Transforming Episode Accountability Model (TEAM): Institutional Analysis

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1. Executive Summary and Strategic Context

What Is This Model and What Problem Does It Solve?

The Transforming Episode Accountability Model (TEAM) is a mandatory, episode-based payment model administered by the CMS Innovation Center (CMMI) that holds acute care hospitals financially accountable for the total cost and quality of care associated with five high-volume, high-expenditure surgical procedures, from the inpatient stay or outpatient procedure through 30 days post-discharge. The model launched January 1, 2026 and runs through December 31, 2030, comprising five 12-month performance years (PY1–PY5).

The core problem TEAM addresses is structural: under traditional Medicare fee-for-service (FFS), providers and suppliers are paid separately for each service, producing fragmented care, duplicated resource use, and avoidable utilization. Patients undergoing surgery—particularly complex procedures like coronary artery bypass grafting or lower extremity joint replacement—may experience complications, prolonged recovery, and preventable readmissions when no single entity is accountable for the full care continuum. TEAM resolves this by assigning that accountability explicitly to the acute care hospital as the episode anchor, covering all Medicare Part A and Part B costs from the anchor hospitalization or outpatient procedure through the post-discharge window.

The five included surgical episode categories are:

• Lower Extremity Joint Replacement (LEJR) (inpatient and outpatient)
• Surgical Hip and Femur Fracture Treatment (SHFFT) (inpatient)
• Spinal Fusion (inpatient and outpatient)
• Coronary Artery Bypass Graft (CABG) (inpatient)
• Major Bowel Procedure (inpatient)

These were selected because they represent procedures with substantial Medicare volume, meaningful variation in post-acute spending, and demonstrated opportunity for care coordination improvement. As of the most recent participant list update (September 2026), 716 acute care hospitals are participating in TEAM.

Strategic Significance for the Value-Based Care Market

TEAM is the most consequential mandatory episode payment model currently active in Medicare. Its mandatory design—unlike voluntary predecessors such as BPCI Advanced—is specifically engineered to generate the statistical power and provider diversity needed to produce evaluable results that the HHS Secretary could use to justify model expansion under Section 1115A of the Social Security Act. This is not an incremental pilot; it is a test of whether episode accountability can function at scale, across a wide spectrum of hospital types including safety net, rural, and urban academic institutions.

The mandatory nature captures hospitals that have never participated in value-based care, filling a critical gap in the evidence base. CMS explicitly designed CBSA selection to include metropolitan and micropolitan areas with a sufficient concentration of safety net hospitals and hospitals that have not previously participated in bundled payment models. This creates both a broader test environment and a more politically durable justification for any eventual expansion.

TEAM also functions as a bridge from prior episode models. Hospitals that participated in Bundled Payments for Care Improvement Advanced (BPCI Advanced) through its last day (December 31, 2025) or the Comprehensive Care for Joint Replacement (CJR) Model through its last performance year (December 31, 2024) were eligible to voluntarily opt into TEAM, with a voluntary election window running January 1, 2025 through January 31, 2025. This pathway preserves institutional momentum and prevents regression in care coordination infrastructure that BPCI Advanced and CJR participants built over prior years.

TEAM's overlap policy with Accountable Care Organizations (ACOs) is architecturally deliberate. A Medicare beneficiary aligned to an ACO who undergoes a TEAM-included procedure at a TEAM participant hospital will be counted in both the ACO initiative and the TEAM episode simultaneously. CMS will not adjust a TEAM participant's reconciliation amount based on beneficiary ACO alignment. This dual-accountability design is intended to encourage provider collaboration across longitudinal and episodic models rather than forcing a binary choice—a structural signal that CMMI views episode models and ACOs as complementary rather than competing instruments.

A critical exclusion applies: TEAM episodes that overlap with the mandatory Comprehensive Care for Joint Replacement Expanded (CJR-X) Model are excluded, and hospitals participating in TEAM are excluded from CJR-X during their TEAM participation. Maryland hospitals are excluded entirely from TEAM participation.

Political Context and Administrative Alignment

TEAM was established in the FY 2025 IPPS/LTCH PPS Final Rule (published August 2024, under the Biden administration) and has since been updated in the FY 2026 IPPS/LTCH PPS Final Rule and, most recently, the FY 2027 IPPS/LTCH PPS Final Rule (published July 31, 2026)—the latter issued under the Trump administration with CMS Administrator Dr. Mehmet Oz and CMMI Director Abe Sutton at the helm.

The continuation of TEAM updates through the FY 2027 IPPS rule under the current administration is a meaningful institutional signal. The Trump administration's CMS leadership has not rescinded or paused TEAM despite a broader DOGE-era scrutiny of federal programs. The model's alignment with the administration's articulated goals—reducing unnecessary care, protecting taxpayers, and empowering patients through better care navigation—provides political durability. The mandatory primary care referral requirement, which compels TEAM hospitals to refer beneficiaries to primary care at discharge and supports what CMS describes as "accountable care relationships," also aligns with current administration rhetoric around continuity and prevention.

