(a) General. CMS establishes episode quality-adjusted target prices for participant hospitals for each performance year or performance year subset of the model as specified in this section. Episode quality-adjusted target prices are established according to the following:

(1) MS-DRG and fracture status. MS-DRG assigned at discharge for anchor hospitalization and present of hip fracture diagnosis for anchor hospitalization—

(i)(A) MS-DRG 469 with hip fracture; or

(B) For episodes beginning on or after October 1, 2020, MS-DRG 521;

(ii) MS-DRG 469 without hip fracture;

(iii)(A) MS-DRG 470 with hip fracture; or

(B) For episodes beginning on or after October 1, 2020, MS-DRG 522; or

(iv) MS-DRG 470 without hip fracture.

(2) Applicable time period for performance year or performance year subset episode quality-adjusted target prices. For performance years 1 through 4 and performance year subset 5.1 only, episode quality-adjusted target prices are updated to account for Medicare payment updates no less than 2 times per year, for updated quality-adjusted target prices effective October 1 and January 1, and at other intervals if necessary.

(3) Episodes that straddle performance years, performance year subsets, or payment updates. The quality-adjusted target price that applies to the episode is one of the following:

(i) For episodes beginning on or after April 1, 2016 and ending on or before September 30, 2021, the date of admission for the anchor hospitalization.

(ii) For episodes beginning on or after July 4, 2021 and ending on or after October 1, 2021, the date of the anchor procedure or the date of admission for the anchor hospitalization, as applicable.

(4) Identifying episodes with hip fracture. CMS develops a list of ICD-CM hip fracture diagnosis codes that, when reported in the principal diagnosis code files on the claim for the anchor hospitalization or anchor procedure, represent a bone fracture for which a hip replacement procedure, either a partial hip arthroplasty or a total hip arthroplasty, could be the primary surgical treatment. The list of ICD-CM hip fracture diagnosis codes used to identify hip fracture episodes can be found on the CMS website. Beginning on October 1, 2020, hip fracture episodes initiated by an anchor hospitalization will be identified by MS-DRGs 521 and 522.

(i) For performance years 1 through 5 only, on an annual basis, or more frequently as needed, CMS updates the list of ICD-CM hip fracture diagnosis codes to reflect coding changes or other issues brought to CMS' attention.

(ii) For performance years 1 through 5 only, CMS applies the following standards when revising the list of ICD-CM hip fracture diagnosis codes.

(A) The ICD-CM diagnosis code is sufficiently specific that it represents a bone fracture for which a physician could determine that a hip replacement procedure, either a Partial Hip Arthroplasty (PHA) or a THA, could be the primary surgical treatment.

(B) The ICD-CM diagnosis code is the primary reason (that is, principal diagnosis code) for the anchor hospitalization.

(iii) For performance years 1 through 5 only, CMS posts the following to the CMS website:

(A) Potential ICD-CM hip fracture diagnosis codes for public comment; and

(B) A final ICD-CM hip fracture diagnosis code list after consideration of public comment.

(iv) For performance years 6 through 8, the hip fracture diagnosis code list posted at https://innovation.cms.gov/Files/worksheets/cjr-icd10hipfracturecodes.xlsx as it appears at the beginning of performance year 5 will not be updated. The hip fracture diagnosis code list will be used to identify hip fracture episodes initiated by an anchor procedure in performance years 6 through 8.

(5) Quality performance. Quality-adjusted target prices reflect effective discount factors or applicable discount factors based on a hospital's composite quality score, as specified in §§ 510.300(c) and 510.315(f).

(6) For episodes beginning on or after July 4, 2021 that are initiated by an anchor procedure, permitted OP TKAs and OP THAs are grouped with MS-DRG 470 or MS-DRG 522 episodes as follows:

(i) Permitted OP THAs with hip fracture group with MS-DRG 522.

(ii) Permitted OP THAs without hip fracture and permitted OP TKAs group with MS-DRG 470.

(b) Episode quality-adjusted target price. (1) CMS calculates quality-adjusted target prices based on a blend of each participant hospital's hospital-specific and regional episode expenditures. The region corresponds to the U.S. Census Division associated with the primary address of the CCN of the participant hospital and the regional component is based on all hospitals in said region, except as follows. In cases where an MSA selected for participation in CJR spans more than one U.S. Census Division, the entire MSA will be grouped into the U.S. Census Division where the largest city by population in the MSA is located for quality-adjusted target price and reconciliation calculations. The calendar years used for historical expenditure calculations are as follows:

(i) Episodes beginning in 2012 through 2014 for performance years 1 and 2.

(ii) Episodes beginning in 2014 through 2016 for performance years 3 and 4.

(iii) Episodes beginning in 2016 through 2018 for each of performance year subsets 5.1 and 5.2.

(iv) Episodes beginning in 2019 for performance year 6.

(v) Episodes beginning in 2021 for performance year 7.

(vi) Episodes beginning in 2022 for performance year 8.

(2) Specifically, the blend consists of the following:

(i) Two-thirds of the participant hospital's own historical episode payments and one-third of the regional historical episode payments for performance years 1 and 2.

(ii) One-third of the hospital's own historical episode payments and two-thirds of the regional historical episode payments for performance year 3.

(iii) Regional historical episode payments for performance year 4, for each subset of performance year 5, and performance years 6 through 8.

