Insights

This week, our first In Focus reviews the Centers for Medicare & Medicaid Services (CMS) proposed rule for the calendar year (CY) 2026 Medicare Physician Fee Schedule (PFS), released on July 14, 2025. The proposal echoes many of the administration’s priorities and would substantially change how physicians are paid for their services, focusing on value-based payment strategies, efficiency adjustments, conversion factors, technology coding, and MSSP eligibility.

This In Focus is the second in our series covering recent Medicare-related announcements. [Last week, we discussed CMS Innovation Center updates.]

Emphasis on Value-Based, Hospital-Based Care

The CY 2026 Medicare PFS proposed rule reflects the administration’s prioritization of value-based care, chronic care management, new payment strategies for evolving models of care delivery, and support for technology-based services. Provisions in the proposed rule also are intended to reduce costs through reimbursement rate changes, better access to behavioral health services, and facilitated advanced primary care management (APCM).

The proposal recognizes the additional complexity of providing primary care in the home and other residential environments by proposing to allow billing of an add-on code to trigger additional payment for home-based visits. CMS also proposes to delete separate coding and payment for social determinants of health (SDOH) risk assessments (established in 2024) and will begin referring to SDOH as “upstream driver(s).”

Emphasis on Efficiency and Lower Practice Expenses

Proposed changes include an “efficiency adjustment,” which would reduce the physician work relative value unit (RVU) based on the assumption that as clinicians gain experience and technology advances, procedures become more efficient. CMS also proposes to rebalance clinician reimbursement for expenses to recognize that hospital-based physicians incur fewer costs than physicians in private or group practices and that the number of physicians practicing in hospitals has increased significantly, leaving far fewer physicians in freestanding offices. As a result, CMS estimates specialists who furnish care in hospital settings will experience double-digit cuts in reimbursement on average, whereas those practicing in freestanding (non-facility) settings will generally receive increases, though the impact on any individual clinician or practice will depend on the mix of services provided.

CMS continues to evaluate potential payment reform for global surgical packages and is studying the real-world division of work between surgeons and providers of postoperative care, as CMS findings suggest only a fraction of post-discharge visits included in valuation are furnished.

Positive PFS Conversion Factor Update

All providers/suppliers paid for services under the PFS will benefit from positive statutory updates to the conversion factor, with slightly higher increases going to clinicians who meet certain eligibility requirements for participating in an Advanced Alternative Payment Model (APM) under the Quality Payment Program (QPP). Specifically, two conversion factors would be available in CY 2026. Under the proposed rule, services furnished by providers who participate in qualifying Advanced APMs would be paid based on a conversion factor of $33.5875, representing a 3.84 percent increase (or $1.2410) from the 2025 amount of $32.3465. Services furnished by providers who do not participate in a qualifying AAPM are proposed to be paid based on a conversion factor of $33.4209, representing an increase of 3.32 percent (or $1.0744) from CY 2025.

Both conversion factors reflect the 2.50 percent overall update required by statute, a 0.55 percent budget neutrality adjustment to account for RVU changes, and an updated factor of 0.75 percent for qualified APMs or 0.25 percent for non-qualifying APMs. CY 2026 is the final year in which eligible clinicians can receive an additional APM incentive. Qualifying clinicians will get a one-time payment of 1.88 percent of their paid claims for covered professional services based on performance from two years earlier.

Evolving Coding and Payment for Technology-Based Services

CMS continues to expand coding and payment for technology-based services, including a proposal for the use of digital mental health treatment (DMHT) devices used in conjunction with an ongoing treatment plan of care for attention deficit hyperactivity disorder (ADHD). The agency recognizes that behavioral health conditions are common chronic diseases and that the field of digital therapeutics is evolving.