Hospital system CFOs and CMOs should treat TEAM as a durable, multi-year financial reality, not a model that will be administratively suspended. The regulatory updates continuing into FY 2027 (including new spinal fusion MS-DRG triggers effective October 1, 2026—MS-DRGs 523, 524, and 525) indicate active model management rather than passive administration.

Market Transformation Implications

For health system executives, TEAM introduces several structural market dynamics beyond simple payment mechanics:

Post-acute care network management becomes a financial imperative. Because the episode includes all Part A and Part B spending for 30 days post-discharge—SNF stays, home health, IRF, LTCH, physician follow-up, DME, Part B drugs—hospitals bear direct financial exposure to the efficiency of their PAC referral networks. The SNF 3-Day Rule Waiver (discussed in Section 2) creates an immediate tool for hospitals to redirect patients to high-quality SNFs (rated ≥3 stars for 7 of 12 months on the CMS Five-Star system) without requiring a three-day inpatient stay, potentially shifting site-of-care decisions and compressing PAC length of stay.

Gainsharing arrangements with PAC providers are now explicitly structured. TEAM participants can enter voluntary financial arrangements with TEAM collaborators—gainsharing payments from hospital to collaborator and alignment payments from collaborator back to hospital following negative reconciliation—protected under the Federal Anti-Kickback Statute Safe Harbor for CMS-sponsored model arrangements. This creates a legal framework for formalizing hospital-PAC partnerships in ways previously unavailable or legally ambiguous.

Medicare Advantage plan strategists should note that TEAM applies exclusively to Original Medicare (FFS) beneficiaries. Beneficiaries enrolled in Medicare Advantage, health care prepayment plans, or cost-based HMOs are specifically excluded from TEAM episodes. This creates a differential incentive structure: hospitals in TEAM-mandatory CBSAs have strong financial incentives to optimize FFS episode performance, which may influence their behavior and network preferences in ways that indirectly affect MA plan partners and referral relationships.

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2. Model Architecture and Payment Structure

Participation Structure

Eligible participants are acute care hospitals paid under both the Inpatient Prospective Payment System (IPPS) and the Outpatient Prospective Payment System (OPPS), with a CMS Certification Number (CCN) primary address located in one of the mandatory Core-Based Statistical Areas (CBSAs) identified in the FY 2025 IPPS Final Rule. Indian Health Service (IHS) and tribal hospitals are explicitly excluded.

Hospitals that open in a mandatory CBSA after December 31, 2024, or that newly satisfy the TEAM participant definition after that date, receive a deferment of at least one full performance year before mandatory participation begins.

Beneficiary eligibility requires that the patient, upon admission for the anchor procedure or hospitalization:

• Is enrolled in Medicare Parts A and B
• Is not eligible for Medicare on the basis of end-stage renal disease
• Is not enrolled in any managed care plan (including Medicare Advantage)
• Is not covered under a United Mine Workers of America health care plan
• Has Medicare as their primary payer

Episode cancellation occurs if the beneficiary no longer meets inclusion criteria, dies during the anchor hospitalization or outpatient stay, or if the episode qualifies for cancellation due to extreme and uncontrollable circumstances (defined as a declared emergency under Section 1135 of the Act combined with a county or tribal government major/emergency disaster declaration, with the anchor admission occurring during or within 30 days before the emergency period).

Episode Definitions and Included Services

Episodes are initiated by admission or procedure billed under the following MS-DRG and HCPCS codes:

Episode Category	Setting	Initiating Codes
CABG	Inpatient only	MS-DRGs 231–236
Major Bowel Procedure	Inpatient only	MS-DRGs 329–331
LEJR	Inpatient and outpatient	MS-DRGs 469, 470, 521, 522; HCPCS 27447, 27130, 27702
SHFFT	Inpatient only	MS-DRGs 480–482
Spinal Fusion	Inpatient and outpatient	MS-DRGs 402, 426–430, 447, 448, 450, 451, 471–473, 523*, 524*, 525*; HCPCS 22551, 22554, 22612, 22630, 22633

*MS-DRGs 523, 524, and 525 added as spinal fusion triggers effective October 1, 2026.

All Medicare Part A and B services are included in the episode cost unless specifically excluded. Excluded items include: inpatient admissions grouping to oncology, trauma medical, organ transplant, or ventricular shunt MS-DRGs; admissions falling into MDCs 02, 14, 15, and 25; traditional pass-through payments for medical devices; new technology add-on payments; hemophilia clotting factor products; and Part B payments for low-volume drugs, high-cost drugs and biologicals, and blood clotting factors for hemophilia.