(3) Exception for low-volume hospitals. Quality-adjusted target prices for participant hospitals with fewer than 20 CJR episodes in total across the 3 historical years of data used to calculate the quality-adjusted target price are based on 100 percent regional historical episode payments.

(4) Exception for recently merged or split hospitals. Hospital-specific historical episode payments for participant hospitals that have undergone a merger, consolidation, spin off or other reorganization that results in a new hospital entity without 3 full years of historical claims data are determined using the historical episode payments attributed to their predecessor(s).

(5) Exception for high episode spending. (i) For performance years 1 through 4, and for performance year 5, each subset thereof, episode payments are capped at 2 standard deviations above the mean regional episode payment for both the hospital-specific and regional components of the quality-adjusted target price.

(ii) For performance years 6 through 8, episode payments are capped at the 99th percentile of regional spending for each of the four MS-DRG categories, as specified in § 510.300(a)(1) and (6).

(6) Exclusion of incentive programs and add-on payments under existing Medicare payment systems. Certain incentive programs and add-on payments are excluded from historical episode payments by using, with certain modifications, the CMS Price (Payment) Standardization Detailed Methodology used for the Medicare spending per beneficiary measure in the Hospital Value-Based Purchasing Program.

(7) Communication of episode quality-adjusted target prices. CMS communicates episode quality-adjusted target prices to participant hospitals before the performance period in which they apply.

(8) Inclusion of reconciliation payments and repayments. For performance years 3, 4, and each of performance year subsets 5.1 and 5.2 only, reconciliation payments and repayment amounts under § 510.305(f)(2) and (3) and from LEJR episodes included in the BPCI initiative are included in historical episode payments.

(c) Discount factor. A participant hospital's episode quality-adjusted target prices incorporate discount factors to reflect Medicare's portion of reduced expenditures from the CJR model as described in this section.

(1) Discount factors affected by the quality incentive payments and the composite quality score. In all performance years and performance year subsets, the discount factor may be affected by the quality incentive payment and composite quality score as provided in § 510.315 to create the effective discount factor or applicable discount factor used for calculating reconciliation payments and repayment amounts. The quality-adjusted target prices incorporate the effective or applicable discount factor at reconciliation.

(2) Discount factor for reconciliation payments. The discount factor for reconciliation payments in all performance years and performance year subsets is 3.0 percent.

(3) Discount factors for repayment amounts. The discount factor for repayment amounts is—

(i) Not applicable in performance year 1, as the requirement for hospital repayment under the CJR model is waived in performance year 1;

(ii) In performance years 2 and 3, 2.0 percent; and

(iii) In performance years 4, each subset of performance year 5, and performance years 6 through 8, 3.0 percent.

(d) Data sharing. (1) CMS makes available to participant hospitals, through the most appropriate means, data that CMS determines may be useful to participant hospitals to do the following:

(i) Determine appropriate ways to increase the coordination of care.

(ii) Improve quality.

(iii) Enhance efficiencies in the delivery of care.

(iv) Otherwise achieve the goals of the CJR model described in this section.

(2) Beneficiary-identifiable data. (i) CMS makes beneficiary-identifiable data available to a participant hospital in accordance with applicable privacy laws and only in response to the hospital's request for such data for a beneficiary who has been furnished a billable service by the participant hospital corresponding to the episode definitions for CJR.

(ii) The minimum data necessary to achieve the goals of the CJR model, as determined by CMS, may be provided under this section for a participant hospital's baseline period and no less frequently than on a quarterly basis throughout the hospital's participation in the CJR model.

Beginning with performance year 6, the quality-adjusted target price computed under § 510.300 is further adjusted for risk and market trends as described in this section to arrive at the reconciliation target price amount, with the exception of episodes that are reconciled in performance year 6 but subject to a performance year subset 5.2 target price. Specifically:

(a) Risk adjustment. (1) The quality-adjusted target prices computed under § 510.300 are risk adjusted at a beneficiary level by a CJR HCC count risk adjustment factor, an age bracket risk adjustment factor, and a dual-eligibility status risk adjustment factor. All three factors are binary, yes/no variables, meaning that a beneficiary either does or does not meet the criteria for a specific variable.

(i) The CJR HCC count risk adjustment factor uses five variables, representing beneficiaries with zero, one, two, three, or four or more CMS-HCC conditions.

(ii) The age bracket risk adjustment factor uses four variables, representing beneficiaries aged—

(A) Less than 65 years;

(B) 65 to 74 years;

(C) 75 years to 84 years; or

(D) 85 years or more.

(iii) The dual-eligibility status factor uses two variables, representing beneficiaries that are eligible for full Medicaid benefits or beneficiaries that are not eligible for full Medicaid benefits.

(2) All three factors are computed prior to the start of performance years 6 and 8 via a linear regression analysis. The regression analysis is computed using 1 year of claims data as follows:

(i) For performance year 6, CMS uses claims data with dates of service dated January 1, 2019 to December 31, 2019.

(ii) For performance year 7, CMS uses the same regression analysis results and corresponding coefficients that were calculated for performance year 6.

(iii) For performance year 8, CMS uses claims data with dates of service dated January 1, 2021 to December 31, 2021.

(3)(i) The dependent variable in the annual regression that produces the risk adjustment coefficients is equal to the difference between the log transformed target price calculated under § 510.300 and the capped episode costs as described in § 510.300(b)(5)(ii).

