On July 9, 2015, the Centers for Medicare & Medicaid Services (CMS) unveiled a proposal that could transform the provision of joint replacement care in the Medicare program. It is still only a proposal, but among the eye-catching aspects are the speed, scope, and duration of this initiative: the demo program would go into effect on January 1, 2016, and run for five years in 75 regions across the country. Here’s another big eye-catcher—it would be a mandatory program for all Medicare hospital discharges that meet Medicare’s payment definition of joint replacement in those 75 regions.

CMS is taking a bold step to meet the goal established by Health and Human Services Secretary Sylvia Mathews Burwell in January of this year when she declared that 30 percent of Medicare fee-for-service expenditures would be tied to quality or value through alternative payment models by 2016 and 50 percent by 2018.

The proposal would put hospitals at risk for financial losses for an entire 90-day episode of joint replacement care, including the hospitalization itself and the remaining Medicare-covered care considered to be related to the joint replacement hospitalization, including readmissions and post-acute care. In many ways, it is similar to Model 2 bundling, though there are some differences in how the target prices are set, and reconciliations of actual expenses to the target would be completed annually instead of quarterly. CMS has also laid out quality metrics they expect hospitals to meet—readmissions, complications, and patient satisfaction for joint replacement episodes—in order to qualify for the bonus payments.

Though hospitals in the mandatory regions would not be at down-side risk until year two (2017), they could experience gains as early as year one. This gives hospitals another reason to like this proposal.

So what is likely to happen? Based on our experience with bundling, hospitals will immediately begin looking for effective partners, forming preferred networks of post-acute providers, and seeking to enhance their capabilities at risk management over an entire episode of care. Post-acute providers that are not tuned in to what the hospitals need could be left out in the cold. Issues that were previously ignored will now go under a microscope. Details like risk-adjusted readmissions rates will suddenly become important as health systems evaluate performance across provider types.

The comment period for the proposal ends on September 9, 2015, and it could be finalized as early as October 2015. In the meantime, hospitals and post-acute providers need to find out if they are located in the proposed mandatory regions. Next, they need to gather data to inform strategy and decisions. Finally, they need to begin communicating effectively to identify shared goals and get to work redesigning joint replacement care. Buckle up—it is going to get interesting.