CMS requests comments on the use of devices for treating symptoms of gastrointestinal conditions, sleep disturbance for psychiatric conditions, and symptoms of fibromyalgia, as well as to aid in the diagnosis of autism spectrum disorder. The agency also seeks input on a broader set of digital tools that could be used to encourage a healthy lifestyle. Through comment requests, CMS suggests that it might consider payment for digital tools that do not require Food and Drug Administration clearance in future years.

While CMS allows PFS payment of Software as a Service (SaaS) and artificial intelligence (AI) applications in certain circumstances, it also solicits comments on how to establish stable and consistent reimbursement for these technologies and asks how they can be used in the management of chronic diseases and primary care services.

Telehealth-Related Flexibilities

CMS proposes to streamline the process for adding codes to the telehealth list and making other adjustments to supervision and frequency of billing requirements for codes on the list.

Medicare Diabetes Prevention Program

CMS proposes several changes to the Medicare Diabetes Prevention Program (MDPP), which was expanded in 2018 under the CMS Innovation Center authority to increase beneficiary participation and to align with the Centers for Disease Control and Prevention program standards. These proposed changes include the addition and codification of more virtual flexibilities including asynchronous delivery of services, technical changes to the collection of data, and payment changes to reflect these new requirements.

Medicare Shared Savings Program

The proposed rule comprises several provisions to modify eligibility requirements for certain tracks of the program, revisions to the quality performance standards and reporting requirements, and other changes to improve the operations of the program. The Medicare Shared Savings Program (MSSP) now has more than 477 ACO participants, furnishing care to 11.2 million Medicare beneficiaries.

Drugs and Biological Products Incident-to Physician Services

The proposed rule addresses reimbursement for drugs paid incident-to a physician’s service, including policies related to the Inflation Reduction Act provisions, continued implementation of discarded units refund requirements, changes and clarifications to Average Sales Price (ASP) reporting, and payment for procurement of tissue required to manufacture cell-based gene therapies.

Citing a nearly 40-fold increase in spending for skin substitute products from 2019 to 2024, CMS proposes major changes for reimbursement of skin substitutes that would pay for most of these products as supplies incident-to physician services, rather than as Part B drugs. CMS estimates that these modifications would result in significant savings. If finalized, these proposals will take effect at the same time as CMS launches a new model in six geographic areas to test clinical review for certain services, including skin substitutes, in fee-for-service Medicare to achieve the WISeR (Waste and Inappropriate Service Reduction) Model.

Requests for Information

CMS included multiple requests for information in the CY 2026 proposed rule. The agency seeks stakeholder feedback on how the fee schedule can be used to better account for indirect practice expenses (PEs) costs in facility settings, integration of preventive services into APCM bundles, and use of motivational interviewing and health coaching to improve chronic disease prevention and management.

On the QPP, CMS seeks input on advancing digital quality measurement, refining MIPS (Merit-Based Incentive Payment System) Value Pathways (MVPs) through core elements, procedural code alignment, and well-being and nutrition measures. The agency also requests comments on improving public health and prescription drug monitoring reporting and strengthening data quality and performance thresholds across Medicare’s quality programs.

Contact an HMA Medicare Expert Today

Health Management Associates, Inc. (HMA), policy and rate setting experts are analyzing the details and impacts in the proposed rule and will provide additional updates to key Medicare policies as they become available. Our team can help support stakeholder development of policy and data-oriented comments on this rule, due September 12, 2025, and on any other Medicare policy topic of interest. Contact our experts below to discuss your priorities and approach.

Our second In Focus reviews the policy changes in the Centers for Medicare & Medicaid Services (CMS) for the calendar year (CY) 2026 Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System Proposed Rule (CMS-1834-P). This OPPS proposed rule, released January 15, 2025, includes several important policy revisions that will alter hospital margins and change administrative procedures beginning as soon as January 1, 2026.