(ii) The independent variables are binary values assigned to each CJR HCC count variable, age bracket variable and dual-eligibility status variable.

(iii) Using these variables, the annual regression produces exponentiated coefficients to determine the anticipated marginal effect of each risk adjustment factor on episode costs. CMS transforms, or exponentiate, these coefficients in order to “reverse” the previous logarithmic transformation, and the resulting coefficients are the CJR HCC count risk adjustment factor, the age bracket risk adjustment factor, and the dual-eligibility status factor that would be used during reconciliation for the subsequent performance year.

(4)(i) At the time of reconciliation, the quality adjusted target prices computed under § 510.300 are risk adjusted at the beneficiary level by applying the applicable CJR HCC count risk adjustment factor, the age bracket risk adjustment factor, and the dual-eligibility risk adjustment factor specific to the beneficiary in the episode.

(ii)(A) For the CJR HCC count risk adjustment factor, applicable means the coefficient that applies to the CMS-HCC condition count for the beneficiary in the episode;

(B) For the age bracket risk adjustment factor, applicable means the coefficient for the age bracket into which the beneficiary falls on the first day of the episode; and

(C) For the dual-eligibility risk adjustment factor, applicable means the coefficient for beneficiaries that are eligible for full Medicaid benefits on the first day of the episode.

(5)(i) The risk-adjusted target prices are normalized at reconciliation to remove the overall impact of adjusting for age, CJR HCC count, and dual-eligibility status on the national average target price.

(ii) The normalization factor is the national mean of the target price for all episode types divided by the national mean of the risk-adjusted target price.

(iii) CMS applies the normalization factor to the previously calculated, beneficiary-level, risk-adjusted target prices specific to each episode region and MS-DRG combination (as specified in paragraph (a)(4) of this section).

(iv) These normalized target prices are then further adjusted for market trends (as specified in paragraph (b) of this section) and quality performance (as specified at § 510.300) to become the reconciliation target prices, which are compared to actual episode costs at reconciliation, as specified in § 510.305(m)(1)(i).

(b) Market trend adjustment factor. (1) The risk-adjusted quality-adjusted target price computed under § 510.300 and paragraph (a) of this section is further adjusted for market trend changes at the region and MS-DRG level.

(2) This adjustment is accomplished by multiplying each risk-adjusted quality-adjusted target price computed under § 510.300 and paragraph (a) of this section by the applicable market trend adjustment factor.

(3) The applicable market trend adjustment factor is calculated as the percent difference between the average regional MS-DRG episode costs computed using the performance year claims data and comparison average regional MS-DRG fracture episode costs computed using historical calendar year claims data used to calculate the regional target prices in effect for that performance year.

(a) General. Providers and suppliers furnishing items and services included in the episode bill for such items and services in accordance with existing rules and as if this part were not in effect.

(b) Reconciliation. (1) For performance years 1 through 4 and for each subset of performance year 5, CMS uses a series of reconciliation processes, which CMS performs as described in paragraphs (d) and (f) of this section after the end of each performance year, to establish final payment amounts to participant hospitals for CJR model episodes for a given performance year.

(2) For performance years 6 through 8, CMS conducts one reconciliation process, which CMS performs as described in paragraphs (l) and (m) of this section after the end of each performance year, to establish final payment amounts to participant hospitals for CJR model episodes for a given performance year.

(3) Following the end of each performance year, for performance years 1 through 4 and for performance year 5, each subset thereof, CMS determines actual episode payments for each episode for the performance year (other than episodes that have been canceled in accordance with § 510.210(b)) and determines the amount of a reconciliation payment or repayment amount.

(c) Data used. CMS uses the most recent claims data available to perform each reconciliation calculation.

(d) Annual reconciliation for performance years 1 through 5. (1) Beginning 2 months after the end of each of performance years 1 through 4 and performance year subset 5.1 and 5 months after the end of performance year subset 5.2, CMS does all of the following:

(i) Performs a reconciliation calculation to establish an NPRA for each participant hospital.

(ii) For participant hospitals that experience a reorganization event in which one or more hospitals reorganize under the CCN of a participant hospital performs—

(A) Separate reconciliation calculations (during both initial and subsequent reconciliations for a performance year) for each predecessor participant hospital for episodes where anchor hospitalization admission occurred before the effective date of the reorganization event; and

(B) Reconciliation calculations (during both initial and subsequent reconciliations for a performance year) for each new or surviving participant hospital for episodes where the anchor hospitalization admission occurred on or after the effective date of the reorganization event.

(2) CMS—

(i) Calculates the NPRA for each participant hospital in accordance with paragraph (e) of this section including the adjustments provided for in paragraph (e)(1)(iv) of this section; and

(ii) Assesses whether hospitals meet specified quality requirements under § 510.315.

(e) Calculation of the NPRA for performance years 1 through 5. By comparing the quality-adjusted target prices described in § 510.300 and the participant hospital's actual episode spending for each of performance years 1 through 4, and for performance year 5, each subset thereof, and applying the adjustments in paragraph (e)(1)(v) of this section, CMS establishes an NPRA for each participant hospital for each of performance years 1 through 4 and for performance year 5, each subset thereof.

