New CMS bundled payment initiative may be the future of Medicare

A new bundled payment model, the Transforming Episode Accountability Model (TEAM), marks CMS’s next big step toward its goal of moving 100% of Medicare beneficiaries into value-based care arrangements by 2030.

The five-year pilot, announced Sept. 5 and set to launch Jan. 1, 2026, may serve as a blueprint for how CMS manages Medicare coverage in the future.^a  Given the presence of bipartisan support in Congress for value-based care initiatives, the model is likely to remain intact throughout the second Trump administration.

“If successful, TEAM could be used to establish the framework for managing episodes as a standard practice in traditional Medicare,” CMS wrote in an email exchange with HFMA.

TEAM promises to be CMS’s most challenging bundled payment initiative to date, so it is not too early for affected hospitals to take stock of what will be required of them. Among the hospitals mandated to participate in TEAM are four hospitals that are part of OSF HealthCare, an integrated health system headquartered in Peoria, Ill. OSF HealthCare CFO Kirsten Largent, CPA, is undaunted.

 “We are optimistic that we can be successful in the program,” Largent said. “We have built a strong foundation with our value-based capabilities over the years, so this will be another opportunity for us to further develop those capabilities.”

 As a 16-hospital system, OSF HealthCare has been working on its value-based strategy ever since jumping into the agency’s Pioneer Accountable Care Organization Model demonstration more than a decade ago. Currently, about 25% of its patient population is in some form of risk-based arrangement.

 In its value-based journey to date, OSF HealthCare had one hospital participate in CMS’s Bundled Payment for Care Improvement (BPCI) initiative and another in the Comprehensive Care for Joint Replacement (CJR) program.

 “While the dollar settlements were relatively immaterial, we were successful in terms of understanding that these types of programs really require significant oversight, analytics and relationships with the providers for the whole continuum of care,” Largent said. “It was a very good learning experience for OSF.”

Greater challenges stem from mandatory participation 

TEAM participation is mandatory for almost a quarter of U.S. hospitals, and those on the TEAM frontline must learn how to implement the model at lower cost than their peers or suffer a financial penalty.

“That is a big challenge moving forward for TEAM hospitals,” said Michael Wolford, a principal with Forvis Mazars. “Medicare is telling hospitals to figure it out.”

 Wolford estimates that almost half of TEAM participants have some experience with one or more of CMS’s earlier bundled payment programs, but that does not mean they all have figured out how to succeed. Many hospitals that opted into original BPCI profited under episode-of-care payments, but as CMS fine-tuned its rules in CJR and BPCI-Advanced (BPCI-A), results were mixed.^b

Higher stakes for hospitals

TEAM has “more teeth” than the previous bundled payment programs, according to Richard Gundling, senior vice president of professional practice for HFMA. “Our hospitals should embrace it, but they also should be eyes wide-open-and-focused on managing post-acute care and coordination of care,” he said. “Providers need to realize that CMS is expecting to save money with TEAM.”

And where is the money coming from? It will come from hospitals. And not everyone thinks that is fair. 

 Chip Kahn, president and CEO of the Federation of American Hospitals, said CJR and BPCI-A have, in general, not worked well for hospitals. Building off those programs and mandating participation for hundreds of hospitals “adds insult to injury,” he said.

 Kahn points out that the DRG system is a bundled payment for the hospital component of patient care. 

 “The DRG system works very well [because] in that context the hospital controls all of the variables,” he said. “But when we start talking about the 30-day window [after discharge], it really changes the nature of this.”

Concerns of safety-net hospitals

Many safety-net hospitals are worried about the upfront investment needed to re-engineer care and the financial risk associated with CMS’s tests of new payment strategies, said Rob Nelb, director of policy for America’s Essential Hospitals (AEH). Beyond that, Nelb said, they wish CMS would recognize the value they are already providing in caring for an expensive subset of patients.

“Government payers don’t fully cover the cost of care for these patients,” Nelb said. “So it’s hard to require hospitals to participate in these payment arrangements that further cut payments.”

More broadly, AEH is concerned about how CMS defines safety-net hospitals. The association has long argued that the government should have a standard definition, but in its rulemaking for the TEAM initiative, CMS’s definition reflects only a hospital’s share of low-income Medicare beneficiaries and does not consider its share of Medicaid and uninsured patients.

