On July 31, the Centers for Medicare and Medicaid Services (CMS) finalized updates to the Transforming Episode Accountability Model (TEAM) in the federal fiscal year 2026 Inpatient Prospective Payment System (IPPS) final rule.
TEAM, a mandatory Medicare bundled payment initiative launching Jan. 1, 2026, was first introduced in the FFY 2025 IPPS proposed rule. 745 hospitals will advance into TEAM in the beginning of the year – 735 hospitals located in a Core-Based Statistical Area (CBSA) chosen for mandatory participation and 10 hospitals that have voluntarily opted into the model.
Earlier this year, CMS proposed changes to TEAM and sought feedback from hospitals, associations and other stakeholders. The final rule now cements those updates — changes that will directly impact TEAM participation requirements, quality measurement, payment methodologies and care delivery strategies. Any future model changes will go through the same rulemaking process.
Key TEAM policy updates
Participation requirements
Limited deferment period available for certain hospitals: New hospitals that open in a mandatory CBSA and hospitals that begin to meet the definition of a TEAM participant after Dec. 31, 2024, will have at least one full performance year of deferment before being required to participate. This policy allows newly qualifying hospitals additional time to prepare for TEAM. CMS will also monitor for the potential shifting of patients with high anticipated episode spending from TEAM participant to non-participant hospitals.
Track 2 eligibility for Medicare Dependent Hospitals (MDHs) tied to MDH program expiration: TEAM participants classified as MDHs will remain eligible for Track 2 participation as long as the MDH program is active at the time CMS requires participants to submit their track selection for the upcoming performance year. If the MDH program is not extended by Congress, 84% of TEAM participants identified as MDHs will still meet Track 2 eligibility based on other criteria.
Indian Health Services (IHS) and Tribal hospitals excluded from TEAM: IHS and tribal hospitals are not paid under the Outpatient PPS, creating a challenge for CMS to calculate accurate and fair target prices for these hospitals. The TEAM participant definition now states that a TEAM participant must be paid under both the IPPS and OPPS.
Quality measurement changes
New Information Transfer Patient Reported Outcome-based Performance Measure (Information Transfer PRO-PM) added for outpatient episodes starting in Performance Year (PY) 3 with a Calendar Year (CY) 2027 CQS baseline period: This measure was added to capture care in the outpatient setting for the two-episode categories in TEAM that include episodes initiated in the hospital outpatient setting. CMS has indicated an interest in considering the addition of other PRO-PMs in the future.
Neutral quality measure score for participants with insufficient quality data: This provision applies to participants with no or an incomplete raw quality measure score for a given quality measure so that they can still be calculated a fair Composite Quality Score (CQS).
A proposal to change the Hybrid Hospital-Wide Readmission (HWR) measure to align with the Hospital Inpatient Quality Reporting Program was not adopted: Therefore, CY 2025 will be used for the PY1 CQS baseline period and July 1, 2024 - June 30, 2025 will be used as the measure performance period for the Hybrid HWR measure. In addition, the claims-only portion of the Hybrid HWR measure will be used in the CQS calculation for PY1. CMS will consider using the complete measure in future performance years after the core clinical data elements transition to required reporting.
Pricing and payment methodology adjustments
Inclusion of U.S. territories in Census Division 9: The only CBSA in a U.S. Territory selected for TEAM participation is Aguadilla, Puerto Rico. Hospitals located in this CBSA will have target prices based on the Pacific region.
New target price methodology to account for coding changes: When new MS-DRGs and HCPCS codes are created in the future, potentially impacting the five-episode categories included in TEAM, this methodology will serve as the basis to remap baseline episodes and calculate target prices.
Reconstruction of the normalization factor: The normalization factor will now be calculated at the MS-DRG/HCPCS episode type and region level using benchmark prices. CMS will now share preliminary target prices that are region-specific and TEAM participant-specific before applying the factor. Changes made to the calculation will preserve effects of trend and discount factors and improve regional accuracy.
Reconstruction of the prospective trend factor: Numerous changes will improve the prospective trend factor’s statistical accuracy, including use of a log-linear regression model to capture annual changes in regional spending by episode type, inclusion of two years prior to the baseline period, using an average of regional and national trends to reduce the impact of short-term fluctuations and applying the high-cost outlier cap to episodes in trend years in addition to each baseline year.
Area Deprivation Index (ADI) replaced with the Community Deprivation Index (CDI): Though ADI is commonly used, there are concerns about its methodology and it has been found to inadequately capture deprivation in urban areas. CDI standardizes deprivation factors and is a more up-to-date alternative.
180-day lookback period and HCC version 28 used for beneficiary risk adjustment: A 180-day lookback period aligns with the BPCIA’s methodology and modestly increases target price accuracy in comparison to a 90-day lookback period. This lookback period will also be extended to episode-level exclusions. The use of HCC version 28 increases the number of HCC risk adjusters per episode category.
No downside risk in an episode category if the baseline period volume is fewer than 31 episodes: Previously, CMS had not proposed a low volume policy, making this provision one of the most significant updates for TEAM to protect participants from potential financial harm. Low volume for episode categories will be reassessed prior to each performance year using the updated baseline period.
Date range alignment for episode attribution: All episodes will be attributed using the anchor hospitalization or anchor procedure discharge date. This creates consistency across the baseline, performance year and reconciliation.
A policy to convert standardized dollars to real dollars was not adopted: Though CMS expressed dissatisfaction with conversion methods used in prior models in the proposed rule, the agency is unconvinced that any changes to the calculation of target prices, reconciliation amounts and post-episode spending amounts should be made from standardized dollars. This means that reconciliation amounts will not reflect regional variations in the cost of delivering care and will therefore remain an important advocacy issue related to this model.
Care delivery modifications
Removal of health equity reporting requirements: Health Equity Plans will be removed from TEAM as will voluntary reporting of Social Drivers of Health screening results. This change is consistent with the priorities of the administration.
Mandatory referral to an established primary care provider recorded at admission: An established supplier of primary care services should be recorded on admission to the hospital. If it is not, then the hospital must include a referral to a supplier of primary care services in the hospital discharge planning for the beneficiary on or prior to discharge from the hospital.
Expansion of Skilled Nursing Facility (SNF) 3-Day Rule Waiver to include swing bed arrangements: This provision provides greater flexibility for care coordination and aligns with the Medicare Shared Savings Program.
Removal of the Decarbonization and Resilience Initiative: TEAM participants may address their own decarbonization efforts without interference from the government, consistent with the priorities of the current administration.
Preparing for TEAM participation
The TEAM final rule alters the risk landscape for hospitals. Understanding how the TEAM payment methodology changes and quality measurement updates affect your facility is critical. Strategic preparation can help mitigate TEAM financial risk while positioning your hospital to achieve stronger performance metrics.
DataGen offers three essential resources to guide your readiness:
CMS TEAM Model Financial Risk Guide: Gain an in-depth understanding of potential risk exposure and strategies to protect your margins.
CMS TEAM Model Readiness Checklist: Identify gaps in your TEAM preparation.
Why Hospitals Should Use Simulated TEAM Episodes of Care: Stress-test your assumptions and operational workflows before go-live.
The bottom line
TEAM updates finalized in July require swift hospital action. With the model’s launch date set for Jan. 1, 2026, proactive readiness planning will determine which hospitals succeed in this new Medicare bundled payment environment. Learn more about DataGen's TEAM solution.
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