(1) Initial calculation. In calculating the NPRA for each participant hospital for each of performance years 1 through 4 and each of performance year subsets 5.1 and 5.2, CMS does the following:

(i) Determines actual episode payments for each episode included in the performance year or performance year subset (other than episodes that have been canceled in accordance with § 510.210(b)) using claims data that is available 2 months after the end of the performance year or performance year subset. Actual episode payments are capped, as applicable, at the amount determined in accordance with § 510.300(b)(5) for the performance year or performance year subset at the amount determined in paragraph (k) of this section for episodes affected by extreme and uncontrollable circumstances, or at the quality adjusted target price determined for that episode under § 510.300 for an episode with actual episode payments that include a claim with a COVID-19 diagnosis code and initiate after the earlier of March 31, 2021 or the last day of the emergency period described in paragraph (k)(4) of this section.

(ii) Multiplies each episode quality-adjusted target price by the number of episodes included in the performance year or performance year subset (other than episodes that have been canceled in accordance with § 510.210(b)) to which that episode quality-adjusted target price applies.

(iii) Aggregates the amounts computed in paragraph (e)(1)(ii) of this section for all episodes included in the performance year or performance year subset (other than episodes that have been canceled in accordance with § 510.210(b)).

(iv) Subtracts the amount determined under paragraph (e)(1)(i) of this section from the amount determined under paragraph (e)(1)(iii) of this section.

(v) Applies the following prior to determination of the reconciliation payment or repayment amount:

(A) Limitation on loss. Except as provided in paragraph (e)(1)(v)(C) of this section, the total amount of the NPRA and subsequent reconciliation calculation for a performance year or performance year subset cannot exceed the following:

(1) For performance year 2 only, 5 percent of the amount calculated in paragraph (e)(1)(iii) of this section for the performance year.

(2) For performance year 3, 10 percent of the amount calculated in paragraph (e)(1)(iii) of this section for the performance year.

(3) For performance year 4 and each of performance year subsets 5.1 and 5.2, 20 percent of the amount calculated in paragraph (e)(1)(iii) of this section for the performance year or performance year subset.

(4) As provided in paragraph (i) of this section, the subsequent reconciliation calculation reassesses the limitation on loss for a given performance year by applying the limitations on loss to the aggregate of the 2 reconciliation calculations.

(5) The post-episode spending and ACO overlap calculation amounts in paragraphs (j)(1) and (2) of this section are not subject to the limitation on loss.

(B) Limitation on gain. The total amount of the NPRA and subsequent reconciliation calculation for a performance year or performance year subset cannot exceed the following:

(1) For performance years 1 and 2, 5 percent of the amount calculated in paragraph (e)(1)(iii) of this section for the performance year.

(2) For performance year 3, 10 percent of the amount calculated in paragraph (e)(1)(iii) of this section for the performance year.

(3) For performance year 4 and each of performance year subsets 5.1 and 5.2, 20 percent of the amount calculated in paragraph (e)(1)(iii) of this section for the performance year or performance year subset.

(4) As provided in paragraph (i) of this section, the subsequent reconciliation calculation reassesses the limitation on gain for a given performance year by applying the limitations on gain to the aggregate of the 2 reconciliation calculations.

(5) The post-episode spending and ACO overlap calculation amounts in paragraphs (j)(1) and (j)(2) of this section are not subject to the limitation on gain.

(C) Financial loss limits for rural hospitals, SCHs, MDHs, and RRCs. If a participant hospital is a rural hospital, SCH, MDH, or RRC, then for performance year 2, the total repayment amount for which the participant hospital is responsible due to the NPRA and subsequent reconciliation calculation cannot exceed 3 percent of the amount calculated in paragraph (e)(1)(iii) of this section. For performance years 3 and 4 and for performance year subsets 5.1 and 5.2, the amount cannot exceed 5 percent of the amount calculated in paragraph (e)(1)(iii) of this section.

(f) Determination of reconciliation or repayment amount—(1) Determination of the reconciliation or repayment amount. (i) Subject to paragraph (f)(1)(iii) of this section, for performance year 1, the reconciliation payment (if any) is equal to the NPRA.

(ii) Subject to paragraph (f)(1)(iii) of this section, for performance years 2 through 4 and for each of performance year subsets 5.1 and 5.2, results from the subsequent reconciliation calculation for a prior year's reconciliation as described in paragraph (i) of this section and the post-episode spending and ACO overlap calculations as described in paragraph (j) of this section are added to the current year's NPRA in order to determine the reconciliation payment or repayment amount.

(iii) The reconciliation or repayment amount may be adjusted as provided in § 510.410(b).

(iv) Results from the performance year 6 reconciliation and post-episode spending calculations as described in paragraph (m) of this section are added together in order to determine the reconciliation payment or repayment amount for performance year 6.

(v) Results from the performance year 7 reconciliation and post-episode spending calculations as described in paragraph (m) of this section are added together in order to determine the reconciliation payment or repayment amount for performance year 7.

(vi) Results from the performance year 8 reconciliation and post-episode spending calculations as described in paragraph (m) of this section are added together in order to determine the reconciliation payment or repayment amount for performance year 8.

(2) Reconciliation payment. If the amount described in paragraph (f)(1) of this section is positive and the composite quality score described in § 510.315 is acceptable (defined as greater than or equal to 5.00 and less than 6.9), good (defined as greater than or equal to 6.9 and less than or equal to 15.0), or excellent (defined as greater than 15.0), Medicare pays the participant hospital a reconciliation payment in an amount equal to the amount described in paragraph (f)(1) of this section.