“That care for Medicaid and the uninsured contributes to their low margins,” Nelb said. “So it’s important to look at the whole-facility payer mix to understand the financial resources that they have available to participate in value-based care models.”

Physician concerns

Surgeons are also concerned about mandated participation in TEAM. Orthopedic surgeons were enthusiastic about CMS’s original shared-savings approach to joint-replacement bundles, but interest has waned as the agency ratcheted down payments to the point that surgeons often lose money by participating, said Karl Koenig, MD, executive director of the Musculoskeletal Institute at the University of Texas in Austin, an associate professor at the university’s Dell Medical School and chair of the Health Care Systems Committee for the American Academy of Orthopedic Surgeons.

“We are proponents of bundled payment models in general, but after that experience and now seeing that participation is mandatory, most surgeons are worried that TEAM is not set up to drive success,” said Koenig. “You are basically forcing [into the initiative] a lot of hospitals and surgeons who may not be enthusiastic adopters [of the changes required for success].”

OSF HealthCare’s efforts to meet expectations

At OSF HealthCare, the four hospitals that will participate in TEAM range from the system’s flagship, OSF Saint Francis Medical Center, licensed for 642 beds, to OSF Saint James-John W. Albrecht Medical Center, which is licensed for 42 beds, both of which are in Illinois.  Altogether, Largent expects TEAM to cover about 800 episodes of care annually, roughly 85% of which will be at Saint Francis.

To prepare, a dedicated group of leaders will be assessing the hospital’s current performance on the five TEAM episodes to identify what needs to be improved. 

 “We have a very robust healthcare analytics team, and we rely on that team tremendously throughout all the value-based programs that we participate in,” Largent said.

 After completing the current-state assessment, the group will develop strategies to address the areas that need improvement and work with providers to make sure care coordination supports both efficiency and quality. It is a lot of work and all worthwhile, in Largent’s view. 

 “When we look at the ever-increasing cost of delivering healthcare and the need for increased capacity and access to care, moving to value-based care is essential for us as a healthcare industry,” she said.

Why TEAM is significant

Because TEAM is an important part of this move to value, all hospital financial leaders should be paying attention to its requirements and consequences, even if their hospitals are not mandated to participate in the initiative.

Healthcare continues to account for a whopping 18% of the economy, so improving the value, cost and quality of care delivery must be everyone’s priority, Gundling said.

 “Employers and others have shown that healthcare costs keep rising, and we know CMS is not going to give up on value-based care,” he said. “So I think to stick our head in the sand and pretend it will go away is foolhardy. None of us have the answers, but as healthcare leaders, we have to say, ‘We are going to try.’” 

---

About TEAM: How it works and who is involved

Hospitals participating in the Transforming Episode Accountability Model (TEAM) will be financially responsible for the cost and quality of care for five procedures — from surgery through 30 days after discharge. The procedures are:

• Lower extremity joint replacements
• Surgical hip femur fracture treatments
• Spinal fusions
• Coronary artery bypass grafts
• Major bowel procedures

Here is a summary of key details of TEAM.

Patients undergoing the identified procedures. The model targets patients with Medicare fee-for-service as primary payer who are not enrolled in any Medicare managed care plan.

Duration. A five-year test of TEAM will run from Jan. 1, 2026, to Dec. 31, 2030.

Hospital participants. Participation is mandated for 741 hospitals in specific, randomly selected geographic locations. Hospitals already participating in either the Comprehensive Care for Joint Replacement model (until it ends Dec 31, 2024) or the Bundled Payment for Care Improvement- Advanced model (until it ends Dec. 31, 2025) can volunteer for TEAM by notifying CMS in January 2025. TEAM does not apply to critical access hospitals.

Payment. TEAM participants can earn a payment from or be required to repay CMS based on their quality and financial performance.

Participants will receive a target price to cover Medicare Parts A and B components of the episode of care, including surgery, inpatient or outpatient stay, and post-discharge care such as a skilled nursing facility stay, home health and follow-up provider visits. Target prices will be risk-adjusted to reflect beneficiary and hospital factors.

The first baseline period for setting target prices will include episodes from the start of 2022 through the end of 2024. The target price will include a discount between 1.5% and 2%, depending on the procedure.

All TEAM participants are eligible for an upside-only financial incentive to demonstrate improved performance in year 1, and most hospitals will enter two-sided risk in the following years.

Participants will be notified each year in November of the next year’s target price starting points. Adjustments from those will establish individual patient-specific targets.

