Hospitals can use 2026 to prepare for CMS TEAM bundled payment risk

In what amounts to a dress-rehearsal year, hospitals participating in CMS’s mandatory Transforming Episode Accountability Model (TEAM) should take the opportunity to prepare for the high stakes that loom.

TEAM, a five-year bundled payment model that is obligatory for nearly 750 hospitals in 188 selected markets, is upside-only in its first year. The ante rises starting in 2027, when up to 20% of a hospital’s designated target reimbursement is at risk in the five covered procedures.

“It’s a lot of money,” said Michael Wolford, principal with Forvis Mazars. “It’s enough to get a financial executive’s attention.”

Benchmarking changes may reduce the ‘ratchet effect’

Issues around benchmarking have presented a conundrum to participants in other bundled payment models but may pose less of a concern in TEAM.

The ratchet effect, by which early improvement increases the difficulty of meeting benchmarks in subsequent years because benchmarking is based on a provider’s performance, likely will be less prevalent in TEAM. That’s because the model uses the participant’s entire region as the basis for the benchmark.

“There is no starting too early from a lowering-your-target-price perspective,” said Stephen Kitterman, managing director with Forvis Mazars. “The rest of your region is going to do that if you don’t.”

Nonetheless, organizations have some control over their benchmarks, and much of that hinges on accurate documentation. If severity is under-documented, hospitals may receive lower benchmarks, in turn shrinking their potential margin.

“When the prehospitalization care and the hospitalization care itself isn’t documented to the highest and best [level], then your budget shrinks,” Wolford said. “I wouldn’t say it’s a huge problem, but it is essentially like the hidden part of the profit equation in bundled payments.”

Most organizations focus on controlling spending in models such as TEAM, but not as many seek to ensure that their risk-adjusted target prices reflect true patient complexity.

“Having accurate patient-case-mix-adjusted target prices is arguably the most important part that a lot of organizations don’t do,” Wolford said.

Episode-level data Is essential for operational improvement

While the financial parameters drew most of the attention among prospective participants when TEAM was announced, operational details have proven to be confounding aspects of the model.

CMS sent hospitals their historical claims data for the five episode categories, including a comparison to the anticipated target price at the DRG level. Converting this data into operational improvement strategies has been difficult, said Angie Caldwell, principal and CFO with PYA, P.C.

A worthwhile strategy is to look beyond DRGs and drill down to individual patient episodes as a way to gauge the circumstances that commonly drive high costs, Caldwell said.

For example, clinical management will strongly influence TEAM performance. Key decisions include whether procedures take place in an inpatient venue instead of on an outpatient basis, and the setting to which a patient is discharged.

“We’re getting right down even to the physician decision-making level that’s driving some of the cost within the episode,” Caldwell said. “That’s a big change.”

The 30-day post-discharge period should be another area of focus, she added, since optimal coordination during this window can reduce expensive downstream care. Hospitals should analyze post-discharge utilization patterns, care transitions, follow-up visits, and complications and readmissions.

Operational requirements present new challenges

One of the biggest challenges with TEAM is mandatory referral back to primary care after a patient leaves the hospital. The concept is “awesome” from a patient perspective, Wolford said, but “it’s just been more challenging than a lot of people thought — to put that into motion.”

Fuzzy details about the requirement include what exactly counts as a primary care referral, the timeline for making the referral, and which clinicians qualify as a primary care provider (PCP). The issue becomes more complicated when patients say they do not have a PCP.

A stumbling block that may arise earlier in a TEAM episode is the lack of a precise crosswalk between clinical workflows and DRG-based billing constructs, Kitterman noted. That disconnect can make patient attribution trickier in the model.

“That’s causing a little bit of an issue in that people want to identify these patients really early, get them with a care team, start that care navigation, that discharge planning,” Kitterman said. “But making sure they’ve got the right patients and they know who’s going to be attributed so they can do that is proving to be a bit of a challenge.”

Rural hospitals face distinct operational constraints

Rural providers may face difficulty with post-acute care coordination, given general access issues in rural areas, Kitterman noted. A partial hedge for rural hospitals is the option to stay in a lower-risk track in 2027 and beyond, with 5% of revenue at risk for the covered procedures.

With respect to data analysis, rural hospitals should take the additional step of ensuring they meet the volume requirements for the five episodes. If they fall short of the threshold for any, the episode will not factor into their TEAM performance, Caldwell noted.

“That would be a key criteria for where they focus their time, for optimizing their care under TEAM,” she said.

Hospitals should treat 2026 as a testing year

 In the nine-plus months remaining in 2026, hospitals should test workflows, analyze episode data and identify operational gaps.

“Anybody that chooses to use this year as a testing year, [that’s] a really good idea,” Wolford said. “Those that choose to ignore TEAM in 2026 and just pick it up in 2027 are missing out on a potentially really valuable opportunity to get some experience and work out the kinks before the risks start.”