(3) Repayment amount. If the amount described in paragraph (f)(1) of this section is negative, the participant hospital pays to Medicare an amount equal to the amount described in paragraph (f)(1) of this section, in accordance with § 405.371 of this chapter. CMS waives this requirement for performance year 1.

(g) Determination of eligibility for reconciliation based on quality. (1) CMS assesses each participant hospital's performance on quality metrics, as described in § 510.315, to determine whether the participant hospital is eligible to receive a reconciliation payment for a performance year or performance year subset.

(2) If the hospital's composite quality score described in § 510.315 is acceptable (defined as greater than or equal to 5.00 and less than 6.9), good (defined as greater than or equal to 6.9 and less than or equal to 15.0), or excellent (defined as greater than 15.0), and the hospital is determined to have a positive NPRA under § 510.305(e)), the hospital is eligible for a reconciliation payment.

(3) If the hospital's composite quality score described in § 510.315 is below acceptable, defined as less than 4.00 for a performance year or performance year subset, the hospital is not eligible for a reconciliation payment.

(4) If the hospital is found to be engaged in an inappropriate and systemic under delivery of care, the quality of the care provided must be considered to be seriously compromised and the hospital must be ineligible to receive or retain a reconciliation payment for any period in which such under delivery of care was found to occur.

(h) Reconciliation report. CMS issues each participant hospital a CJR reconciliation report for the performance year or performance year subset. Each CJR reconciliation report contains the following:

(1) Information on the participant hospital's composite quality score described in § 510.315.

(2) The total actual episode payments for the participant hospital.

(3) The NPRA.

(4) Whether the participant hospital is eligible for a reconciliation payment or must make a repayment to Medicare.

(5) As applicable, the NPRA and subsequent reconciliation calculation amount for the previous performance year or performance year subset.

(6) As applicable, the post-episode spending amount and ACO overlap calculation for the previous performance year or performance year subset.

(7) The reconciliation payment or repayment amount.

(i) Subsequent reconciliation calculation. (1) Fourteen months after the end of each of performance years 1 through 4 and performance year subset 5.1 and seventeen months after the end of performance year subset 5.2, CMS performs an additional calculation, using claims data available at that time, to account for final claims run-out and any additional episode cancelations due to overlap between the CJR model and other CMS models and programs, or for other reasons as specified in § 510.210(b).

(2) The subsequent calculation for each of performance years 1 through 4 and performance year subset 5.1 occurs concurrently with the first reconciliation process for the following performance year (or in the case of performance year subset 5.1, with the first reconciliation of performance year subset 5.2). If the result of the subsequent calculation is different than zero, CMS applies the stop-loss and stop-gain limits in paragraph (e) of this section to the aggregate calculation of the amounts described in paragraphs (e)(1)(iv) and (i)(1) of this section for that performance year or performance year subset (the initial reconciliation and the subsequent reconciliation calculation) to ensure such amount does not exceed the applicable stop-loss or stop-gain limits. The subsequent reconciliation calculation for performance year subset 5.2 will occur independently in 2023.

(j) Additional adjustments to the reconciliation payment or repayment amount. (1) In order to account for shared savings payments, CMS will reduce the reconciliation payment or increase the repayment amount for the subsequent performance year (for performance years 1 through 4 and performance year subset 5.1) by the amount of the participant hospital's discount percentage that is paid to the ACO in the prior performance year as shared savings. (This amount will be assessed independently for performance year subset 5.2 in 2023.) This adjustment is made only when the participant hospital is a participant or provider/supplier in the ACO and the beneficiary in the CJR episode is assigned to one of the following ACO models or programs:

(i) The Pioneer ACO model.

(ii) The Medicare Shared Savings Program (excluding Track 3 for CJR episodes that initiate on or after July 1, 2017).

(iii) The Comprehensive ESRD Care Initiative (excluding a track with downside risk for CJR episodes that initiate after July 1, 2017).

(iv) The Next Generation ACO model (excluding CJR episodes that initiate on or after July 1, 2017).

(2) If the average post-episode Medicare Parts A and B payments for a participant hospital in the prior performance year or performance year subset is greater than 3 standard deviations above the regional average post-episode payments for the same performance year or performance year subset, then the spending amount exceeding 3 standard deviations above the regional average post-episode payments for the same performance year or performance year subset is subtracted from the net reconciliation or added to the repayment amount for the subsequent performance year for years 1 through 4 and performance year subset 5.1, and assessed independently for performance year subset 5.2.

(k) Extreme and uncontrollable circumstances adjustment. (1) The episode spending adjustments specified in paragraph (k)(2) of this section apply for a participant hospital that has a CCN primary address that meets both of the following:

(i) Is located in an emergency area during an emergency period, as those terms are defined in section 1135(g) of the Act, for which the Secretary has issued a waiver under section 1135; and

(ii) Is located in a county, parish, or tribal government designated in a major disaster declaration under the Stafford Act.

(2)(i) For a non-fracture episode with a date of admission to the anchor hospitalization that is on or within 30 days before the date that the emergency period (as defined in section 1135(g) of the Act) begins, actual episode payments are capped at the target price determined for that episode under § 510.300.

