New CMS model could slash provider earnings: researchers

A mandatory hospital payment model finalized in 2024 by the Centers for Medicare and Medicaid Services could make earnings uncertain for providers, researchers said.

Under the Transforming Episode Accountability Model, or TEAM, hospitals could lose out on an average of $500 per episode of care covered in the model, according to a December report from the Institute for Accountable Care. But the forecast results vary widely: Hospitals in the Minneapolis-St. Paul region could gain an average of $900 per episode of included care, the report said, while Denver providers stand to lose $1,300 per episode, on average. 

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Beginning in 2026, TEAM sets 30-day episode-based payments for lower-extremity joint replacements, femur fracture surgeries, spinal fusions, coronary artery bypass grafts and major bowel procedures. CMS will set bundled payments for these services based on regional benchmarks. In other words, hospitals will need to reduce spending for select care to a threshold set by their neighbors, or risk having to make up the difference.  

“It creates a really strong incentive" to manage costs, said Rob Mechanic, executive director of the Institute for Accountable Care, an independent nonprofit initially funded by the National Association of ACOs. On the flip side, he said, the regional benchmarks mean hospitals can significantly reduce their costs but still lose money.

The government selected 741 hospitals to participate in the five-year model, which gives safety-net hospitals extra time to prepare before taking on downside risk. Since the model is mandatory, hospitals can't opt out. Ambulatory surgical centers are not included. According to the IAC report, the covered services represent about 15% of Medicare revenue, on average, for participating hospitals.

CMS established TEAM with the goals of improving quality while lowering Medicare spending and reducing fragmented care. It finalized the model in its August hospital inpatient pay rule despite industry criticism, including concerns about a lack of information from the agency and the short implementation runway.

“As expected financial losses detailed in the report make clear, there are serious concerns with the new TEAM model and how it might hurt hospitals — particularly those serving vulnerable communities — and impact their ability to maintain access to essential services and continue caring for patients in need,” the Federation of American Hospitals said in an email.

The American Hospital Association and America’s Essential Hospitals declined to comment.

A spokesperson for CMS said the agency purposely designed TEAM to allow hospitals to ease into full financial risk participation, and noted that "target prices will be constructed to incentivize hospitals to better coordinate care and improve care transitions."

Mechanic said hospitals’ performance in TEAM is likely to vary significantly based on where they’re located, averaging a $500 per-episode loss if they don’t establish certain routines, such as coordinating with their surgeons and improving their post-acute care networks.

“To be successful, hospitals will have to ensure their surgical teams get it right the first time, invest in care transition support, and develop effective post-acute care management strategies," the report says.

Mark Miller, executive vice president of healthcare for Arnold Ventures — which provided funding for the report — said episodic models such as TEAM are a step toward reducing spending but don’t fully address care fragmentation in fee-for-service Medicare. Total-cost-of-care models, which would represent a more comprehensive payment overhaul, give providers more flexibility to determine whether certain procedures are necessary and reduce excessive care, he said.

Other experts expressed doubt about the IAC's projections.

Brian Fuller, a managing director in the consulting group ATI Advisory’s value-based care design and delivery practice, said mandatory models can drive providers to improve their performances and reduce costs, but he’s less convinced about the IAC's predicted fluctuations in earnings.

CMS hasn’t yet finalized a low-volume adjustment for the model and has set up a sizable array of measures that will help risk-adjust and normalize for acuity, so it’s not clear whether hospitals could be at risk of losing that kind of money, Fuller said.

The agency is planning to release information about the model over the next year, such as reconciliation, quality measurement, and data collection resources, the CMS spokesperson said. CMS will also offer upcoming webinars and office hours to help participants get set up, according to the spokesperson.

The shifting political landscape could also impact TEAM’s future, Fuller said. CMS notes in its final rule that more information on TEAM will be finalized in future rulemaking, a position that tasks President-elect Donald Trump’s CMS with figuring out the model’s trajectory.