Key Provisions in the CY 2026 Hospital OPPS and ASC Proposed Rule

For CY 2026, CMS proposes to make critical modifications to several hospital outpatient and ASC payment policies, which hospitals and other stakeholders will need to quickly adopt. We highlight and interpret the following seven proposed policies that may be among the most impactful for Medicare beneficiaries, hospitals and health systems, payers, and manufacturers:

1. Proposed updates for OPPS and ASC payment rates are consistent with proposed inpatient rates.
2. The phased elimination of the inpatient-only (IPO) list will cause services to shift to the outpatient setting.
3. Expansion of the ASC covered procedures list will cause services to shift from the outpatient to ASC setting.
4. Site-neutral payment to drug administration services will be expanded to all off-campus provider-based departments.
5. Medicare Advantage data will be used to set weights for inpatient Medicare Severity Diagnosis Related Groups (MS-DRGs).
6. 340B payment recovery will intensify to recover funds more quickly.
7. A new survey will be conducted to gather data on the amount hospitals pay for drugs used in the hospital outpatient department.

Stakeholder comments on the OPPS and ASC Proposed Rule are due to CMS by September 13, 2025.

What the Seven Provisions Mean

1. The proposed payment update for OPPS and ASC rates is consistent with proposed inpatient rates.

Proposed Rule: Overall CMS’s CY 2026 Medicare OPPS and ASC Proposed Rule will increase 2025 payments to acute care hospitals by 2.4 percent in 2026, amounting to an estimated $4 billion increase in payments. This update is based on a hospital market basket increase of 3.2 percent and a 0.8 percent reduction for total factor productivity.

HMA Analysis: CMS’s 2.4 percent increase results from the estimated rate of increase in the cost of a standard basket of hospital goods, the hospital market basket. CMS estimates that total payments to OPPS and ASC providers (including beneficiary cost sharing and estimated changes in enrollment, utilization, and case mix) for CY 2026 will increase by roughly $8.1 billion and $480 million, respectively, from CY 2025 payment levels. The proposed outpatient and ASC rates are consistent with the proposed inpatient payment update for 2026.

2. Phased elimination of the IPO list to cause movement of cases from inpatient to outpatient setting.

Proposed Rule: CMS has long maintained a list of procedures and services that must be provided on an inpatient basis and are excluded from the OPPS. In the CY 2021 final rule, CMS finalized a proposal to eliminate the IPO list over three years, beginning with nearly 300 procedures. CMS noted various changes in technology and chose to defer to the clinical judgment of physicians which procedures can be safely performed in the hospital outpatient department based on the circumstances of individual patients. When the Biden Administration entered office in 2022, CMS halted the process of eliminating the inpatient-only list and reinstituted five criteria it had previously used to determine whether a procedure should be removed from the IPO list.

Under the Trump Administration, CMS now proposes to again eliminate the IPO list over a three- year period. For 2026, CMS proposes to eliminate 285 mostly musculoskeletal services from the IPO list. Across the next two rulemaking cycles CMS will eliminate the remaining services from the IPO list and the agency is requesting stakeholder input regarding which services should be eliminated from the IPO list in CY 2027.

HMA Analysis: If finalized, the policy to eliminate the IPO list is likely to spur a migration of many cases from the inpatient setting to the hospital outpatient setting. Many of these cases are likely to be surgical short-stay cases. Given that the proposed policy would defer largely to clinical judgment to determine which procedures are performed in the outpatient setting, we anticipate a degree of variability by hospital in how this policy plays out. We anticipate hospital revenues will decline because of this policy, as certain inpatient payment adjustments are inapplicable to the outpatient setting. We do not anticipate a cost sharing impact on patients due to policies that protect them from higher outpatient cost sharing. Because the Medicare IPO list has served as a foundation for many site of service coverage decisions, we anticipate payers will respond to this policy by encouraging more rapid migration of cases to the outpatient setting, which is likely to result in lower Medicare spending.

3. Expansion of the ASC covered procedures list will cause services to shift from the outpatient to ASC setting.

Proposed Rule: CMS proposes to add 547 services to the ASC covered procedures list.

