Transforming Episode Accountability Model

The Centers for Medicare and Medicaid Services (CMS) Innovation Center finalized a new mandatory episodic payment model beginning in calendar year (CY) 2026. Under the Transforming Episode Accountability Model (TEAM), acute care hospitals located in selected regions will be required to participate and will be held accountable for cost and quality of care for 30-day surgical episodes provided to Medicare beneficiaries related to:

• Spinal fusions
• Lower extremity joint replacements (LEJR)
• Surgical hip/femur fracture treatments (SHFFT) (excluding lower extremity joint replacement)
• Major bowel procedures
• Coronary artery bypass grafts (CABG)

TEAM is set to launch on January 1, 2026 and run for five years (ending on December 31, 2030).

To help members navigate this new model and the opportunities it might be present, AAPM&R has prepared the following primer on TEAM. Check back for additional educational resources in the coming months.

• What is an episodic or bundled payment model?
• Who is required to participate?
• What episodes are included in TEAM?
• What is included in an episode?
• How can non-hospital entities participate in the model?
• How are target prices set?
• How are TEAM participants held accountable for cost?
• How are TEAM participants held accountable for quality?

What is an episodic or bundled payment model?

An episodic or bundled payment model involves setting a predetermined, risk-adjusted payment amount (commonly referred to as a “target price”) based on the expected costs of items and services furnished to a patient during an episode of care. Episodes typically have a defined start, such as a hospital admission or procedure, and extend for a set duration, such as 30- or 90-days after hospital discharge. Model participants are held accountable for cost and quality of care furnished during that episode. Generally, if actual spending during the episode is below the target price, the participant may share in savings and receive additional payment from the payer, such as Medicare. Conversely, if spending comes in above the target price, the participant may be responsible for paying back money to the payer. Quality performance may affect the level of shared savings that may be earned or the amount of dollars that must be repaid.

TEAM builds on lessons learned from prior CMS episodic models over the last decade, including the voluntary Bundled Payments for Care Improvements (BPCI) Advanced and the mandatory Comprehensive Care for Joint Replacement (CJR) models. 

Who is required to participate?

TEAM participants are acute care hospitals paid under the Medicare Hospital Inpatient Prospective Payment System (IPPS) whose primary address is located in one of geographic areas selected for participation. A full listing of hospitals required to participate is available on the CMS website.

Hospitals that were participating in either the BPCI Advanced or CJR models at the time the models concluded will have the option to opt into TEAM. These hospitals will need to express their interest to CMS in January 2025. 

What episodes are included in TEAM?

The following five categories of episodes will be tested under TEAM:

• Spinal Fusion episode category includes any cervical, thoracic, or lumbar spinal fusion procedure paid through the IPPS under MS–DRGs 402, 426-430, 447-448, 450- 451, 471-473, or through the Outpatient Prospective Payment System (OPPS) under HCPCS codes 22551, 22554, 22612, 22630, or 22633.
• Lower Extremity Joint Replacement (LEJR) episode category includes hip, knee, and ankle replacements (but excludes arthroplasty of the small joints in the foot) paid through the IPPS under MS–DRGs 469, 470, 521, or 522 or through the OPPS under HCPCS code 27447, 27130, or 27702.
• Surgical Hip & Femur Fracture Treatment (SHFFT) episode category includes open and closed surgical hip fixation procedures with or without fracture reduction (but excluding joint replacement) paid through the IPPS under MS–DRGs 480–482. The SHFFT episode includes beneficiaries treated surgically for hip and femur fractures, other than hip arthroplasty. Although a small number of SHFFT procedures are furnished in the outpatient hospital setting, TEAM only includes inpatient SHFFT procedures.
• Coronary Artery Bypass Graft (CABG) episode category includes any coronary revascularization procedure that is paid through the IPPS under MS–DRGs 231–236, including both elective CABG and CABG procedures performed during initial acute myocardial infarction (AMI) treatment.
• Major Bowel Procedure episode category includes any small or large bowel procedure paid through the IPPS under MS–DRGs 329-331.

CMS has indicated that it may add additional episodes to TEAM through future rulemaking.

What is included in an episode?

An episode is triggered when an eligible Medicare beneficiary is admitted for an anchor hospitalization or anchor procedure. Episodes will continue for 30 days following hospital discharge or the anchor procedure.

Episodes will generally include all Medicare Parts A and B items and services, with some limited exclusions.

How can non-hospital entities participate in the model?

While the model is targeted at hospital participants, there are several ways that physicians and other types of providers can enter into value-based arrangements with TEAM participants:

• TEAM Collaborators. Physicians and other eligible providers and suppliers that are enrolled in Medicare or entities participating in a Medicare accountable care organization (ACO) initiative (see sidebar) can enter into “sharing arrangements” with TEAM participants. These entities are known as “TEAM Collaborators.”Under a sharing arrangement, a TEAM participant and a TEAM Collaborator can share in payments received (i.e., “reconciliation payments”) or amounts owed (i.e., “repayment”) under the model. The terms of any gainsharing arrangement must be solely based on quality of care and provision of TEAM activities (e.g., care management/coordination, care redesign). Other restrictions apply to gainsharing arrangements.
• Collaboration Agents. Members of a physician group practice (PGP), non-physician provider group practice (NPPGP), or therapy group practice (TGP) can enter into a “distribution arrangement” with a Team Collaborator if they are owners or employees of the same practice. These entities are known as “Collaboration Agents.” Under a distribution arrangement, a Team Collaborator that is a PGP, NPPGP, or TGP could gainshare savings with a Collaboration Agent. Similar to a sharing arrangement, gainsharing payments under distribution arrangements must be based solely on quality of care and provision of TEAM activities.
• Downstream Collaboration Agent. Individuals who are part of a PGP, NPPGP, or TGP (who are not TEAM Collaborators nor Collaboration Agents) can enter into a “downstream distribution arrangement” with a Collaboration Agent that is both in a PGP, NPPGP, or TGP and an ACO. These types of entities are known as “Downstream Collaboration Agents.”

