Mandatory TEAM participation includes several of the largest metropolitan CBSAs, with 109 hospitals in the New York–Newark–Jersey City CBSA alone, while most CBSAs include only one or two participating hospitals.
Operating margins among TEAM hospitals vary by more than 190 percentage points, ranging from -110.6% to 79.5%, with a median of 15.5%.
Thirty-day readmission rates span 11.7% to 18.2%, with a median of 14.9%.
On January 1, the Transforming Episode Accountability Model (TEAM) commenced, representing the most consequential action from CMS since the introduction of diagnostic-related groups (DRGs) in 1983. Unlike prior voluntary models, TEAM is expressly designed to accelerate hospitals’ transition away from fee-for-service reimbursement. As a result, each participating hospital’s baseline financial health and operational efficiency will meaningfully influence their ability to succeed under the model.
TEAM is a mandatory, episode-based alternative payment model (APM) developed by the CMS Innovation Center (CMMI) to improve care coordination and cost efficiency for Traditional Medicare beneficiaries undergoing specific high volume, high cost – and usually profitable - surgical procedures. Implemented across 186 Core-Based Statistical Areas (CBSAs), which capture roughly 25% of Medicare beneficiaries, TEAM holds participating acute care hospitals accountable for the cost and quality of care from surgery through the first 30 days after discharge, regardless of where the care takes place (Figure 1). The model was proposed and finalized as part of the FY 2025 Inpatient Prospective Payment and will run through December 31, 2030.
Certain hospitals will be excluded from TEAM for a variety of reasons, including critical access hospital (CAH) status, being located in Maryland (due to its statewide payment model) and tribal hospital status.3 Prior to each Performance Year (PY), CMS will identify which hospitals will be excluded based upon certain hospital characteristics, including safety net hospitals, Medicare Dependent Hospitals (MDHs), Sole Community Hospitals (SCHs) and Essential Access Community Hospitals (EACHs).
The procedures included in TEAM are lower extremity joint replacement (LEJR), coronary artery bypass graft (CABG), spinal fusion, surgical hip/femur fracture treatment (SHFFT) and major bowel procedures, which together accounted for nearly 900,000 inpatient and outpatient surgeries in 2022, totaling approximately $18B in Medicare payments.4 While outpatient procedures are included in LEJRs and spinal fusions, the other three surgeries are limited to inpatient settings.
Under TEAM, CBSAs are allocated into one of nine geographic regions, and CMS has established target prices for each region for each DRG episode to account for case-mix differences across hospitals. TEAM financially rewards – or recoups from - hospitals based upon the actual surgical care episode compared to the relevant target price. While there are no minimum quality thresholds (e.g., readmission rates) that hospitals must meet to receive payment, quality performance adjusts the size of the payment, based on episode-level cost performance relative to the target price.
TEAM includes three participation tracks with different levels of financial risk and reward. Track 1 has no downside risk, meaning hospitals are not required to repay CMS if episode costs exceed the target price, but upside risk is capped at 10% during the first year. Safety net hospitals are eligible to remain in Track 1 for PY 1 through 3, contingent on timely annual track selection. Track 2 introduces two-sided risk, with stop-gain and stop-loss limits of 5%. Positive reconciliation amounts are adjusted for quality performance by up to 10%, while negative reconciliation amounts are adjusted by up to 15%, reducing repayment obligations. Track 3 has the highest level of financial risk and reward and is required for hospitals that do not qualify for safety net or rural-specific participation pathways. Hospitals in Track 3 are subject to stop-gain and stop-loss limits of 20%, with both positive and negative reconciliation amounts adjusted for quality performance by up to 10%. While most hospitals entered TEAM under one-sided risk in PY 1, all mandatory TEAM participants will assume downside risk through Track 2 or Track 3 on January 1, 2027, unless otherwise excluded based on safety net or other specific designations.
Given that TEAM is a mandatory model and it emphasizes both cost and quality performance, this analysis examines baseline financial, operational quality characteristics of participating hospitals.
Leveraging hospital-reported data from CMS, the Agency for Healthcare Research and Quality and the National Academy for State Health Policy, demographic, operational and quality data were analyzed for the 724 U.S. hospitals that are subject to the TEAM model, as of January 2026.
In total, 724 hospitals across 45 states and territories are participating in the TEAM model. CMS used a stratified random sampling methodology to select the CBSAs included in the mandatory TEAM model. State-level participation ranges from one hospital in several states (e.g., Idaho, Michigan, Montana, Nevada and South Dakota) to 107 hospitals in California (Figure 2). The median number of participating hospitals per state is nine, while the average is approximately 16 hospitals per state.
