FY 2027 CMS proposed rule: TEAM methodology updates under the IPPS and LTCH PPS

Impacts of CMS’ updated TEAM methodology

On April 10, CMS released the Fiscal Year (FY) 2027 Inpatient Prospective System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) proposed rule, introducing several methodology updates to the Transforming Episode Accountability Model (TEAM).

The proposal outlines changes affecting episode specifications, quality measurement and target price methodology, each with meaningful financial and operational implications for current TEAM participants. This post breaks down the key TEAM‑related proposals, explains how they would work if finalized and highlights what hospitals should understand as CMS moves toward finalizing the rule.

Proposed addition of MS-DRGs in the spinal fusion episode category

CMS proposes adding three newly defined Medicare Severity Diagnosis Related Groups (MS‑DRGs) to the spinal fusion episode category. CMS proposed creating these new MS-DRGs in this rule to improve the capture of beneficiary acuity and resource utilization for extensive fusion or complex spinal fusion procedures. If finalized, episodes would begin triggering under these codes starting Oct. 1, 2026. Currently, 13 MS‑DRGs and five Current Procedural Terminology (CPT) codes can initiate an episode under the spinal fusion episode category.

Proposed changes to episode attribution due to interaction with CJR‑X

As part of the FY 2027 rule, CMS proposes a national expansion of the Comprehensive Care for Joint Replacement (CJR) model, to be called CJR Expanded (CJR-X), including mandatory participation in 90-day lower extremity joint replacement episodes of care.

TEAM participants are prevented from being CJR-X participants until TEAM expires on Dec. 31, 2030. In addition, CMS proposes specific guardrails to prevent overlapping episode attribution between TEAM and CJR‑X during episode post‑discharge windows.

For example, if a beneficiary is in a CJR-X episode and has an initiating TEAM procedure at a TEAM hospital during the CJR-X post-discharge time period, a TEAM episode of care will not be initiated and the procedure will be included as part of the CJR-X episode spend. Likewise, if a beneficiary is in a TEAM episode, a CJR-X episode cannot be initiated during the TEAM post-discharge period and the procedure will be included as part of the TEAM episode spend.

Proposed measurement performance periods for new PY 2 TEAM quality measures

CMS proposes defining measurement performance periods for three previously finalized TEAM quality measures, aligning them with other CMS hospital quality programs. In prior rule making, three quality measures were finalized to become effective beginning in performance year (PY) 2:

• Hospital Harm – Falls with Injury;

• Hospital Harm – Postoperative Respiratory Failure; and
• Thirty-day Risk – Standardized Death Rate among Surgical Inpatients with Complications.

This proposed rule seeks to establish the measurement performance period that will be used for each measure in TEAM.

CMS proposes a one-calendar year measurement performance period for:

• Hospital Harm – Falls with Injury; and
• Hospital Harm – Postoperative Respiratory Failure.

CMS proposes a two-year rolling measurement performance period for:

• Thirty-day Risk – Standardized Death Rate among Surgical Inpatients with Complications.

Proposed adjustments to the construction of the composite quality score (CQS) baseline period

CMS proposed two changes related to the CQS baseline period:

• Moving from fixed baseline periods to a sliding historical baseline methodology: CMS would calculate baselines using a rolling timeframe of historical data that updates annually and reflects improvements in care delivery.

• Aligning baseline periods with the CMS hospital reporting program timeframes for measures not currently aligned: This alignment is proposed to improve consistency and reduce confusion across programs. Additionally, it would allow CMS to leverage existing data infrastructure and more timely results for appliable CQS calculations. The alignment would begin in PY 1.

Proposed updates to target price construction to reflect MS‑DRG and APC changes

Due to the variation in timing for MS-DRG and Healthcare Common Procedure Coding System (HCPCS) Ambulatory Payment Classifications (APC) definitions and weights, and the release of TEAM preliminary target prices prior to the start of the PY, the prices do not reflect the most up-to-date information. In addition, the resulting payment differences may not be sufficiently captured by the capped retrospective trend factor calculated during reconciliation.

To mitigate this issue, CMS proposes implementing an MS-DRG update factor and an APC update factor in final target price calculations, beginning with PY 1. These update factors would be calculated at the MS-DRG/HCPCS episode type and region level and would be applied as a multiplier to the prospective trend factor. In addition, when there are fiscal year MS-DRG definition changes, episodes with anchor end dates in the fourth quarter of the performance year would be mapped back to the MS-DRG, reflective of the first fiscal year of the performance year. These episodes would receive reconciliation target prices reflective of the first fiscal year of the performance year.

Proposed updates to prospective normalization factor calculation

Currently, the normalization factor is calculated at the MS-DRG/HCPCS and region level using the most recent baseline year only. CMS is concerned that this does not fully reflect all baseline episodes used to create benchmark prices and does not consistently recenter risk-adjusted benchmark prices to the average of the total non-risk adjusted benchmark prices.

Beginning in PY 2, CMS proposes to calculate the prospective normalization factor using all applicable episodes in the three-year baseline period. This is expected to improve predictive accuracy and smooth potential short-term fluctuations.

In addition to these proposed changes, CMS issued a Request for Information on the following two topics related to TEAM.

1. Inclusion of ambulatory surgical center (ASC) episodes

CMS is exploring the possibility of including ASCs as participants in TEAM, beginning in PY 3 (calendar year 2028) at the earliest. Medicare began covering total knee arthroplasty procedures in the ASC setting in 2020. Since then, more procedures, including those that initiate episodes in TEAM, are performed in ASCs. However, compared to hospitals, there may be other challenges related to incorporating ASCs in TEAM related to payment policy, population differences, and impacts on the evaluation of TEAM. This RFI aims to gather public input on parameters that should be considered if ASCs were to be incorporated into TEAM through rulemaking.

2. Voluntary opt-in for hospitals with physician ownership

A physician-owned hospital (POH) is defined as a hospital in which a physician or immediate family member of a physician has an ownership or investment interest. Current laws to prevent physician self-referral put limits on the expansion of these hospitals. CMS is considering allowing POHs located in regions not selected for mandatory participation to voluntarily opt into TEAM due to studies showing evidence that POHs help control cost, maintain or improve outcomes, and prevent consolidation.

There are concerns, however, that inclusion of these hospitals could adversely impact TEAM’s evaluation, leading to biased savings results from voluntary self-selection. This RFI seeks feedback on whether POHs should be allowed to opt in, potential waivers to ensure successful participation and other program integrity concerns.

What comes next for TEAM participants

The proposed rule’s 60-day public comment period is open through June 9. DataGen anticipates release of the FY 2027 IPPS and LTCH final rule by Aug. 2. Contact DataGen to learn more about how we can support your hospital in TEAM.