Starting January 1, 2026, CMS began requiring 741 hospitals across 188 metropolitan areas to participate in the Transforming Episode Accountability Model, known as TEAM. Unlike BPCI-A, the voluntary bundled payment program that preceded it, TEAM is not optional. Any hospital that falls within one of the selected Core-Based Statistical Areas and performs any of the five covered surgical episode types is in the program whether it wants to be or not.

The model makes hospitals financially accountable for the total cost of a surgical episode from the point of admission through 30 days post-discharge. That includes the surgery itself, the post-acute placement, the rehab stay, any readmission, and every complication that drives cost during that window. If total spending comes in below CMS’s target price, the hospital keeps the savings. If spending exceeds the target, the hospital absorbs the loss. TEAM also covers outpatient surgical procedures for certain episode types, but this post focuses on the inpatient and acute care impact, where the discharge coordination gaps are most acute.

TEAM uses three risk tracks, and the timeline to two-sided risk varies by hospital type. In Year 1, all hospitals participate in Track 1 (upside only), meaning they can earn shared savings but face no penalties. Starting in Year 2 (2027), urban non-safety-net hospitals move to Track 3, where gains and losses are capped at up to 20% of the target price. Safety-net hospitals can remain in Track 1 through 2029, and rural hospitals can stay in Track 2 (capped at 5% gains and losses) for all five performance years. The program runs through 2030, and the sharpest financial transition falls on the urban non-safety-net hospitals that make up the majority of TEAM participants.

As a regional health system CEO recently told me, “this is one of the most significant structural changes to hospital discharge economics in a decade.” It lands squarely on a part of the operation that most hospitals have never built real infrastructure around.

Why Discharge Coordination Is the Exposure Point

The clinical side of a surgical episode is relatively well-controlled. Hospitals have invested heavily in standardized surgical protocols, evidence-based clinical pathways, and quality improvement programs. The operating room is not where TEAM’s financial risk concentrates.

The risk concentrates in what happens after the patient leaves the hospital. A patient discharged to the wrong level of post-acute care, or to a facility that can’t manage their clinical needs, generates avoidable cost across the entire 30-day window. A readmission during that period hits the hospital’s episode cost directly. A delayed discharge that keeps a patient in an acute bed for two or three extra days while the case management team scrambles to find a placement burns through the episode’s margin before the patient even leaves the building.

A medical director at a regional health system in New Mexico described the pre-surgical coordination process at his organization in terms that make the exposure concrete. For a total knee replacement, care coordination has to arrange physical therapy, home health services, and post-acute placement, and the entire process runs on manual workflows. There is no system connecting surgical scheduling to discharge planning in a way that would allow the team to line up post-acute resources before the patient is already recovering in a bed. Under DRG-based Medicare reimbursement, that inefficiency already carried a cost, but hospitals absorbed it as an operational problem rather than a structural one. Under TEAM, every unnecessary day doesn’t just erode the margin on a single admission; it compounds across the entire 30-day episode cost that the hospital is now accountable for.

The same medical director reflected on what their current performance would mean under two-sided risk: “If we had been under two-sided risk like we will be in year two, we would have paid a penalty.” That is the gap between where most hospitals are operationally and where TEAM needs them to be.

The Infrastructure That Doesn’t Exist Yet

Most hospitals approach discharge coordination the same way they did twenty years ago. Case managers work through patient lists sequentially, making phone calls one at a time to post-acute facilities, verifying bed availability and insurance acceptance manually, and tracking status through a patchwork of the EHR, secure messages, personal notes, and memory. The tools available to them were built for clinical documentation, not for the logistics of coordinating a patient’s transition across care settings, a gap we explored in detail in what case managers actually need from discharge technology.

Under the traditional reimbursement model, this workflow was inefficient but rarely treated as urgent. Medicare’s DRG system already penalizes long stays by paying a fixed amount per admission, but hospitals managed that pressure through utilization review rather than discharge coordination infrastructure. Commercial payers often still reimburse on a per-diem basis, blunting the incentive further. TEAM changes the calculus entirely, and now every day of avoidable length of stay, every mismatched post-acute placement, every readmission driven by a gap in the transition directly erodes the hospital’s margin on the episode.

When I asked a CDTO at a large for-profit health system about what community hospitals should be doing to prepare, the response was blunt: “If you’re a community-based facility that’s not a part of a large ACO today, you have to go figure this out.” Large systems that participated in BPCI-A have had years to build some version of episode management infrastructure. Smaller hospitals in the selected CBSAs that never participated in voluntary bundled payments are starting from scratch, and the clock is already running.

The readmission dimension is where the exposure becomes most visible. The executive director of case management at a multi-facility delivery system in the Southwest told me that readmission rate reduction is the TEAM metric that concerns her most, because her organization has been candid internally that they don’t have a systematic approach to it. They rely entirely on manual processes and have no coordinated solution in place. Under TEAM, a readmission during the 30-day episode window doesn’t just trigger a quality flag; it adds directly to the episode cost that the hospital is accountable for.

Those manual processes are particularly fragile in home health placement, which illustrates how a single coordination failure can cascade into real cost under episode-based payment. Home health agencies operate under a 48-hour regulatory window to take a patient on service after discharge, which means their capacity commitment is tied to a specific discharge date. If a discharge slips by a day or two because insurance verification stalled or a bed wasn’t confirmed at the right level of care, the home health slot may no longer exist and the arrangement falls apart. Freedom of choice compliance adds further time to the process, since the care team is required to present multiple home health options to the patient and family before finalizing a selection. In practice, agencies say yes conditionally, holding a slot against a projected discharge date, and the hospital’s case management team works through each step sequentially. Move the date, and you may lose the slot. Under TEAM, that single scheduling disruption cascades: the home health arrangement evaporates, the patient stays an extra day or two in an acute bed at $2,500 to $3,500 per day, and the episode cost climbs while the hospital absorbs it.

