Positioning Your Health System for Success in Medicare's Transforming Episode Accountability Model (TEAM) through Strategic Use of Value-Based Enterprises (VBEs)

On July 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the Inpatient Prospective Payment System (IPPS) Final Rule,[1] which marked an unprecedented step in the codification of value-based care reimbursement to hospitals through implementation of the Transforming Episode Accountability Model (TEAM). TEAM is the first mandatory bundled payment model exposing hospitals to 2-sided risk through shared savings or losses based on all costs associated with a surgical episode from the initial procedure through 30-days post-discharge.[2] TEAM is also agnostic to site of service, applying to both inpatient and ambulatory settings.

TEAM forces selected hospitals to become risk-bearing entities responsible for the full risk of savings or losses for all Medicare Part A and B services associated with five designated care episodes. InHealth developed a free TEAM Dashboard tool to help hospitals navigate the financial and operational challenges posed by TEAM.

Below is a summary of the key takeaways from this article:

TEAM Fundamentals

TEAM’s episode-based payment system is scheduled to run from January 1, 2026 to December 31, 2030.  Hospitals located in selected Metropolitan Statistical Areas (MSAs) are automatically enrolled (“mandatory participants”), while all other acute care hospitals may opt in during an application window.  As of August 2025, there were 734 mandatory participants and 10 voluntary participants in TEAM.  TEAM episodes begin with one of five anchor procedure categories—coronary artery bypass graft (CABG), lower extremity joint replacement (LEJR), major bowel procedure, surgical hip/femur fracture treatment (SHFFT), or spinal fusion—and include virtually all Part A and Part B spending for 30 days post discharge.  Under TEAM, a hospital receives the episodic payment and is responsible for distribution amongst all care contributors.

CMS establishes a target price for every episode, then applies a 1.5 to 2.0 percent decrease to the target price to build expected savings into the model.  The target price is risk-adjusted based on factors such as patient clinical/social risk and age, as well as hospital bed size and safety net status.   An annual reconciliation will compare actual episode spending with the target price, which is regionally-adjusted based on other facilities in the same Census Bureau Statistical Area.  In Track 1 (performance year 1 only), hospitals may earn a shared savings payment of up to 10% of total spending; for Track 2 shared savings are capped at 5% of total spending.  For Track 3 (to which all hospitals are assigned in 2027, unless they meet an exception), shared savings range up to 20% of total spending, while shared losses are capped at 20%.

Finally, shared losses and savings are subject to adjustment based on performance related to quality measures tied to readmission rates, adverse events, patient reported outcome measures (PROMs), and mortality rates.  The higher the performance on the quality measures, the greater the potential shared savings or diminishment of shared losses.  The table below summarizes the maximum potential shared savings bonus or shared loss decrease should a hospital achieve top quality scores:

Based on preliminary analyses, up to two thirds of hospitals are expected to generate losses on TEAM episodes.^[3]  This assessment is reflected in CMS’s actuarial analysis, which projects that TEAM will save Medicare approximately $368 million over the five performance years.^[4]  Given the potential financial impact of TEAM, hospitals that plan to succeed in TEAM must proactively understand the areas of savingsopportunity in the five episodes.

Cost Anatomy of the Episode

What’s included.  TEAM aggregates nearly all Medicare Part A and B services tied to the episode from the anchor hospitalization/outpatient procedure through 30 days post-discharge (with defined exclusions).^[5]  These costs include physician services, inpatient/outpatient hospital services, post-acute care (PAC) services (e.g., inpatient rehabilitation facility (IRF), skilled nursing facility (SNF), home health agency (HHA), and outpatient therapy (PT)), Part B drugs and biologicals, and durable medical equipment.

Cost Components of the Episode.  Costs typically accrue across the following major categories: (1) the inpatient facility stay or outpatient procedure, (2) physician professional fees, (3) PAC (IRF/SNF/HHA/PT), and (4) readmissions and emergency department use.  The image produced by the Institute for Accountable Care^[6] shown below summarizes the distribution of costs by episode component:

InHealth’s TEAM Dashboard provides healthcare leaders a convenient resource to evaluate the potential impact of TEAM based on historical Medicare claims.  You can search by facility or marketplace to identify TEAM financial and operational metrics.  For example, the TEAM Dashboard provides insight into historical Part A utilization and spending on the TEAM episodes for a particular facility or market, as shown in the screenshot below:

Furthermore, InHealth’s TEAM Dashboard provides insight into the potential for shared savings and losses associated with Part A spending by participation track, as shown below:

For example, in the image above, we estimated Medicare facility reimbursement of over $43 million associated with the TEAM episodes, which implies potential Track 3 shared savings of up to $9.5 million (assuming top performance in the Composite Quality Score) or losses of up to $8.7 million (assuming poor performance in the Composite Quality Score).

