CMS’ TEAM | Three Big Concepts Every Hospital Needs to Know

CODE Technology has been closely monitoring the updates from CMS regarding the newly finalized and mandated Transforming Episode Accountability Model (TEAM). Our first blog (pre-ruling), TEAMing Up For Better Care: CMS’ Newest Payment Model Impacting IPPS, laid the groundwork by establishing that TEAM is the logical progression from the Comprehensive Care for Joint Replacement (CJR), ending December 31, 2024, and the Bundled Payments for Care Improvement (BPCI), ending December 31, 2025.

Followed by our most recent blog (post-ruling), Introducing TEAM in CMS’ FY2025 IPPS Final Ruling, which outlines the nearly 3,000-page regulation. It came with an accompanying download: Transforming Episode Accountability Model (TEAM) Guide, which covers the framework for TEAM from start to finish, exploring major concepts such as timeline, participation tracks, scoring, and payment adjustments.

In this blog, we will cover three key concepts of TEAM that are crucial to understanding how the new mandatory model aims to enhance care coordination and manage costs effectively:

1. Episode of Care: This includes the total cost of care during a specific timeline, covering initial hospitalization, post-acute care services, readmissions, physician services, Part B drugs, clinical lab services, and durable medical equipment. By defining and including these components, TEAM aims to ensure comprehensive care coordination and cost management.

2. Payment & Reconciliation: TEAM outlines the process for calculating target prices, applying quality adjustments, and conducting annual reconciliations. This includes details about stop-loss and stop-gain limits, post-episode payment calculations, and high-cost outlier caps. These mechanisms are designed to incentivize hospitals to provide high-quality, cost-effective care.

3. Risk Adjustment & CBSAs: The model uses Hierarchical Condition Categories (HCCs) and Core-Based Statistical Areas (CBSAs) to adjust risk and calculate target prices. HCCs help estimate future healthcare costs based on patient demographics and health conditions, while CBSAs define geographic regions for model participation. This ensures that hospitals are fairly compensated based on the complexity and expected cost of care for their patient population. 

Concept 1: Episode of Care

TEAM is a mandatory 5-year, episode-based alternative payment model (two-sided risk). In this model, selected acute care hospitals will coordinate care for Traditional Medicare beneficiaries undergoing specific surgical procedures. These hospitals will be responsible for the cost and quality of care from the surgery through the first 30 days after the patient leaves the hospital, which differs from the 90-day episodes in BPCI and CJR.

Defining Hospital Inclusion & Exclusion Criteria

Defining a Medicare Beneficiary

TEAM beneficiaries include Medicare beneficiaries who, at the time of admission for the anchor hospitalization or procedure, meet all of the following criteria:

• Enrolled in Medicare Part A and Part B
• Not eligible for Medicare based on end-stage renal disease
• Not enrolled in any managed care plan
• Not covered under a United Mine Workers of America health plan
• Have Medicare as their primary payer

(Source: CMS FY 2025 IPPS Final Rule, p2594)

What is Included in an Episode of Care

When discussing an episode of care, definitions can vary. In the context of the TEAM model the definition set by Medicare, is an episode of care refers to the total cost of care over a specific timeline. This includes the initial hospitalization or surgery, whether it occurs in an inpatient or outpatient setting, and continues through a period after the patient leaves the hospital.

What is included in an episode of care under TEAM:

• Initial Hospitalization: This covers inpatient or outpatient hospital services that constitute the anchor stay or procedure.
• Post-Acute Care Services: These include services provided by Skilled Nursing Facilities (SNF), Inpatient Rehabilitation Facilities (IRF), Long-Term Care Hospitals (LTCH), Home Health Agencies (HHA), and Hospice Services.
• Readmissions: Any inpatient hospital readmission services and other outpatient hospital services.
• Physician Services: Including certain Part B professional services provided within the three days prior to the hospital admission or outpatient procedure
• Part B Drugs: Certain drugs covered under Medicare Part B, with some exceptions.
• Clinical Lab Services and Durable Medical Equipment (DME) – Also included in the episode.

(Source: Hall Render Killian Health & Lyman, CMS Releases final Rule: Transforming Episode Accountability Model)

CMS has finalized its proposal to use three years of baseline data, adjusted forward to the performance year (PY), to calculate target prices for MS-DRG/HCPCS episode types by region. This method is consistent with Performance Years 4-8 of the CJR model. It also includes a risk adjustment for episode-level target prices.

Source: CMS 2025 IPPS Final Rule, p1926

Concept 2: Risk Adjustments for CBSAs

Core-Based Statistical Areas (CBSAs) are geographic regions defined by the Office of Management and Budget (OMB) and used by the U.S. Census Bureau. These areas include both metropolitan statistical areas, which have urban clusters with populations of at least 50,000 people (Source: CMS FY 2025 IPPS Final Rule, p1004), and micropolitan statistical areas, which have urban clusters with populations between 10,000 and 50,000 people (Source: CMS FY 2025 IPPS Final Rule, p 673). CMS refines these definitions to better serve its data and service needs, creating custom CBSAs beyond those defined by the Census Bureau. This allows CMS to monitor market saturation and utilization, helping to prevent potential fraud, waste, and abuse by analyzing Medicare Fee-for-Service (FFS) claims data to determine the density of providers relative to the number of beneficiaries in a given area.