Not Every Hospital Is in TEAM, But the Pressure Will Spread

TEAM is currently mandatory for 741 hospitals that fall within CMS’s 188 selected Core-Based Statistical Areas and perform the covered surgical episode types: lower extremity joint replacement, surgical hip/femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure. Hospitals outside those geographies, or those that don’t perform these procedures in significant volume, are not currently required to participate.

But the history of CMS payment innovation suggests this model will not stay contained. The pattern is well-documented: CMS introduces a voluntary program, lets an industry develop around it, gives hospitals time to learn the model, and then converts it to mandatory policy. That is exactly the arc from BPCI-A to TEAM: voluntary first, mandatory once the model matures. As the CDTO I spoke with earlier described it: “This is how CMS does it. We put something out as a teaser. An industry pops up around it. You guys get some time to learn. Then we turn it into law.”

There is no announced timeline for expanding TEAM to all hospitals nationally, and CMS has not published a rule proposing universal mandatory participation. But TEAM is designed as a five-year study period, and she noted that CMS will use that window to evaluate outcomes before broadening the model. The current scope already extends well beyond the hip and knee replacements that defined earlier bundled payment experiments. “When you look at TEAM, it goes well beyond some of those surgical bundles and starts to bundle other types of diagnoses, cardiac care, some of those pieces,” she said. CABG and major bowel procedures are already included, and the architecture of the model accommodates additional episode types without structural changes. As the model expands past surgical rehab into conditions that require extended post-acute coordination, the long-term care dimension becomes critical in ways that most hospitals have not yet planned for. Hospitals outside the current TEAM footprint would be making a strategic mistake to assume they are permanently exempt.

The commercial payer dimension accelerates the timeline further. Medicare payment models have historically set the template that private insurers follow. As she put it: “So goes Medicare, so goes the commercial plans.” Even hospitals not yet subject to TEAM may find themselves negotiating episode-based contracts with commercial payers who adopt similar structures. The operational pressure to manage discharge economics tightly is coming from multiple directions, not just CMS.

What This Means for Discharge Operations

The hospitals that will manage TEAM’s financial risk effectively are the ones that can do four things their current workflows don’t support.

First, they need to compress the time between a patient being medically ready for discharge and actually leaving the hospital. Today, information moves between the hospital and post-acute facilities through phone calls, faxes, and one-at-a-time outreach. What TEAM demands is something closer to a digital infrastructure layer that can exchange information across care settings quickly and in parallel, verifying bed availability, insurance acceptance, and clinical fit with multiple facilities simultaneously rather than sequentially. Every day saved on a discharge translates directly into episode margin preserved.

Second, hospital leadership needs visibility into episode cost drivers as they develop, not after the episode closes. When a placement decision on day four of an admission affects the 30-day cost trajectory, that insight needs to shape the standard operating procedures and the tools case managers use to execute them, not land as a surprise in a quarterly reconciliation report. That requires connecting discharge coordination to episode-level financial data in a way that almost no hospital does today, while ensuring that patient safety remains the primary constraint on every placement decision.

Third, they need to manage the post-discharge window actively rather than passively. Readmissions already carry financial consequences under the DRG system and CMS’s Hospital Readmissions Reduction Program. What TEAM adds is a second layer of accountability: a readmission during the 30-day episode window gets rolled into the total episode spending measured against the target price, eroding the margin on the original surgical episode. Hospitals now face the cost of treating the readmission, the HRRP penalty, and the episode overage simultaneously. That level of compounding exposure requires mechanisms to track patient status after discharge and intervene early when transitions show signs of breaking down.

Fourth, TEAM mandates that participating hospitals make a referral to primary care upon discharge. On paper, this sounds straightforward, but operationally it has proven to be one of the model’s most challenging requirements. The definition of what qualifies as a completed referral is not clearly standardized, the timeline for making it is ambiguous, and for patients who do not have an established primary care provider, the case management team faces what amounts to a placement problem on top of the placement problems they are already managing. One HFMA analysis noted that while the concept is widely supported from a patient outcomes perspective, putting it into motion has been harder than many hospitals anticipated. For case managers already coordinating post-acute placement, insurance verification, and home health scheduling at the point of discharge, the primary care referral adds another coordination task that cannot be reduced to a checkbox if it is going to serve its intended purpose.

None of this is theoretical, because a small number of hospitals, primarily those with BPCI-A experience, have already begun building these operational capabilities. For the majority, especially community hospitals newly pulled into mandatory participation, this represents a fundamental shift in how discharge coordination needs to work.

Year 2 Risk Starts in Twelve Months

Year 1 of TEAM is designed as a learning period under Track 1 (upside-only risk), meaning hospitals can benefit from strong performance but face no penalties for overruns. That changes in 2027, when urban non-safety-net hospitals shift to Track 3 with up to 20% of the target price at risk in both directions. Hospitals that haven’t built the infrastructure to manage episode costs through better discharge coordination by then will be paying penalties on surgical episodes that could have been managed more efficiently.

The hospitals that participated in BPCI-A had years of voluntary participation to develop their approach. TEAM-mandatory hospitals don’t have that luxury, because the program is live, the episodes are being tracked, and the transition to two-sided risk is twelve months away.

For teams working through what TEAM means for discharge coordination workflows, we’d welcome the conversation. Request a conversation →

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