The CMS TEAM Model represents the most significant shift in Medicare surgical reimbursement since the introduction of DRGs. Starting January 1, 2026, this mandatory payment model will fundamentally change how hospitals approach surgical care delivery and financial planning. Unlike previous voluntary bundled payment programs, the Transforming Episode Accountability Model forces hospitals to think beyond traditional fee-for-service structures.
Healthcare executives across the nation are scrambling to understand what this means for their bottom line. The stakes couldn’t be higher – with hospitals potentially facing millions in penalties or rewards based on their performance. Smart organizations are already positioning themselves to thrive under this new paradigm, while others risk being left behind.
What is the CMS TEAM Model?
The TEAM Model CMS is a mandatory, episode-based payment system that holds hospitals accountable for both cost and quality during specific surgical procedures. CMS designed this model to drive value-based care by creating financial incentives for better patient outcomes and cost management.
The model covers five major surgical categories:
- Lower extremity joint replacements
- Surgical hip and femur fracture treatments
- Spinal fusions
- Coronary artery bypass grafts
- Major bowel procedures
Each episode begins with the surgical procedure and extends 30 days post-discharge. During this period, hospitals became responsible for nearly all Medicare expenditures related to the patient’s care, regardless of where services are provided.
How Does Episode-Based Payment Work?
Thinking, what is CMS TEAM Model episode structure? Well, each episode creates a comprehensive care package that includes the initial surgery, hospital stay, post-acute care, readmissions, and all related services within the 30-day window.
CMS sets target prices for each episode based on:
- Historical spending data from a three-year baseline
- Risk adjustment factors for patient complexity
- Regional variations in care costs
- Hospital-specific characteristics
Hospitals performing below their target price receive additional payments. Those exceeding targets face financial recoupments. The system rewards efficiency while maintaining quality standards through composite quality scoring.
Target Price Calculations and Risk Adjustment
Target pricing starts with benchmark data from the specific diagnosis-related group (DRG) or healthcare procedure code (HCPCS) in each census region. CMS then applies multiple adjustment factors to create hospital-specific targets.
Risk adjustment considers:
- Patient age brackets
- Hierarchical condition category (HCC) counts
- Social risk factors, including dual eligibility status
- Hospital bed size and safety net status
- Episode-specific clinical variables
The Medicare TEAM Model applies discounts of 1.5% for coronary artery bypass and major bowel procedures, and 2.0% for joint replacements, fracture treatments, and spinal fusions. These discounts ensure Medicare saves money while providing hospitals opportunities for shared savings.
Quality Measures That Drive Financial Performance
Quality performance directly impacts financial reconciliation through the Composite Quality Score (CQS). The TEAM Model uses four primary quality measures:
- Hybrid All-Cause Readmission Measure: Tracks 30-day readmissions across all causes
- Patient Safety Indicator 90 (PSI-90): Monitors hospital-acquired conditions and complications
- Patient-Reported Outcome Measures: Captures functional improvements for joint replacement patients
- Hospital Harm and Failure to Rescue: Begins in performance year two
Higher quality scores can increase reconciliation payments by up to 10%, while poor performance can reduce payments by up to 15%. This creates powerful incentives for hospitals to invest in quality improvement initiatives.
Which Hospitals Must Participate?
The TEAM Model CMS uses stratified random sampling to select approximately 25% of Core Based Statistical Areas (CBSAs) across the United States. All acute care hospitals paid under the Inpatient Prospective Payment System within selected CBSAs must participate.
CMS has already released the list of participating hospitals, giving organizations time to prepare before the 2026 launch. Unlike previous voluntary models, hospitals cannot opt out of participation, making preparation essential for financial stability.
Health Equity and Social Risk Integration
The Transforming Episodic Accountability Model TEAM emphasizes health equity through mandatory screening requirements. Hospitals must assess each beneficiary for four health-related social needs:
- Food insecurity
- Housing instability
- Transportation barriers
- Utility access difficulties
Participants can voluntarily submit health equity plans that identify disparities and outline improvement strategies. The model encourages demographic data collection, including race, ethnicity, language preferences, and disability status to address care gaps systematically.
Care Coordination Requirements
Primary care coordination becomes mandatory under the TEAM Model. Hospitals must provide primary care referrals before discharge for all beneficiaries, ensuring continuity beyond the acute care setting.