In the context of TEAM, CBSAs play a crucial role in hospital selection and payment adjustments. Hospitals located in selected CBSAs are required to participate in TEAM, ensuring that the model is tested in diverse geographic regions with varying healthcare needs. Target prices for episodes of care are based on regional data adjusted for hospital- and patient-specific factors, ensuring fair compensation based on the complexity and expected cost of care for the patient population. Additionally, CBSAs help CMS adjust reimbursements to reflect local wage levels and other cost factors, ensuring that payments are fair and accurate. By leveraging CBSAs, CMS can ensure that the TEAM model promotes high-quality, cost-effective care across different regions.

Key Variables in the TEAM Risk Adjustment Model

1. Patient Age Categories: There are four age groups considered.
2. Social Needs Score: This is a yes/no variable. It is triggered if the patient qualifies for full Medicaid benefits, is eligible for the Part D low-income subsidy, or lives in an area with a high deprivation index.
3. HCC Count: The number of Hierarchical Condition Categories (HCCs) in the three months before the episode starts.
4. Hospital Characteristics: This includes hospital bed size and whether the hospital is a safety net hospital.
5. Additional Beneficiary Characteristics: Five other characteristics specific to the patient.
6. Episode-Specific HCC Codes: There are 25 specific HCC codes relevant to the episode.

CMS also finalized, with modifications, its policies regarding risk adjustment to include two hospital-level variables (hospital bed size and safety net hospital) for all episode categories. There will also be an HCC count risk adjustment variable (TEAM HCC count), which would have a 90- day lookback for each beneficiary, beginning with the day prior to the anchor hospitalization or anchor procedure. Consistent with BPCI-A, CMS proposes to use the beneficiary’s Medicare FFS claims from that lookback period to determine which HCC flags the beneficiary is assigned and create a count of them.

Additionally, CMS finalized its proposed risk adjustment methodology with modifications to include more beneficiary-level variables specific to each episode category. In addition to the five risk adjustment variables applicable to all episode categories, CMS finalized:

• 12 beneficiary-level risk adjustment variables for the CABG episode category.
• 16 beneficiary-level risk adjustment variables for the LEJR episode category.
• 13 beneficiary-level risk adjustment variables for the Major Bowel Procedure episode category.
• 16 beneficiary-level risk adjustment variables for the SHFFT episode category.
• 13 beneficiary-level risk adjustment variables for the Spinal Fusion episode category.

(Source: McDermott + CMMII Finalizes TEAM: Comparison of Proposed and Final Policies)

*These data are based on assumptions and information available at the time of the final rule;
users should exercise caution as these are subject to change prior to 2026.

Concept 3: Payment & Reconciliation

Payment Process in the TEAM Model

On an annual basis, CMS compares each participant’s spending on episodes for that performance year to their target prices. Similar to CJR, reconciliation occurs six months after the end of the performance year to allow for claim runout. During reconciliation, CMS applies several adjustments, such as beneficiary-level risk adjustment, to target prices. The difference between the adjusted targets and participant spending is the reconciliation amount. This amount is then adjusted based on participant Composite Quality Scores (CQS). Stop-loss and stop-gain limits are applied to this quality-adjusted reconciliation amount to create the Net Payment Reconciliation Amount (NPRA). Finally, the NPRA is combined with a post-episode payment calculation to ensure hospitals are not deferring procedures until after the episode has concluded, resulting in the final reconciliation amount for each participant.

This model covers most Medicare Parts A and B expenses related to a specific procedure, referred to as an anchor procedure, during an episode of care.

What’s Included in the Target Price?

• The surgery itself
• Any associated inpatient stay
• Post-acute care, such as stays at skilled nursing facilities (SNFs), outpatient therapy, and home health services
• Follow-up visits
• Other relevant services post-discharge, including physician services, clinical lab services, durable medical equipment, and Part B drugs and biologicals

(Source: Bass Berry & Sims PLC)

CMS has finalized its proposal to conduct an annual reconciliation, comparing spending for a TEAM participant’s beneficiaries in episodes against the reconciliation target price. This will determine if CMS owes the TEAM participant a reconciliation payment or if the TEAM participant owes CMS a repayment (for all Track 3 participants and starting in PY 2 for Track 2 hospitals). The annual reconciliation of each TEAM participant’s actual episode payments against the target price(s) will occur six months after the end of the PY.