(ii) For a fracture episode with a date of admission to the anchor hospitalization that is on or within 30 days before or after the date that the emergency period (as defined in section 1135(g) of the Act) begins, actual episode payments are capped at the target price determined for that episode under § 510.300.

(3) The following is an extreme and uncontrollable circumstances adjustment for 2019 Novel Coronavirus (previously referred to as 2019-nCoV, now as COVID-19):

(i) The episode spending adjustments specified in paragraph (k)(4) of this section apply for a participant hospital that has a CCN primary address that is located in an emergency area during an emergency period, as those terms are defined in section 1135(g) of the Act, for which the Secretary issued a waiver or modification of requirements under section 1135 of the Act on March 13, 2020.

(ii) [Reserved]

(4) For a fracture or non-fracture episode with a date of admission to the anchor hospitalization that is on or within 30 days before the date that the emergency period (as defined in section 1135(g) of the Act) begins or that occurs on or before March 31, 2021 or the last day of such emergency period, whichever is earlier, actual episode payments are capped at the quality adjusted target price determined for that episode under § 510.300.

(l) Annual reconciliation for performance years 6 through 8. (1) Beginning 6 months after the end of each of performance years 6 through 8, CMS does all of the following:

(i) Performs a reconciliation calculation to establish an NPRA for each participant hospital.

(ii) For participant hospitals that experience a reorganization event in which one or more hospitals reorganize under the CCN of a participant hospital, performs—

(A) Separate reconciliation calculations for each predecessor participant hospital for episodes where the anchor hospitalization admission or the anchor procedure occurred before the effective date of the reorganization event; and

(B) Reconciliation calculations for each new or surviving participant hospital for episodes where the anchor hospitalization admission or anchor procedure occurred on or after the effective date of the reorganization event.

(2) CMS—

(i) Calculates the NPRA for each participant hospital in accordance with paragraph (m) of this section including the adjustments provided for in paragraph (m)(1)(vii) of this section; and

(ii) Assesses whether participant hospitals meet specified quality requirements under § 510.315.

(m) Calculation of the NPRA for performance years 6 through 8. By comparing the reconciliation target prices described in § 510.301 and the participant hospital's actual episode spending for the performance year and applying the adjustments in paragraph (m)(1)(vii) of this section, CMS establishes an NPRA for each participant hospital for each of performance years 6 through 8.

(1) In calculating the NPRA for each participant hospital for each performance year, CMS does the following:

(i) Determines actual episode payments for each episode included in the performance year (other than episodes that have been canceled in accordance with § 510.210(b)) using claims data that is available 6 months after the end of the performance year. Actual episode payments are capped at the amount determined in accordance with § 510.300(b)(5)(ii) for the performance year, the amount determined in paragraph (k) of this section for episodes affected by extreme and uncontrollable circumstances, or the target price determined for that episode under § 510.300 for episodes that contain a COVID-19 Diagnosis Code as defined in § 510.2.

(ii) Multiplies each episode reconciliation target price by the number of episodes included in the performance year (other than episodes that have been canceled in accordance with § 510.210(b)) to which that episode reconciliation target price applies.

(iii) Aggregates the amounts computed in paragraph (m)(1)(ii) of this section for all episodes included in the performance year (other than episodes that have been canceled in accordance with § 510.210(b)).

(iv) Subtracts the amount determined under paragraph (m)(1)(i) of this section from the amount determined under paragraph (m)(1)(iii) of this section.

(v) Performs an additional calculation using claims data available at that time, to account for any episode cancelations due to overlap between the CJR model and other CMS models and programs, or for other reasons as specified in § 510.210(b).

(vi) Conducts a post-episode spending calculation as follows: If the average post-episode Medicare Parts A and B payments for a participant hospital in the performance year being reconciled is greater than 3 standard deviations above the regional average post-episode payments for that same performance year, then the spending amount exceeding 3 standard deviations above the regional average post-episode payments for the same performance year is subtracted from the net reconciliation or added to the repayment for that performance year.

(vii) Applies the following prior to determination of the reconciliation payment or repayment amount:

(A) Limitation on loss. Except as provided in paragraph (m)(1)(vii)(C) of this section, the total amount of the NPRA for a performance year cannot exceed 20 percent of the amount calculated in paragraph (m)(1)(iii) of this section for the performance year. The post-episode spending calculation amount in paragraph (m)(vi) of this section is not subject to the limitation on loss.

(B) Limitation on gain. The total amount of the NPRA for a performance year cannot exceed 20 percent of the amount calculated in paragraph (m)(1)(iii) of this section for the performance year. The post-episode spending calculation amount in paragraph (m)(vi) of this section are not subject to the limitation on gain.

(C) Limitation on loss for certain providers. Financial loss limits for rural hospitals, SCHs, MDHs, and RRCs for performance years 6 through 8. If a participant hospital is a rural hospital, SCH, MDH, or RRC, the amount cannot exceed 5 percent of the amount calculated in paragraph (m)(1)(iii) of this section.

(2) [Reserved]

(a) Notice of calculation error (first level of appeal). Subject to the limitations on review in subpart D of this part, if a participant hospital wishes to dispute calculations involving a matter related to payment, reconciliation amounts, repayment amounts, the use of quality measure results in determining the composite quality score, or the application of the composite quality score during reconciliation, the participant hospital is required to provide written notice of the calculation error, in a form and manner specified by CMS.