HMA Analysis: CMS’s proposal to add 547 services to the ASC CPL enables greater fluidity of site of service for providers in deciding where to conduct procedures. Among these 547 services are 276 musculoskeletal services that are also proposed for removal from the OPPS IPO list. While state regulations concerning which procedures can be conducted in ASCs may affect which cases are eventually conducted in the ASC setting, CMS’s plan to expand the ASC CPL may enable some musculoskeletal services to move directly from the inpatient setting to the ASC setting in 2026. We anticipate that the expansion of the ASC CPL may result in lower revenues for hospitals as cases move from the inpatient or outpatient setting to the ASC. This shift may also result in lower Medicare spending.

4. Expansion of the site-neutral policy to drug administration services furnished in all outpatient provider-based departments.

Proposed Rule: Under the Bipartisan Budget Act of 2015, CMS is required to implement site-neutral payments for off-campus provider-based departments (PBDs). This legislation exempted PBDs (also known as “excepted PBDs”) established as of the date of enactment. The policy has generally paid affected services at 40 percent of the OPPS rate. The agency presents the results of its own analyses, showing growth in drug administration services in the OPPS even as the number of fee-for-service beneficiaries has decreased. CMS concludes that “the differential in our payment rates has created a payment incentive that had led to unnecessary growth for the services in the drug administration” payment rates.

CMS proposes to apply the Medicare Physician Fee Schedule (PFS) payment adjustment to drug administration payments for services performed at excepted off-campus PBDs, which will be the same reimbursement rates available to non-excepted PBDs. This adjustment is proposed to be made in a non-budget-neutral manner. CMS also asks for comments on whether the PFS adjuster should be applied to other services. CMS also issues a request for information (RFI) on the potential to expand site-neutral payments for clinic visits to include on campus clinic visit services and a second RFI seeking information on the possibility of adjusting OPPS payments for services “predominantly performed” in the ASC or physician’s office setting

HMA Analysis: CMS estimates this policy will yield $280 million in savings to Medicare for 2026, which will translate into commensurate revenue reductions for the hospital industry. Although CMS proposes to exempt rural sole community hospitals from this policy, other types of safety net providers may also seek an exemption.

5. The use of Medicare Advantage data to set weights for inpatient MS-DRGs.

Proposed Rule: CMS proposes to require hospitals to submit to CMS Medicare Advantage payment information through their annual hospital cost reports for later use in setting Medicare inpatient PPS payment rates. As a part of this proposal CMS will require hospitals to include in their annual cost report submissions to CMS their median negotiated payer-specific Medicare Advantage charges by individual MS-DRG. CMS proposes to begin collecting these data in the 2026 cost reporting period, and to use these data to set MS-DRG relative weights beginning in FY 2029. CMS asserts that the agency intends to make these changes to reduce its reliance on the hospital chargemaster for setting rates for inpatient services and instead create a market-based approach to rate setting.

HMA Analysis: The first Trump Administration proposed a nearly identical policy in the CY 2021 rulemaking cycle. Like the IPO list history, this proposed policy was not implemented in the CY 2022 rulemaking cycle when the Biden Administration was in place. If implemented for 2026, the reporting of negotiated charge data will add administrative complexity to hospitals’ cost reporting processes. It is unclear whether the use of these data in the IPPS rate setting process will increase or decrease payment rates. Therefore, it is unclear how this policy might affect hospital revenue or Medicare spending.

6. Increase the pace of 340B payment recovery from hospitals to recover funds more quickly.

Proposed Rule: CMS proposes to change its policy for recovering past overpayments resulting from the budget neutrality adjustments accompanying prior cuts to reimbursement for 340B drugs. The 340B recoupment process was scheduled to begin in 2026 by reducing the hospital outpatient conversion factor by 0.5 percent annually until $7.8 billion in payments were recovered. CMS forecasted this would occur annually for 16 years; however, the CY 2026 OPPS proposed rule calls for reducing the outpatient conversion factor by 2 percent over the span of six years.

