model would present significant challenges, particularly for hospitals that lack the scale or financial capacity to make the necessary investments in care redesign.” “We believe that flexibility is critical, as some hospitals lack the scale or financial capacity to make the investments in care redesign that are necessary for success,” said Joanna Hiatt Kim, vice president of payment policy at the American Hospital Association. “Mandatory models present significant challenges, and CMS’ low-volume threshold fails to ensure that hospitals have enough cases to integrate changes in care delivery and actually determine if they had an impact.”
What This Mandatory VBC Administrative Costs Hospitals Study Means Going Forward
With CJR-X set to launch nationally in 2028 and this new JAMA Health Forum study documenting more than $3 billion in prior administrative cost increases tied to similar mandatory programs, hospital finance leaders should factor these documented administrative burdens into their planning for the expanded joint replacement model. Given the AHA’s specific criticism that CMS’s low-volume threshold fails to ensure hospitals have enough cases to determine whether care redesign investments actually worked, this study’s findings may strengthen industry arguments for a more phased or voluntary implementation approach.
What to Watch Going Forward
As CJR-X moves toward its January 2028 start date, industry observers will likely watch whether CMS incorporates this study’s findings into its own cost-benefit analyses of mandatory value-based payment models, particularly given researchers’ explicit concern that the agency’s spending efficiency assessments aren’t capturing administrative costs. Given the documented pattern of higher costs among hospitals with greater Medicare Advantage penetration, health systems with substantial MA populations may want to budget more conservatively for administrative expansion as they prepare for mandatory VBC administrative costs hospitals are likely to continue facing under CJR-X and similar future mandatory programs.
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