(1) Unless the participant hospital provides such notice, CMS deems final the CJR reconciliation report 45 calendar days after it is issued and proceeds with the payment or repayment processes as applicable.

(2) If CMS receives a notice of a calculation error within 45 calendar days of the issuance of the reconciliation report, CMS responds in writing within 30 calendar days to either confirm that there was an error in the calculation or verify that the calculation is correct, although CMS reserves the right to an extension upon written notice to the participant hospital.

(3) Only participant hospitals may use the dispute resolution process described in this part.

(4) Only participant hospitals may use the notice of calculation error process described in this part.

(b) Dispute resolution process (second level of appeal). (1) If the participant hospital is dissatisfied with CMS's response to the notice of a calculation error, the participant hospital may request a reconsideration review in a form and manner as specified by CMS.

(2) The reconsideration review request must provide a detailed explanation of the basis for the dispute and include supporting documentation for the participant hospital's assertion that CMS or its representatives did not accurately calculate the NPRA, the reconciliation payment, or the repayment amount in accordance with § 510.305.

(3) If CMS does not receive a request for reconsideration from the participant hospital within 10 calendar days of the issue date of CMS's response to the participant hospital's notice of calculation error, then CMS's response to the calculation error is deemed final and CMS proceeds with reconciliation payment or repayment processes, as applicable, as described in § 510.305.

(4) A CMS reconsideration official notifies the participant hospital in writing within 15 calendar days of receiving the participant hospital's review request of the following:

(i) The issues in dispute.

(ii) The review procedures.

(iii) The procedures (including format and deadlines) for submission of briefs and evidence.

(5) The provisions at § 425.804(b), (c), and (e) of this chapter are applicable to reviews conducted in accordance with the reconsideration review process for CJR.

(6) The CMS reconsideration official makes all reasonable efforts to issue a written determination within 30 days of the deadline for submission of briefs and evidence. The determination is final and binding.

(c) Exception to the process. If the participant hospital contests a matter that does not involve an issue contained in, or a calculation that contributes to, a CJR reconciliation report, a notice of calculation error is not required. In these instances, if CMS does not receive a request for reconsideration from the participant hospital within 10 calendar days of the notice of the initial determination, the initial determination is deemed final and CMS proceeds with action indicated in the initial determination. This does not apply to the limitations on review in paragraph (e) of this section.

(d) Notice of a participant hospital's termination from the CJR model. If a participant hospital receives notification that it has been terminated from the CJR model, it must provide a written notice to CMS requesting review of the termination within 10 calendar days of the notice. CMS has 30 days to respond to the participant hospital's request for review. If the participant hospital fails to notify CMS, the termination is deemed final.

(e) Limitations on review. In accordance with section 1115A(d)(2) of the Act, there is no administrative or judicial review under sections 1869 or 1878 of the Act or otherwise for the following:

(1) The selection of models for testing or expansion under section 1115A of the Act.

(2) The selection of organizations, sites, or participants to test those models selected.

(3) The elements, parameters, scope, and duration of such models for testing or dissemination.

(4) Determinations regarding budget neutrality under section 1115A(b)(3) of Act.

(5) The termination or modification of the design and implementation of a model under section 1115A(b)(3)(B) of Act.

(6) Decisions about expansion of the duration and scope of a model under section 1115A(c) of the Act, including the determination that a model is not expected to meet criteria described in section 1115A(c)(1) or (2) of the Act.

(a) General. A participant hospital's eligibility for a reconciliation payment under § 510.305(g), and the determination of quality incentive payments under paragraph (f) of this section, for a performance year or performance year subset depend on the hospital's composite quality score (including any quality performance points and quality improvement points earned) for that performance year or performance year subset.

(b) Composite quality score. CMS calculates a composite quality score for each participant hospital for each performance year or performance year subset which equals the sum of the following:

(1) The hospital's quality performance points for the hospital-level risk-standardized complication rate following elective primary total hip arthroplasty and/or total knee arthroplasty measure (NQF #1550) described in § 510.400(a)(1). This measure is weighted at 50 percent of the composite quality score.

(2) The hospital's quality performance points for the Hospital Consumer Assessment of Healthcare Providers and Systems Survey measure (NQF #0166) described in § 510.400(a)(2). This measure is weighted at 40 percent of the composite quality score.

(3) Any additional quality improvement points the hospital may earn as a result of demonstrating improvement on either or both of the quality measures in paragraphs (b)(1) and (2) of this section, as described in paragraph (d) of this section.

(4) If applicable, 2 additional points for successful THA/TKA voluntary data submission of patient-reported outcomes and limited risk variable data, as described in § 510.400(b). Successful submission is weighted at 10 percent of the composite quality score.

(c) Quality performance points. CMS computes quality performance points for each quality measure based on the participant hospital's performance relative to the distribution of performance of all subsection (d) hospitals that are eligible for payment under IPPS and meet the minimum patient case or survey count for that measure.

(1) For the hospital-level risk-standardized complication rate following elective primary total hip arthroplasty and/or total knee arthroplasty measure (NQF #1550) described in § 510.400(a)(1), CMS assigns the participant hospital measure value to a performance percentile and then quality performance points are assigned based on the following performance percentile scale:

(i) 10.00 points for ≥90th.

(ii) 9.25 points for ≥80th and <90th.

(iii) 8.50 points for ≥70th and <80th;

(iv) 7.75 points for ≥60th and <70th.