Pricing Methodology

Hospitals continue to bill Medicare FFS as usual. Target prices are provided prospectively before each performance year and denominated in standardized dollars (payments standardized using the official CMS payment standardization algorithm).

Baseline period: A rolling three-year baseline that advances by one year each PY. For PY1 (2026), the baseline period is January 1, 2022 through December 31, 2024. For PY2 (2027), the baseline period is January 1, 2023 through December 31, 2025.

Two target price types are provided:

DRG-Region Preliminary Target Price:

Benchmark Price × Prospective Trend Factor × (1 – CMS Discount Factor)

Hospital-Specific Preliminary Target Price:

Benchmark Price × Prospective Trend Factor × Prospective Normalization Factor × Risk Adjustment Multiplier × (1 – CMS Discount Factor)

Regions are defined using the nine U.S. census divisions. Target prices are based on 100% regional data for each episode category.

Discount factors (representing Medicare's share of model savings) are:

• 1.5% for CABG and Major Bowel Procedure
• 2.0% for LEJR, SHFFT, and Spinal Fusion

High-cost outlier cap: Episode spending is capped at the 99th percentile at the episode type and region level to protect participants from extremely high-cost cases.

Trending: Preliminary target prices use a prospective trend factor; final target prices apply a 3% capped retrospective trend adjustment to capture actual performance year spending.

Normalization: A prospective normalization factor is applied to preliminary target prices; final target prices apply a 5% capped normalization factor based on observed beneficiary case mix.

Risk adjustment incorporates beneficiary-level factors (age, dual eligibility status, low-income subsidy status, Community Deprivation Index of the beneficiary's census block group) and hospital-level factors (safety net status, four bed-size categories: ≤250, 251–500, 501–850, >850 beds).

Low-volume policy: Participants with 30 or fewer episodes in a given episode category over the 3-year baseline period are not held accountable for downside risk in that category for the corresponding PY, though they remain eligible to receive positive reconciliation payments if their spending falls below the target price.

Participation Tracks and Financial Risk Structure

Feature	Track 1	Track 2	Track 3
Risk type	Upside only	Upside and downside	Upside and downside
Stop-gain limit	10%	5%	20%
Stop-loss limit	N/A	5%	20%
CQS adjustment – positive reconciliation	Up to 10%	Up to 10%	Up to 10%
CQS adjustment – negative reconciliation	N/A	Up to 15%	Up to 10%
Eligibility (PY1)	All participants	Not available	All participants
Eligibility (PY2–5)	Safety net hospitals (PY2–3 only)	Safety net, rural, MDH, SCH, EACH (PY2–5)	All participants
Default if no selection made	Assigned to Track 1 in PY1	—	Assigned to Track 3 in PY2–5

Track-eligible hospital types for Track 2 (PY2–5): Safety net hospitals (defined as exceeding the 75th percentile for dually eligible Medicare/Medicaid patients or Medicare Part D low-income subsidy patients among all IPPS acute care hospitals over a rolling 3-year baseline); rural hospitals (IPPS hospitals in a rural area per 42 CFR 412.64 or rural census tract per 42 CFR 412.103(a)(1)); Medicare Dependent Hospitals (MDH), contingent on MDH program renewal; Sole Community Hospitals (SCH); and Essential Access Community Hospitals (EACH).

Safety net and rural designations are re-evaluated annually, so a hospital's track eligibility can change across performance years.

Advanced APM (AAPM) Option: Track 2 and Track 3 participants who attest to their use of Certified Electronic Health Record Technology (CEHRT) may qualify as an Advanced Alternative Payment Model, potentially conferring QPP incentive payment benefits. Track 1 participants (and Track 2/3 participants not attesting to CEHRT) operate under the Non-AAPM option.

Reconciliation Process

Reconciliation compares total PY FFS spending for attributed episodes in each category against the final reconciliation target price. Reconciliation amounts are aggregated to the participant level.

Step 1: Quality Adjustment. The Composite Quality Score (CQS) adjusts the gross reconciliation amount. For positive reconciliation (hospital earned money), a higher CQS results in the hospital retaining more of the amount. For negative reconciliation (hospital owes money), a higher CQS results in the hospital owing less. The specific CQS adjustment formulas are track-dependent.

Step 2: Stop-gain/stop-loss limits. Applied after quality adjustment. Reconciliation or repayment amounts cannot exceed the participant's aggregated reconciliation target price amount multiplied by the applicable stop-gain or stop-loss percentage.

Step 3: Net Payment Reconciliation Amount (NPRA). After quality adjustment and stop-gain/stop-loss limits are applied, the result is the NPRA.