Coordination with primary care. Patients receiving care from providers in an accountable care organization will be in an episode if they undergo one of the TEAM surgeries at a hospital that is participating in TEAM. The initiative requires hospitals to refer patients to primary care services.

Footnotes

a. CMS.gov, “Transforming Episode Accountability Model (TEAM),” Page accessed Nov. 6, 2024.
b. Compared with BPCI, BPCI-Advanced includes more clinical episodes, involves a wider view of the care episode (with a duration for all episodes that consists of the anchor stay plus 90 days), and has a higher level of risk for participants.

---

Success factors: What to do now

In the past, many health systems tiptoed into bundled payment initiatives, trying to gain experience incrementally by participating with just one or two care episodes. With just a sliver of the system’s revenue at stake in bundles, leaders remained focused on bigger parts of the revenue stream.

“It was hard to manage bundles as an off-the-side-of-the-desk kind of thing,” said Richard Gundling, senior vice president of professional practice for HFMA. “They didn’t have a tipping point where it made sense to really dedicate resources to it.”

Hospitals mandated to participate in the Transforming Episode Accountability Model (TEAM) should not make that mistake.

“They should have a dedicated internal team devoted to internal coordination, working with the specialists, working with the post-care providers and all other elements needed to succeed,” Gundling said.

Four other tasks top the to-do list.

1 Figure out early how you are performing. “If TEAM were in place in a recent historical period of time, how would you have performed?” said Michael Wolford, a principal at Forvis Mazars. “Would you be making money or losing money? How would you perform against benchmarks or peers?”

Start by gathering and analyzing the baseline Medicare claims data for TEAM episodes. This process includes calculating the regional target prices for each episode, adjusted for patient- and facility-specific characteristics and the actual Medicare spending per 30-day episode so you understand your risk exposure and identify opportunities to re-engineer care.

2 Identify the specialists you will be working with and consider collaborating with them in financial arrangements. Successful financial arrangements will support the surgeons’ practice and give them an incentive to help the hospital increase efficiency and improve outcomes, Wolford said.

OSF HealthCare CFO Kirsten Largent, CPA, said: “The key for us has always been to bring our provider partners in early in the discussions so they are part of developing the plan and identifying the metrics that we’ll use for success. So it’s not something that we are doing and handing to them, but rather it is truly a partnership that we build together.”

3 Figure out how to optimize care, including for the 30-day period after a patient is discharged. If hospitals’ experience in TEAM follows that in CMS’s other bundled payment programs, the initial post-discharge care site will be the best opportunity for savings.

“You’ve got a whole year to create post-acute strategies for skilled nursing, home health and inpatient rehab and do a whole bunch of plan/do/study/act [PDSA] activities,” Wolford said.

4 Prepare to monitor your performance. “We will create some robust and ongoing monitoring tools, so we don’t lose sight of how we are performing and the need to keep our focus on our areas of improvement,” Largent said.

---

What surgeons need for TEAM success

Hospitals’ alignment with specialists in the Transforming Episode Accountability Model (TEAM) is about much more than financial arrangements.

“If you are worried about losing surgeons under this model, then I think helping them to be successful in it is going to be the best way to attract and keep them,” said Karl Koenig, MD, executive director of the Musculoskeletal Institute at the University of Texas in Austin and chair of the Health Care Systems Committee for the American Academy of Orthopedic Surgeons.

Koenig, an orthopedic surgeon who specializes in hip and knee replacements, outlined three priorities.

1 Data analytics. Surgeons need to know how they are performing so they know how to improve. Koenig’s performance is reported on a surgeon value scorecard that allows him to know, among other things, how his cost of performing surgery and his patient readmission rate compare with his colleagues’ costs in the community.

“Hospitals that do well with data reporting in a real-time system are going to put surgeons in a better position to participate in models like this,” he said.

2 Preoperative optimization resources such as a “perioperative surgical home.” “Hospitals that have a clinic set up to help me prepare my patients — stopping nicotine, getting their weight down, improving their A1C prior to doing surgery — so that we deliver that surgery safely together are going to attract more surgeons,” Koenig said. “That is one of the most important things to be successful in these models.”

3 Protocols that support patient success. Hospitals should ask whether they have physical therapy available in the post-anesthesia care unit, for example, or whether case managers have the resources needed to make sure that patients who require a rehabilitation facility after discharge get placed quickly.