PM&R physicians may find opportunities to engage as TEAM Collaborators, Collaboration Agents, or Downstream Collaboration Agents in order to support improved cost and quality outcomes under the model. Note that each of these types of financial arrangements are subject to certain requirements related to documentation, beneficiary notification, record retention, payment limits, and more. AAPM&R plans to provide additional resources on each of these types of arrangements in the coming months.

Types of Medicare Providers and Suppliers and Other Entities eligible to be TEAM Collaborators:

• Skilled Nursing Facility (SNF).
• Home Health Agency (HHA).
• Long-Term Care Hospital (LTCH).
• Inpatient Rehabilitation Facility (IRF).
• Physician.
• Nonphysician practitioner.
• Therapist in a private practice
• 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.

How are target prices set?

Target prices are set annually at the regional level using a three-year rolling baseline of historical Medicare cost data. CMS will provide preliminary target prices for each MS-DRG/HCPCS episode type by the end of November prior to each performance year.

Target prices incorporate a discount, which represents Medicare’s portion of reduced expenditures (or “savings”) from the episode. The discount varies based on the episode category, ranging from 1.5% for major bowel procedures and CABG episodes to 2% for LEJR, SHFFT, and spinal fusion episodes.  Episodes are also risk adjusted for beneficiary-level and hospital-level factors.   

How are TEAM participants held accountable for cost?

TEAM participants will continue to bill Medicare fee-for-service but will be subject to an annual reconciliation for included episodes. After each performance year, CMS will conduct a reconciliation calculation comparing performance year spending on episodes with target prices for those episodes. Reconciliation will occur approximately 6 months after the end of the performance year. Generally, if a participant’s spending is below the target price, they will receive a positive reconciliation payment from CMS. If the participant’s spending is above the target price, they may owe money back to CMS (subject to certain limits).

CMS also applies certain limits on the amounts that participants can either receive through positive reconciliation amounts or are liable to repay to CMS. These limits vary by participation track, as detailed below and shown in the Table:

• Track 1: During performance year 1, all participants will have the option of participating in Track 1, which is an upside only track, meaning participants will not be required to repay losses. Under Track 1, participants are eligible for positive reconciliation amounts of up to 10 percent of the aggregated target price provided at reconciliation.This is known as a “stop-gain limit.” Certain eligible safety net hospitals are eligible to remain in Track 1 through performance year 3.
• Track 2: Track 2 is limited to eligible safety net and rural hospitals. While Track 2 is a two-sided risk track, participants are eligible for lower levels of risk and reward. Under Track 2, participants receiving positive reconciliation payments are subject to a 5 percent stop-gain limit. For those Track 2 participants who owe money back to CMS, their repayment amount is limited to up to 5 percent of the aggregated target price (known as a “stop-loss limit”).
• Track 3: Under Track 3, positive reconciliation payments are subject to a stop-gain limit of up to 20 percent of the aggregated target price. Repayment amounts are limited to a stop-loss limit of up to 20 percent of the aggregated target price.

Gain and Loss Limits under TEAM

NOTE: Both the stop-gain and stop-loss Limits are calculated as a percentage of the aggregated reconciliation target price.

How are TEAM participants held accountable for quality?

Part of reconciliation also takes into account participants’ performance on select quality metrics. The model incorporates measures focused on care coordination, patient safety, and patient reported outcomes (PROs):

• Hybrid Hospital-Wide All-Cause Readmission Measure with Claims and Electronic Health Record Data (CMIT ID #356)
• Hospital-Level Total Hip and/or Total Knee Arthroplasty (THA/TKA) Patient-Reported Outcome-Based Performance Measure (PRO-PM) (CMIT ID #1618) (only applicable to LEJR episodes)
• CMS Patient Safety and Adverse Events Composite (CMS PSI 90) (CMIT ID #135) (performance year 1 only)

CMS also plans to incorporate the following new measures into TEAM during performance year 2:

• Thirty-day Risk- Standardized Death Rate among Surgical Inpatients with Complications (Failure-to-Rescue)
• Hospital Harm – Falls with Injury
• Hospital Harm – Postoperative Respiratory Failure

Participants’ quality performance will be compared against a national cohort of hospitals (both TEAM participants and non-participants).

A participant’s quality score may impact the amount of positive reconciliation it receives or negative reconciliation it owes back to CMS, depending on its risk track. For example, high quality performers could see a reduction in the amount they owe back to CMS. Similarly, a poor performer could see a reduction in the positive reconciliation amount they receive.