Key Care Pathways and Partners

Based on the design of the TEAM episodes, hospitals must identify high-value partners to ensure alignment with the dual goals of cost-effectiveness and high-quality care.  The list below identifies the key provider groups with whom hospitals must ensure a joint commitment to high value care.

• Anchor setting & surgeons.  Orthopedic surgeons, neurosurgeons, cardiothoracic surgeons, and general/colorectal surgeons performing the initiating episodes, along with their clinical support team (nursing staff, techs, and medical assistants).
• Hospital team.  Anesthesiologists, perioperative nursing, case management, and intensivists, when needed, execute enhanced recovery protocols, pain control, thromboembolism prophylaxis, and discharge planning aligned to TEAM’s primary care referral requirement at discharge.
• Post-acute network.  IRFs, SNFs, HHAs, PT, and long-term care hospitals deliver rehabilitation and monitoring during the 30-day episode window.  TEAM’s waivers (e.g., telehealth originating site and selected SNF “3-day” rule flexibilities) can support safe home-first strategies.  The patient home is allowed as an originating site for telehealth visits under TEAM and the SNF 3-day rule waiver waives the requirement for a 3-day inpatient hospital stay prior to a SNF admission.
• Community & primary care connectors.  PCPs, pharmacists, and social services are pivotal.  TEAM requires referral of beneficiaries to a primary care provider on or before discharge to strengthen longitudinal follow-up and address comorbidity management.  Transitional care services by physicians and advanced practice professionals are essential when moving between settings of care.
• Ancillary & technology vendors.  DME, imaging, and remote monitoring/e-navigation tools support recovery and can be provided alongside permissible “technology based” beneficiary incentives under TEAM.  These incentives allow hospitals to provide free or discounted in-kind tools to support recovery at home.  

Oftentimes, the key partners identified above are owned and operated independently from the hospital.  Accordingly, formalized contractual partnerships may be needed to distribute funds and drive success in TEAM.  To help hospitals understand the landscape of partner organizations, the TEAM Dashboard enables a listing of key PAC providers located within a hospital’s service area, while reporting on the historical performance on CMS quality measures of those providers.  For example, the image below presents the high-performing SNFs located in the service area of Cedars-Sinai Medical Center.

Identifying Sources of Low and High-Value Care

Given the magnitude of potential savings and losses, hospitals must develop a concentrated focus on managing costs and delivering high quality care.  This can be a daunting task, given the scope of services

Given the magnitude of potential savings and losses, hospitals must develop a concentrated focus on managing costs and delivering high quality care.  This can be a daunting task, given the scope of services associated with each episode.  Fortunately, an ample body of literature and prior provider experience help inform initial areas of opportunity.

Low Value Care.  Evidence from the CMS bundled payment models, such as Bundled Payments for Care Improvement - Advanced (BPCI-A) and Comprehensive Care for Joint Replacement (CJR), consistently shows that reductions in post-acute utilization‑ drive most savings—an important signal for TEAM participants, even with a shorter 30 day‑ episodic window.^[7]  Wider research from Medicare innovation models has identified additional drivers of excess spending.  These include surgical device selection and vendor variation in implant, biologics and other supply costs.  Furthermore, fragmented patient transitions (e.g., from surgeon team to PAC provider) have been observed to inflate spending and complicate recovery.^[8]

To help specific hospitals identify where to begin identifying low-value care, the TEAM Dashboard highlights the quality performance of hospitals using measures that will be pertinent to TEAM quality scoring.  The screenshot below shows a snapshot of the hospital quality measures, indicating that the facility below has room for improvement in knee/hip readmissions and complications, CABG mortality, and surgical site infections.

Value-Added Activities.  Given the observations of low-value care above, healthcare organizations have adopted effective strategies to mitigate excess spending.  The table below summarizes a few examples:

For research supporting the above strategies, refer to the linked resources published by the American Society of Anesthesiologists, JAMA Health Forum, and NYU Langone Health.