(v) 7.00 points for ≥50th and <60th.

(vi) 6.25 points for ≥40th and <50th.

(vii) 5.50 points for ≥30th and <40th.

(viii) 0.0 points for <30th.

(2) For the Hospital Consumer Assessment of Healthcare Providers and Systems Survey measure (NQF #0166) described in § 510.400(a)(2), CMS assigns the participant hospital measure value to a performance percentile and quality performance points are assigned based on the following performance percentile scale:

(i) 8.00 points for ≥90th.

(ii) 7.40 points for ≥80th and <90th.

(iii) 6.80 points for ≥70th and <80th.

(iv) 6.20 points for ≥60th and <70th.

(v) 5.60 points for ≥50th and <60th.

(vi) 5.00 points for ≥40th and <50th.

(vii) 4.40 points for ≥30th and <40th.

(viii) 0.0 points for <30th.

(d) Quality improvement points. (1) For performance year 1, if a participant hospital's quality performance percentile on an individual measure described in § 510.400(a) increases from the corresponding time period in the previous year by at least 2 deciles on the performance percentile scale, then the hospitals is eligible to receive quality improvement points equal to 10 percent of the total available point for that individual measure up to a maximum composite quality score of 20 points.

(2) For each of performance years 2 through 4, each of performance year subsets 5.1 and 5.2, and each of performance years 6 through 8, if a participant hospital's quality performance percentile on an individual measure described in § 510.400(a) increases from the previous performance year or performance year subset by at least 2 deciles on the performance percentile scale, then the hospital is eligible to receive quality improvement points equal to 10 percent of the total available point for that individual measure up to a maximum composite quality score of 20 points.

(e) Exception for hospitals without a measure value. In the case of a participant hospital without a measure value that would allow CMS to assign quality performance points for that quality measure, CMS assigns the 50th percentile quality performance points to the hospital for the individual measure.

(1) A participant hospital will not have a measure value for the—

(i) Hospital-level risk-standardized complication rate following elective primary total hip arthroplasty and/or total knee arthroplasty measure (NQF #1550) described in § 510.400(a)(1) if the hospital does not meet the minimum 25 case count; or

(ii) Hospital Consumer Assessment of Healthcare Providers and Systems Survey measure (NQF #0166) described in § 510.400(a)(2) if the hospital does not meet the minimum of 100 completed survey and does not have 4 consecutive quarters of HCAHPS data.

(ii) For either of the measures described in paragraphs (e)(1) or (2) of this section, if CMS identifies an error in the data used to calculate the measure and suppresses the measure value.

(f) Quality incentive payments. CMS provides incentive payments to participant hospitals that demonstrate good or excellent quality performance on the composite quality scores described in paragraph (b) of this section. These incentive payments are implemented in the form of the following reductions to the effective discount factors or applicable discount factors described in § 510.300(c):

(1) Performance years 1 through 5. For performance years 1 through 5—

(i) A 1.0 percentage point reduction to the effective discount factor or applicable discount factor for participant hospitals with good quality performance, defined as composite quality scores that are greater than or equal to 6.9 and less than or equal to 15.0; or

(ii) A 1.5 percentage point reduction to the effective discount factor or applicable discount factor for participant hospitals with excellent quality performance, defined as composite quality scores that are greater than 15.0.

(2) Performance years 6 through 8. For performance years 6 through 8—

(i) A 1.5-percentage point reduction to the effective discount factor or applicable discount factor for participant hospitals with good quality performance, defined as composite quality scores that are greater than or equal to 6.9 and less than or equal to 15.0; or

(ii) A 3-percentage point reduction to the effective discount factor or applicable discount factor for participant hospitals with excellent quality performance, defined as composite quality scores that are greater than 15.0.

The CJR model does not replace any existing Medicare incentive programs or add-on payments. The target price and NPRA for a participant hospital are independent of, and do not affect, any incentive programs or add-on payments under existing Medicare payment systems.

(a) General. Services included in the episode that straddle the episode are prorated so that only the portion attributable to care furnished during the episode are included in the calculation of actual episode payments.

(b) Proration of services. Payments for services that straddle the episode are prorated using the following methodology:

(1) Non-IPPS inpatient services and other inpatient services. Non-IPPS inpatient services, and services furnished by other inpatient providers that extend beyond the end of the episode are prorated according to the percentage of the actual length of stay (in days) that falls within the episode.

(2) Home health agency services. Home health services paid under the prospective payment system in part 484, subpart E of this chapter are prorated according to the percentage of days, starting with the first billable service date (“start of care date”) and through and including the last billable service date, that occur during the episode. This methodology is applied in the same way if the home health services begin (the start of care date) prior to the start of the episode.

(3) IPPS services. IPPS claim amounts that extend beyond the end of the episode are prorated according to the geometric mean length of stay, using the following methodology:

(i) The first day of the IPPS stay is counted as 2 days.

(ii) If the actual length of stay that occurred during the episode is equal to or greater than the MS-DRG geometric mean, the normal MS-DRG payment is fully allocated to the episode.

(iii) If the actual length of stay that occurred during the episode is less than the geometric mean, the normal MS-DRG payment amount is allocated to the episode based on the number of inpatient days that fall within the episode.

(iv) If the full amount is not allocated to the episode, any remainder amount is allocated to the post-episode spending calculation (defined in § 510.2).