The transition to value-based care continues to accelerate, and hospitals nationwide are preparing for one of the most significant shifts yet: Transforming Episode Accountability Model (TEAM).
Starting January 1, 2026, the mandatory Centers for Medicare & Medicaid Services (CMS) TEAM program will hold hospitals financially accountable for five surgical episodes of care, representing a major expansion of bundled payments and new expectations for care coordination, financial accountability, and collaboration across the continuum of care. At its core, TEAM places hospitals at the center of five defined surgical episode bundles: lower extremity joint replacements, surgical hip and femur fracture treatments, spinal fusion, coronary artery bypass grafts, and major bowel procedures.
Success under TEAM requires both strategic alignment and data-driven planning to meet the model’s analytical and operational demands.
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Participation, Tracks, and Risk Exposure
The majority of participating hospitals are mandated based on their location within selected core-based statistical areas. Roughly 715 hospitals fall into this category, with an additional 10 voluntarily opting into the model due to prior bundled payment experience. TEAM includes a phased risk structure with three participation tracks. All hospitals may begin in Track 1 with no downside risk. After year one, hospitals transition to Track 2 or Track 3, depending on their designation—such as rural or safety‑net status—with higher tracks carrying greater two‑sided financial risk.
A particularly notable aspect of TEAM is its unique definition of safety‑net hospitals. CMS evaluates if the hospital exceeds the national 75th percentile on their proportion of dual‑eligible beneficiaries or their proportion of beneficiaries eligible for the Part D low‑income subsidy to classify hospitals as safety‑net institutions with extended protections and more time before facing downside risk.
Episodes, Data, and Target Price Methodology
TEAM episodes begin with a surgical procedure performed in either the inpatient or outpatient setting and continue for 30 days following discharge or procedure date. All Medicare Part A and B spending during that window counts toward total episode expenditures with few exclusions.
The target price methodology is complex, designed to blend accuracy and predictability. Rather than using each hospital’s historical spending, CMS bases target prices on regional benchmarks—defined by the nine US census divisions—and weights more recent years of the baseline period more heavily. These benchmark prices are risk adjusted, trended forward, normalized, and discounted before becoming the final target price against which performance is measured.
Because target prices are region‑derived and rebased annually, hospitals must be prepared for their targets—and their risk exposure—to shift every year. Risk adjustments incorporate hospital characteristics, beneficiary demographics, clinical history, and economic risk factors. Quality scores also play a major role in determining the final reconciliation payment, with higher scores decreasing repayment amounts to CMS when episode spend exceeds the target amount and lower scores decreasing reconciliation payments from CMS when episode spend is lower than the target amount.
Why Analytics Are Central to TEAM Success
Hospitals cannot rely solely on intuition or historical patterns. Instead, they must build a robust analytic foundation to understand episode volume, cost drivers, utilization trends, and care variation.
A central insight is that while five categories are covered, lower extremity joint replacements dominate volume. These procedures also have a high percentage performed in outpatient settings, making site‑of‑service strategy particularly important. Other categories, such as spinal fusion and major bowel procedures, reveal substantial variation based on elective status, cancer diagnoses, or surgical specialty. Understanding these nuances is essential for achieving predictable outcomes.
Volume matters greatly: low episode counts can increase cost variation and obscure the impact of clinical interventions. TEAM’s low‑volume protections help mitigate downside risk, but hospitals still need sufficient sample sizes to evaluate the impact of process changes.
Hospitals also need clarity on what portion of Medicare spend is actionable. Post‑acute care (such as skilled nursing, inpatient rehab, home health, or direct discharge home) represents one of the highest‑impact areas for reducing episode costs. Similarly, readmissions, length of stay in post‑acute settings, and home health utilization offer significant opportunities for improvement. Hospitals must evaluate not only the first site of care after discharge, but also the performance and quality of each post‑acute partner.
Benchmarks play an essential role for providing realistic targets by comparing a hospital’s case-mix–adjusted performance with its region’s. “What‑if” modeling helps hospitals quantify the savings potential associated with shifting care utilization patterns, improving post‑acute performance, or modifying discharge disposition practices.
Strategic Provider Partnerships and Financial Arrangements
One of the most distinguishing features of TEAM is that it allows hospitals to enter into financial collaboration agreements—something that historically has not been permitted due to federal fraud and abuse concerns. These arrangements can include full sharing of upside and downside risk with certain providers, or upside‑only arrangements designed to incentivize care redesign and performance improvement.
CMS permits these structures under an expanded safe harbor, provided agreements are in writing, executed before episodes begin, and incorporate strict requirements related to quality, care delivery, documentation, and payment timing. For hospitals, these partnerships can be critical for reducing avoidable costs, especially where post‑acute performance or care coordination directly affects episode spending.
Successful collaboration will require due diligence. Hospitals must assess potential partners’ quality scores, star ratings, readmission rates, and care coordination capabilities. As hospitals advance into higher‑risk tracks, the need for strong alignment with skilled nursing facilities, home health agencies, primary care, and specialty groups becomes even more important.
Positioning for 2026 and Beyond
TEAM reflects CMS’s broader push toward accountable, coordinated, and efficient care through financial risk. To succeed, hospitals must act now by strengthening analytics, evaluating market‑specific episode trends, engaging clinicians, and developing strong post‑acute partnerships. With careful preparation and strategic collaboration, hospitals can leverage TEAM to manage risk and meaningfully improve patient outcomes and care value.