On August 28, as part of its Fiscal Year 2025 Hospital Inpatient Prospective Payment System (IPPS) Final Rule, the Centers for Medicare & Medicaid Services (CMS) finalized the Transforming Episode Accountability Model (TEAM) – a mandatory, episode-based alternative payment model applicable to certain acute care hospitals paid under the IPPS.

As discussed in our prior alert regarding CMS’s proposal, TEAM seeks to incentivize care coordination, improve patient transitions, and decrease the risk of avoidable readmissions for beneficiaries who receive services covered under applicable episodes. Despite commenter requests for a delayed start, the TEAM model will begin on January 1, 2026, and end on December 31, 2030.

TEAM Participants

TEAM participation will be mandatory for all acute care hospitals paid under the IPPS that are located within 188 randomly-selected geographic areas, called core-based statistical areas (CBSAs). The selected CBSAs span nearly all 50 states, except Maryland; hospitals in Maryland are excluded due to their participation in the ongoing Maryland Total Cost of Care Model.

In order to encourage cross-disciplinary collaboration between TEAM-participating hospitals (which provide acute and specialty care) and participants in CMS’s accountable care organization initiatives, the TEAM Model will allow for provider and individual overlap with other CMS models and initiatives.

For example, hospitals that are currently participating in the Bundled Payments for Care Improvement Advanced (BPCI-A) or the Comprehensive Care for Joint Replacement Model (CJR) but that are not in a TEAM CBSA will be provided a one-time opportunity to voluntarily opt into TEAM while continuing participation in BPCI-A or CRJ. In addition, CMS plans to address in future rulemaking whether hospitals already participating in other value-based contracting models will be required to participate in TEAM.

Episodes

Participating hospitals will assume risk for episodes of care triggered by one of the following “anchor procedures”: lower extremity joint replacement, surgical hip femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure. Episodes will generally begin upon admission to the hospital for the anchor procedure and continue until 30 days after the beneficiary is discharged. In order to support continuity of care, help manage underlying chronic conditions, and promote positive long-term outcomes, participating hospitals will be required to refer the beneficiary to a primary care provider upon discharge.

TEAM Economics

CMS will pay participating hospitals a “target price” comprised of most Medicare Parts A and B spending associated with an anchor procedure during an episode. The target price will include the relevant surgery, associated inpatient stay (if any), post-acute care (e.g., skilled nursing facility (SNF) stays, outpatient therapy services and/or home health services), follow-up visits, and other relevant items and services following discharge (e.g., physician services, clinical laboratory services, durable medical equipment, and Part B drugs and biologicals). Target prices will be risk-adjusted based on patient-level risk factors, including “social risk” (measured based on beneficiary screenings for certain social determinants of health) and will be rebased annually.

CMS will reconcile payments and assess participant performance on an annual basis. Depending on the outcome of that assessment, participants may either earn a positive performance payment or owe CMS a repayment amount. The amount of any payment or repayment will depend on a participant’s participation track (as discussed below) and how the participant’s total Medicare costs for the episode compare to the target price.

TEAM Participation Tracks

The TEAM model includes three “tracks,” each with differing financial risk and quality performance adjustments:

• Track 1: Hospitals that select Track 1 will not bear risk for shared losses, and their potential shared savings will be capped by a 10% “stop-gain limit.” Generally, participants who begin in Track 1 will automatically shift to Track 3 in performance year (PY) 2 and remain in Track 3 for the remainder of the model. There is an exception, however, for safety net hospitals given their unique financial challenges; safety net hospitals may remain in Track 1 for the first three PYs.
• Track 2: Participants who select Track 2 will be subject to 5% limits on gains and losses. This is lower than CMS’s initial proposal of a 10% limit. In consideration of the lower level of risk inherent in this track, CMS is limiting Track 2 eligibility to safety net hospitals, rural hospitals, Medicare Dependent Hospitals, sole community hospitals, and essential access community hospitals.
• Track 3: Participants in Track 3 will take a higher degree of financial risk, with 20% limits on gains and losses during each PY.

The proposed rule contained a “low-volume threshold” exception, which would have reduced financial risk on hospitals with less than 31 total episodes during a baseline period by placing them in Track 2 (regardless of their selected track). However, CMS declined to adopt this “low-volume threshold” concept in the final rule. Instead, CMS signaled that it may engage in additional rulemaking to address the level of risk “low volume” participants may face.

Model Flexibilities

CMS confirmed the availability of the federal Anti-Kickback Statute (AKS) CMS-sponsored model arrangements and CMS-sponsored model patient incentives safe harbors under TEAM. If all of the requirements of these AKS safe harbors are met, they will protect, respectively:

• “Sharing arrangements” between TEAM participants and qualified “TEAM collaborators” – including physicians, group practices, and other providers – that involve the TEAM participant making downstream gainsharing payments and/or such TEAM collaborators making upstream “alignment payments” (i.e., shared losses payments) when sharing in a TEAM participant’s repayment to CMS.
• In-kind beneficiary engagement incentives offered by TEAM participants to beneficiaries, such as technologies that, among other things, are “closely related to the provision of high-quality care” and “advance a clinical goal for a TEAM beneficiary.”

As part of the final rule, CMS incorporated additional Medicare flexibilities into TEAM. For example, CMS will waive certain telehealth requirements (e.g., to allow telehealth services to be provided to patients residing outside of a rural health professional shortage area or in counties not included in a Metropolitan Statistical Area).

CMS will also waive the SNF 3-day rule for coverage of a stay at a qualified SNF that occurs within 30 days of discharge from the relevant hospitalization. These waivers would require certain conditions to be met. In addition, CMS declined to extend the waivers to all beneficiaries who could trigger a TEAM episode at a participating hospital, which will require stakeholders relying on the waivers to track TEAM beneficiary status.

Decarbonization & Resilience Initiative

TEAM will mark the first CMS Innovation Center model to include a Decarbonization and Resilience Initiative (Initiative). Participants who choose to partake in this Initiative will voluntarily report on “Scope 1” and “Scope 2” emissions, defined by the Greenhouse Gas Protocol framework to mean direct emissions from owned or controlled sources and indirect emissions from purchased energy generation. CMS will provide technical assistance to help Initiative participants improve their decarbonization strategies over time, transition to care delivery methods that result in lower emissions, and identify, pay for, and implement energy efficiency improvements.

In addition, hospitals participating in this Initiative will receive acknowledgment of their participation on a CMS consumer-facing website in the form of a “hospital recognition badge.” CMS reiterated in the final rule that similar initiatives related to climate change may be considered for other models in the future, including models that have already been announced.