Step 4: Post-episode spending adjustment. CMS calculates a post-episode spending amount covering the 30-day period following episode completion to monitor care-shifting. If a participant's average post-episode spending exceeds three standard deviations above the regional average, the excess is subtracted from the NPRA.

Quality Measures and Composite Quality Score

Quality data is drawn directly from existing CMS reporting programs (IQR, HAC Reduction Program, OQR), imposing no additional reporting burden on participants. Measure score percentiles are determined based on a national set of raw scores from all TEAM-eligible hospitals, not only TEAM participants.

PY	Measure	CMIT ID	Program	Applicable Episodes
PY1–5	Hospital-Wide All-Cause Readmission (claims-only PY1; hybrid EHR+claims PY2+)	356	IQR	All inpatient
PY1–5	THA/TKA Patient-Reported Outcome-Based Performance Measure (PRO-PM)	1618	IQR	Inpatient LEJR
PY1 only	CMS Patient Safety and Adverse Events Composite (CMS PSI 90)	135	HAC	All inpatient
PY2–5	Hospital Harm – Falls with Injury	1518	IQR	All inpatient
PY2–5	Hospital Harm – Postoperative Respiratory Failure	1788	IQR	All inpatient
PY2–5	30-Day Risk-Standardized Death Rate – Failure-to-Rescue	134	IQR	All inpatient
PY3–5	Information Transfer PRO-PM	1797	OQR	Outpatient LEJR, Spinal Fusion

CQS construction involves: (1) mapping raw measure scores to scaled percentile scores (0–100, where 100 = best performance) against a fixed baseline distribution; (2) calculating normalized volume-based weights by episode category; (3) computing weighted scaled scores; (4) summing to the CQS (range: 0–100). Participants lacking data for a measure are assigned a neutral scaled score of 50. Hospitals that do not report TEAM quality measures will not receive positive CQS reconciliation adjustments.

Payment Policy Waivers

SNF 3-Day Rule Waiver (42 CFR 512.580(b)): Waives the Medicare requirement for a minimum 3-consecutive-day inpatient stay before SNF Part A coverage. TEAM beneficiaries can be discharged to a qualified SNF within 30 days of the anchor procedure or discharge without a prior 3-day stay. The waiver extends to subsequent readmissions within the 30-day window. Qualifying SNFs must hold a CMS Five-Star overall rating of ≥3 stars for at least 7 of the preceding 12 months (reviewed quarterly). Swing bed providers, including Critical Access Hospital (CAH) swing beds, are included but not subject to the star rating requirement. CMS publishes quarterly qualified SNF lists on the TEAM webpage. Billing requires Type of Bill 21X (SNF inpatient) or 18X (CAH), Demonstration Code A9, and Occurrence Span Code 70 reflecting a stay of fewer than 3 calendar days.

Telehealth Waiver (42 CFR 512.580(a)): Waives both geographic site and originating site requirements. TEAM beneficiaries may receive telehealth evaluation and monitoring services at home or any place of residence within 30 days of discharge, regardless of location. The facility fee (HCPCS Q3014) may not be billed when the patient is at home. Billing uses Type of Bill 13X (hospital outpatient department) with Demonstration Code A9 and HCPCS codes G0665–G0668 (TEAM remote E/M, ranging from 10 to 40 minutes, for established patients).

Data Infrastructure and Compliance Timeline

CMS provides TEAM participants with multiple data streams through the Custom Export Tool (CET) accessible via the CMS ePortal eDFR application:

Data Type	Release Schedule	Requires DSA/DRA
Preliminary Target Price Reports (regional and hospital-specific)	Annually, before each PY	Yes
Baseline Raw Episode and Claims Data (8 CSV file types)	Annually, before each PY	Yes (Data Type A)
Monthly PY Raw Episode and Claims Data	Monthly during PY + up to 6 months after	Yes (Data Type C)
Monthly Summary Reports (hospital and regional spending)	Monthly during PY + up to 6 months after	Yes (Data Type D)
Quarterly Dashboards	Quarterly during PY + up to 6 months after	Yes (DRA/DSA by 1st of month)
Quarterly Interim Reconciliation Target Price Reports	Quarterly	No (available to all with assigned data custodians)
Monthly Regional Spending Summary	Monthly	No (available to all with assigned data custodians)

Preliminary data milestones for PY1: Early preliminary baseline claims and target pricing data were provided Q2 2025; updated preliminary baseline claims and target pricing data were released Q4 2025; monthly performance year data refreshes began with February 2026 data released in March 2026.

Record retention: TEAM participants must maintain records for 6 years, covering compliance, reconciliation, payment, quality measures, utilization, financial risk capacity, patient safety, and program integrity documentation. CMS may conduct documentation requests, audits, medical record reviews, interviews, and site visits, and may take remedial action—including discontinuing data sharing—in the event of noncompliance, falsification, beneficiary health threats, or program integrity risks.