The model tracks several coordination metrics:
- Transitional care management visits within 14 days
- Primary care provider follow-up rates
- Specialist visit timing and completion
- Post-acute care facility coordination
Successful coordination reduces readmissions and inappropriate post-acute utilization, directly improving financial performance under episode-based payment structures.
Technology Requirements for Success
Managing episode-based payments requires sophisticated data infrastructure and analytics capabilities. Hospitals need real-time visibility into:
- Episode identification and tracking
- Cost accumulation across care settings
- Quality measure performance
- Risk stratification and patient targeting
- Post-acute care utilization patterns
Advanced analytics platforms help hospitals identify high-risk patients early, optimize discharge planning, and coordinate care across multiple providers. Without proper technology support, hospitals struggle to manage the complexity of episode-based accountability.
Financial Impact and Preparation Strategies
Early preparation determines success under the TEAM Model CMS. Hospitals should begin assessment and planning immediately, focusing on:
Assessment Phase:
- Analyze historical performance on covered procedures
- Identify cost drivers and variation sources
- Evaluate current care coordination capabilities
- Assess post-acute care network relationships
Implementation Phase:
- Develop episode management workflows
- Implement quality improvement initiatives
- Strengthen discharge planning processes
- Build analytics and reporting capabilities
Organizations that start early gain significant advantages in understanding their baseline performance and developing improvement strategies.
Post-Acute Care Network Optimization
The Medicare TEAM Model creates new incentives for hospitals to actively manage post-acute care relationships. Every day a patient spends in a skilled nursing facility costs $500-800 against the episode target.
Smart hospitals are restructuring their approach to:
- Prioritize home discharge when clinically appropriate
- Develop preferred provider networks based on quality and cost
- Implement discharge planning protocols that optimize care transitions
- Create follow-up systems that prevent readmissions
These changes require hospitals to think beyond their walls and actively manage care across the entire continuum.
Therapy Services Transform from Cost Centers to Assets
Under traditional DRG payment, therapy services represented pure costs with no additional revenue. The TEAM Model completely reverses this dynamic by rewarding interventions that reduce post-acute utilization.
Hospital therapy departments can now demonstrate a clear return on investment:
- Early mobility programs reduce skilled nursing facility days
- Specialized interventions improve discharge-to-home rates
- Comprehensive assessments optimize post-acute care placement
- Follow-up protocols prevent costly readmissions
Forward-thinking hospitals are already restructuring therapy services to maximize both clinical outcomes and financial performance under episode-based payment.
Common Implementation Challenges
Hospitals face several obstacles when preparing for the TEAM Model:
- Data Integration Complexity: Combining clinical and financial data across multiple systems requires sophisticated integration capabilities.
- Care Coordination Gaps: Many hospitals lack robust systems for tracking patients across care settings and coordinating with post-acute providers.
- Quality Measure Reporting: Meeting CMS quality reporting requirements demands new workflows and documentation processes.
- Staff Training Needs: Clinical and administrative staff require training on episode-based thinking and new care coordination responsibilities.
Addressing these challenges early prevents costly mistakes and positions hospitals for success.
Future Implications for Healthcare Payment
The TEAM Model represents just the beginning of episode-based payment expansion. CMS has signaled intentions to extend similar models to additional procedure types and potentially implement “DRG plus 30” approaches across broader categories.
Hospitals that develop strong episode management capabilities now will be better positioned for future payment model changes. The infrastructure, processes, and cultural changes required for TEAM Model success create competitive advantages in an increasingly value-based healthcare environment.
Final Thoughts
The CMS TEAM Model fundamentally transforms surgical reimbursement by creating accountability for outcomes beyond hospital walls. Starting January 1, 2026, hospitals must demonstrate value through both cost management and quality performance across 30-day episodes of care.
Success requires comprehensive preparation including data infrastructure development, care coordination enhancement, and post-acute network optimization. Organizations that begin planning now gain significant advantages in understanding their baseline performance and developing improvement strategies.
The shift from fee-for-service to episode-based payment represents healthcare’s future direction. Hospitals that embrace this change and invest in appropriate capabilities will thrive, while those that resist face increasing financial pressure and competitive disadvantage.
Ready to Excel in the CMS TEAM Model?
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Don’t let the TEAM Model catch your organization unprepared. Persivia offers the data integration, risk stratification, and performance benchmarking capabilities that transform episode management from challenge to competitive advantage.
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