Target Pricing Updates

Target prices are updated annually, with a one-year gap between the baseline period and the performance year. For example, prices for 2026 are based on data from 2022 to 2024. These prices are adjusted to the performance year using a prospective update factor, with a possible retroactive adjustment of +/-3% (Source: CMS FY 2025 IPPS Final Rule p 2021)

Quality Adjustments

TEAM adjusts each hospital’s net payment reconciliation amounts (NPRA) using a composite quality score (CQS) based on five measures from the Hospital Inpatient Quality Reporting (IQR) program. Hospitals that meet the quality threshold can receive up to a 10% increase in any positive NPRA earned or a reduction of up to 15% in any negative NPRA for hospitals in Track 2, and up to 10% for hospitals in Track 3. The measures include: (Source: CMS FY 2025 IPPS Final Rule p 2132)

1. Hybrid Hospital-Wide All-Cause Readmission Measure
2. Falls with Injury Rate
3. Postoperative Respiratory Failure Rate
4. Thirty-day Risk-Standardized Death Rate among Surgical Inpatients with Complications
5. For LEJR episodes: Hospital-Level Total Hip and/or Total Knee Arthroplasty (THA/TKA) Patient-Reported Outcome-Based Performance Measure (PRO-PM)

Benchmark Prices

CMS will calculate benchmark prices for each episode type and region based on the average standardized spending over three years. For the first performance year starting January 1, 2026, benchmarks will use data from episodes initiated between January 1, 2022, and December 31, 2024. Each subsequent year, the data will roll forward by one year, with more recent years weighted more heavily. This approach rewards TEAM participants for being more efficient than other hospitals in their region.

Preliminary target prices will be provided to participants by the end of November before the performance year begins in January.

CMS is concerned that regional targets might disadvantage safety net hospitals, which were more likely to owe repayments under the CJR model. The agency is seeking comments on adjustments to regional target prices for Track 1 or Track 2 TEAM participants to reduce the likelihood of penalizing safety net hospitals disproportionately. (Source: CMS FY 2025 IPPS Final Rule).

What is Reconciliation

Reconciliation is the process where CMS compares a Direct Contracting Entity’s (DCE’s) Medicare expenditures to its final benchmark, applying risk mitigation mechanisms and relevant adjustments to determine the Total Monies Owed. This process occurs in two stages: Provisional Reconciliation, which takes place immediately after the performance year and uses preliminary data, including mid-year risk scores and placeholder quality scores, with adjustments for seasonality and claims run-out (estimated timing: January of the following PY); and Final Reconciliation, conducted after three months of claims run-out, incorporating final risk scores and quality scores for a complete assessment of the performance year (estimated timing: July of the following PY).

Payments & Gainsharing Agreements

Hospitals will continue to bill Medicare as usual, with their revenue cycle remaining unaffected. With TEAMs, they will receive bonus payments if they bill less than the “target price” set by Medicare. These target prices have not yet been determined, and it is likely that they will be established by 2025. If a hospital exceeds the target price, it will owe money to CMS.

For the purposes of the Federal anti-kickback statute safe harbor for CMS-sponsored model arrangements, CMS proposes that the following types of Medicare-enrolled providers and suppliers, as well as entities participating in a Medicare ACO initiative, may be TEAM collaborators:

• Comprehensive Outpatient Rehabilitation Facility (CORF)
• Provider or supplier of outpatient therapy services
• Physician Group Practice (PGP)
• Hospital
• Critical Access Hospital (CAH)
• Non-physician provider group practice (NPPGP)
• Therapy group practice (TGP)
• Medicare ACO

Sharing Arrangements in TEAM Model

Sharing arrangements in the TEAM model involve the distribution of reconciliation payment amounts or repayment amounts between TEAM participants and collaborators. CMS defines payments from a TEAM participant to a collaborator as “gainsharing payments,” while payments from a collaborator to a TEAM participant are termed “alignment payments.” These payments must be made in accordance with a documented sharing arrangement.

• Gainsharing Payments: Payments from a TEAM participant to a TEAM collaborator.
• Alignment Payments: Payments from a TEAM collaborator to a TEAM participant.

To ensure transparency and integrity, CMS requires that TEAM participants develop and maintain written policies for selecting TEAM collaborators. These policies must prioritize the quality of care provided by potential collaborators and cannot be based on the volume or value of referrals or business generated. The selection criteria should also consider the anticipated contribution of the collaborator to the TEAM participant’s performance in the model.

Selection Criteria for TEAM Collaborators:

• TEAM participants must develop and maintain written policies for selecting TEAM collaborators.
• Selection criteria must prioritize the quality of care delivered and cannot be based on the volume or value of referrals or business generated.

Requirements for Sharing Arrangements:

• Must be in writing, signed by the parties, and entered into before care is provided.
• Participation must be voluntary, without penalties for nonparticipation.
• Providers must have the freedom to offer medically necessary services without being required to participate in a sharing arrangement.

(Source – AAOS TEAM Model Summary) 

These proposed requirements aim to ensure that sharing arrangements are transparent, voluntary, and focused on improving care quality and efficiency while protecting beneficiary rights and program integrity.

Conclusion

CMS’s new Transforming Episode Accountability Model (TEAM) aims to enhance care coordination and manage costs effectively. The Episode of Care concept ensures comprehensive care by covering all costs from initial hospitalization to post-acute services and readmissions. Risk Adjustment and CBSAs use patient demographics and geographic data to fairly calculate target prices, ensuring hospitals are compensated based on care complexity.