Mandatory TEAM participation includes some of the largest metropolitan CBSAs. The New York-Newark-Jersey City CBSA alone has 109 hospitals participating in TEAM, exceeding total participation in most states (Figure 2). Other high-concentration markets include San Francisco-Oakland-Fremont (37 hospitals), Boston-Cambridge-Newton (35 hospitals), Riverside-San Bernardino-Ontario (30 hospitals) and Washington-Arlington-Alexandria (22 hospitals). Beyond these large metros, most CBSAs have either one or two TEAM hospitals.
The operational characteristics and performance metrics among TEAM hospitals vary widely. The health systems with the most hospitals required to participate in TEAM include HCA Healthcare (34 hospitals), CommonSpirit Health (19 hospitals), Kaiser Permanente (18 hospitals) and Lifepoint Health (16 hospitals). Just over half (51.5%) of hospitals are teaching hospitals, while 21.4% are major teaching hospitals (Figure 3). Inpatient occupancy ranges from 3.3%to 106.6%, with a median of 61.8%. Net patient revenue at TEAM hospitals varies by nearly 1,000x, ranging from $10.3M to $10.1B, with a median of $294.4M. As TEAM covers only Traditional Medicare beneficiaries, hospitals with a higher percentage of Traditional Medicare have a higher risk under the program. In 2024, Traditional Medicare payer mix ranged from as low as 10.1% to 53.0%.
Thirty-day readmission rates among TEAM hospitals show narrow but meaningful variation, ranging from 11.7% to 18.2%, with a median of 14.9% (Figure 5). Nationally, the median is 15.0%. Hospital-level quality performance is a crucial factor in calculating reconciliation payments.
Unlike prior voluntary episode-based CMS and CMMI models, TEAM’s mandatory design is potentially transformative in many ways. TEAM’s implementation also overlaps with other Federal healthcare policy changes, including the phased removal of procedures from the Medicare Inpatient Only (IPO) list and growing policy momentum toward site-neutral payment reforms.
The longstanding migration of surgeries from inpatient settings to hospital outpatient departments and ambulatory surgery centers has resulted in health systems performing fewer high-margin inpatient surgeries, particularly for younger, commercially insured patients. With changes to CMS’s IPO list on January 1, it is likely that trend will accelerate with respect to younger and/or healthier Medicare beneficiaries.
Simultaneously, on January 1, TEAM effectively delegated financial risk to hospitals for Traditional Medicare beneficiaries for the mandated surgical episodes. As of December 31, 2025, the reimbursement for a spinal fusion procedure performed on a Traditional Medicare beneficiary by a hospital in New York City was a DRG payment calculated primarily on the average length of an inpatient stay for that procedure. As of January 1, the same hospital will be reimbursed for the same procedure based on the total cost of care for the Traditional Medicare beneficiary during the inpatient stay and the care occurring 30 days post-discharge, regardless of where the care is rendered.
The longstanding migration of surgical cases from inpatient to outpatient settings has reduced opportunities for financial cross-subsidization by hospitals. Historically, changes to the IPO list have led hospitals to perform fewer inpatient surgical cases on patients with higher clinical acuity. For hospitals now participating in TEAM, the decreasing volume of inpatient surgeries for Traditional Medicare beneficiaries that will likely result from recent changes to the IPO list will be compounded by being forced to take financial risk on a smaller number of more complex Traditional Medicare beneficiaries (i.e., adverse selection).
The mandatory aspect of TEAM is designed to – and does – eliminate the inherent selection bias in voluntary APMs, where organizations with stronger baseline performance or greater confidence in their ability to succeed are more likely to participate. Mandatory participation should enable more rigorous assessment of the model’s effects on cost and quality across a more representative cross-section of hospitals.
For hospitals mandated to participate in TEAM, the variance in their financial profiles is stark, and the seemingly smaller variance in readmission rates could increase that variance. Hospitals with limited or negative operating margins likely have fewer resources to invest in care coordination, analytics and post-acute partnerships. At the same time, most hospitals lack real-time visibility into where patients receive care during the 30-day post-discharge window, constraining their ability to manage utilization and prevent readmissions.
Success under TEAM will require the same sort of operational transformation as the introduction of DRGs, and there are very few executives who experienced or understand either the extent of that disruption or the leadership required to effectuate it.