TEAM-Specific Considerations. In addition to the tactics above, TEAM hospitals must develop capabilities within the following quality domains:

• PROMs matter:  Hospitals must invest early in workflows to collect and submit the total hip/knee PROM at scale (pre‑op and post‑op windows), as it directly influences the quality score for the LEJR episode, which is the largest component of spending in TEAM.  The 2026 IPPS finalized the addition of the information transfer PROM (starting in performance year 3), which requires hospitals to provide patients clear guidelines regarding their post-operative care.
• ACO overlap & primary care referrals.  Beneficiaries aligned to an ACO can be included in TEAM episodes; this creates opportunities to leverage Medicare Share Saving Program incentives with ACO partners for SNF‑at‑home, transitional care management, and medication reconciliation.  TEAM requires referral to primary care at or before discharge—build it into discharge planning and scheduling.

To understand the comprehensive historical quality performance of TEAM hospitals and the clinicians, SNFs, and HHAs located in their service areas, the TEAM Dashboard provides an easy-to-use comparison to national averages.  The screenshot below presents the overall quality scores for a high-performing hospital in comparison to national averages:

The Value-Based Enterprise (VBE) Force Multiplier

While CMS expressly permits TEAM hospitals to use gainsharing arrangements and downstream distribution arrangements, Stark Law^[9] and Anti-Kickback Statute (AKS)^[10]  constraints still apply.  Often, these constraints can hamper the ability of hospitals to appropriately incentivize their independent partners and employed physicians to advance value-based care goals.  Fortunately, both CMS and the Office of Inspector General (OIG) finalized new Stark Law exceptions and AKS safe harbors in 2021 that provide unprecedented flexibility to organizations involved in value-based care.  These flexibilities were codified in the Value-Based Enterprise (VBE) framework.

This list below summarizes new flexibilities available to participants in a VBE:

• Ability to require directed referrals to independent members of a preferred provider network.
• No fair market value or volume/value of referrals constraints when remuneration fits within a VBE exception or safe harbor.
• Payments in advance of realized savings if tied to value-based activities (e.g., collection of PROMs, adhering to care protocols, producing enhanced outcomes).
• Significant discounting of in-kind resources that advance value-based purposes, such as remote patient monitoring tools, AI analytics, and care navigation staff.

In the past, each of these activities could have been significant compliance violations or risks to organizations.  Through meeting the requirements^[11] of the VBE exceptions and safe harbors, hospitals can avail themselves of a compliant pathway for implementing the above strategies.  In light of these flexibilities, the table below summarizes VBE use cases that InHealth has helped clients develop to address TEAM-related challenges.

The lift required to develop a VBE is not different from the time and costs associated with traditional arrangements, especially when factoring in the resources required to negotiate contracts and obtain third-party fair market value opinions.

Strategic Next Steps for Providers

Based on the information in this article, hospital leaders can take the following steps to establish readiness for TEAM:

1. Rapid Readiness Assessment.  Utilize tools like the TEAM Dashboard to establish priorities for strategic efforts.  Use claims data to establish a cost baseline for each episode including: surgeon-level variation, implant/device mix, IRF/SNF/HHA/PT utilization, readmissions/ED returns, and PROM completion.  Map opportunities against TEAM’s 30day window and regional pricing.
2. Form or Join a VBE.  Stand up a compliant VBE (or adapt an existing one) to (a) operationalize gainsharing and infrastructure funding across surgeons and hospital-based providers (e.g., anesthesia), (b) incentivize effective SNF length of stay and HHA visit volume, while maintaining or increasing quality, and (c) fund care coordination and other patient engagement resources to reduce readmissions and emergency department utilization.    
3. Maximize Site of Care Pathways.  Develop protocols for each TEAM episode to determine the most appropriate site of care for patients with different risk factors.  Provide financial incentives to episode providers to ensure adherence to these pathways.
4. Preferred PAC Network.  Tier SNFs/HHAs by outcomes (readmissions, length of stay, functional gains) and set “home‑first” criteria with escalation pathways.  CJR evidence supports targeting institutional PAC use to achieve savings without harming outcomes.^[12]
5. Data & Tech Stack.  Execute TEAM data sharing agreements, stand up near real-time dashboards, e-navigation/patient apps, and telehealth touchpoints aligned to TEAM waivers and beneficiary incentive rules.
6. Pilot & Scale.  Start with high variance‑ sub-cohorts within episode categories (e.g., MS‑DRG 470 for the LEJR episode); expand care protocols from high-volume elective cases to emergency/trauma fractures; iterate via plan-do-study-act cycles^[13] on pro-procedure patient education, discharge pathways, pain control, and PROMs capture.  Expand what works for targeted pilot sub-cohorts across all episodes.