Impacts of CMS’ updated TEAM methodology

On Aug. 4, CMS published the fiscal year (FY) 2027 Inpatient Prospective System (IPPS) final rule in the Federal Register, finalizing several methodology updates to the Transforming Episode Accountability Model (TEAM).

The finalized changes affect 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 changes adopted from the FY 2027 CMS proposed rule under IPPS and LTCH PPS, explains how they will work and highlights what hospitals should understand as CMS moves forward.

1. Addition of MS-DRGs in the spinal fusion episode category

CMS is adding three newly defined Medicare Severity Diagnosis Related Groups (MS-DRGs) to the 13 MS-DRGs and five Current Procedural Terminology (CPT) codes that can initiate an episode under the spinal fusion episode category. CMS created these new MS-DRGs (523-525) to improve the capture of beneficiary acuity and resource utilization for extensive fusion or complex spinal fusion procedures.

Episodes will begin triggering under these new codes starting Oct. 1, 2026. Any episodes initiated in the last quarter of performance year (PY) 1 will be mapped back to the FY 2026 MS-DRG for purposes of reconciliation. The new MS-DRGs will have distinct target prices beginning in PY 2.

2. Changes to episode attribution due to interaction with CJR‑X

As part of the FY 2027 IPPS rule, CMS finalized national expansion of the Comprehensive Care for Joint Replacement (CJR) model, called CJR Expanded (CJR-X), including mandatory participation in 90-day lower extremity joint replacement episodes of care for over 2,000 acute care hospitals across the country beginning Jan. 1, 2028. TEAM participants are prevented from being CJR-X participants until TEAM expires on Dec. 31, 2030.

CMS finalized 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.

3. Measurement performance periods for new PY 2 TEAM quality measures

CMS defined 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 PY 2:

• Hospital Harm – Falls with Injury;

• Hospital Harm – Postoperative Respiratory Failure; and

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

CMS finalized a one-year (Jan. 1 to Dec. 31) rolling measurement performance period for:

• Hospital Harm – Falls with Injury; and

• Hospital Harm – Postoperative Respiratory Failure.

CMS finalized a two-year rolling (July 1 to June 30) measurement performance period for:

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

Alignment of measurement performance periods in TEAM with other CMS quality reporting programs will reduce confusion for participants. The finalized quality measurement performance periods for each PY can be found in Table X.A.-02 of the FY 2027 IPPS final rule.

4. Adjustments to the construction of the composite quality score (CQS) baseline period

CMS is adopting two changes related to the CQS baseline period. First, moving from fixed baseline periods to concurrent (not sliding) baseline periods. CMS believes that a concurrent CQS baseline period methodology will best reflect up-to-date standards of quality performance and provide incentive for participants to continue to improve their quality of care throughout the model. While CMS considered adopting a sliding CQS baseline period methodology, it ultimately was not chosen because the baselines would be using historical rather than contemporaneous performance data.

Secondly, CMS will align baseline periods with the CMS hospital reporting program timeframes for measures not currently aligned beginning with PY 1. This was adopted to improve consistency and reduce confusion across programs, and to allow CMS to leverage existing data infrastructure and more timely results for appliable CQS calculations. Finalized concurrent measurement periods and CQS baseline periods for each TEAM PY can be found in Table X.A.-03 of the FY 27 IPPS final rule.

5. 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. Resulting payment differences may not be sufficiently captured by the capped retrospective trend factor in TEAM calculated during reconciliation.

To mitigate this issue, CMS will implement an MS-DRG update factor and an APC update factor in final target price calculations, beginning with PY 1. These update factors will be calculated at the MS-DRG/HCPCS episode type and region level and will be applied as a multiplier to the prospective trend factor. For PY 1, participants should anticipate both sets of update factors to be released in 2026 quarter 4. In future PYs, APC update factors will be released in Q1 and MS-DRG update factors will be released in Q4.

In addition, when there are fiscal year MS-DRG definition changes (such as for the new spinal fusion MS-DRGs), episodes with anchor end dates in the fourth quarter of the performance year will be mapped back to the MS-DRG, reflective of the first FY of the PY. These episodes will receive reconciliation target prices reflective of the first FY of the PY.

6. Proposed updates to prospective normalization factor calculation

In the FY 2026 IPPS final rule, CMS finalized a policy for the TEAM normalization factor to be calculated at the MS-DRG/HCPCS and region level using the most recent baseline year only. In FY 2027 IPPS rulemaking, CMS stated concern 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 is adopting a policy 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. Note, PY 1 reconciliation will still use a normalization factor calculated from the most recent baseline year only.

As part of FY 2027 IPPS rulemaking, CMS issued a Request for Information (RFI) on the following two topics related to TEAM.

A. 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.

Through this RFI CMS gathered public input on parameters that should be considered if ASCs were to be incorporated into TEAM through rulemaking. In the final rule, CMS noted that it is conducting an in-depth review of all comments received.

B. 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.

Through this RFI CMS sought feedback on whether POHs should be allowed to opt in, potential waivers to ensure successful participation and other program integrity concerns. Based on the information received, CMS plans to propose a policy in future rulemaking for POHs to participate in TEAM, believing that it will promote greater choice and competition.

What comes next for TEAM participants

The policies CMS adopted in the FY 2027 IPPS final rule will go into effect for TEAM as indicated by CMS. Additional TEAM updates may happen in the next rulemaking cycle, in the FY 2028 IPPS proposed rule, anticipated in April 2027. Contact DataGen to learn more about how we can support your hospital in TEAM.