HMA Analysis: If implemented, CMS’s proposed 340B recovery policy will result in a payment reduction to hospitals of $1.1 billion in 2026. We anticipate the scale of this impact will continue during the subsequent five years that the policy is in place. We expect that hospital opposition to this proposed change will be significant.

7. New survey to gather data on the amount hospitals pay for drugs used in the hospital outpatient department.

Proposed Rule: CMS announced its intent to conduct a new survey to gather information from hospitals about the amount they pay for drugs used in the outpatient setting. The survey of drug acquisition costs will apply to specified covered outpatient drugs (SCODs) and “drugs and biologicals that CMS historically treats as SCODs.” The survey will begin at the end of 2025 and end in early 2026. CMS has stated that it intends for these survey results to “inform policy making” beginning with the 2027 rulemaking cycle.

HMA Analysis: The data collected through this survey effort could be used to set payment rates for Part B drugs or to inform 340B payment policy, but how exactly these data would be used is unclear. CMS noted that an adequate response rate will be necessary and asks for input on how to interpret nonresponses, such as assuming that non-responding hospitals have very low drug costs and therefore payment for drugs and biologics could be packaged with other services. CMS also noted that other sources of drug data could include the Federal Supply Schedule (FSS) or other benchmarks or different markups to ASP data.

HMA’s Medicare Practice Group Can Help

The Health Management Associates, Inc. (HMA), Medicare Practice Group monitors federal regulatory and legislative developments in the hospital space and assesses the impact on hospitals, life science companies, payers, and other stakeholders. Our experts interpret and model hospital payment policies and assist clients in developing CMS comment letters and long-term strategic plans. Our team replicates CMS payment methodologies and model alternative policies using the most current Medicare fee-for-service and Medicare Advantage (100 percent) claims data. We also support clients with DRG reassignment requests, New Technology Add-on Payment (NTAP) applications, and analyses of CMS Innovation Center alternative payment models.

For more information or questions about the policies described below, please contact our experts below.

Specialty model will focus on upstream management of lower back pain and congestive heart failure in traditional Medicare

This week, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (MPFS) proposed rule, which introduces a new mandatory Ambulatory Specialty Model (ASM), and announced updates on the Cell and Gene Therapy Access Model. These developments reflect CMS’s continued focus on value-based care, chronic condition management, and new payment strategies.

Specialists will be financially accountable for the upstream management of low back pain and congestive heart failure in traditional Medicare. The model is designed to reduce costs and improve healthcare quality through performance-based payment adjustments and enhanced care coordination. The proposal is open for public comment, and CMS may revise model parameters before finalizing the rule later this year.

In this article, Health Management Associates (HMA) experts break down the ASM model’s goals and design features and explains developments in CMS’s Cell and Gene Therapy Access Model. HMA experts are reviewing the CY 2026 MPFS and the CY 2026 Hospital Outpatient Prospective Payment System proposed rules and will highlight key policy provisions in a forthcoming article.

ASM Focus on Chronic Care

CMS estimates that more than two-thirds of traditional Medicare beneficiaries have at least one chronic condition. CMS states that spending on heart failure comes to $10‒$13 billion annually, while annual costs associated with low back pain are $6‒$8 billion. A lack of coordinated care can impede patients’ ability to manage their health and result in low-value care like unnecessary procedures and avoidable hospitalizations that run up costs without improving healthcare outcomes. The ASM will test how incentives such as payment adjustments to providers can encourage preventive care, earlier diagnosis, and better disease management.

Program Goals

The ASM is designed to encourage collaboration and communication between patients’ primary care providers and specialists who treat low back pain and heart failure. According to CMS, improved coordination will lead to the following:

• Better patient outcomes and reduced disease progression
• Decreased spending on low-value care experiences, such as unnecessary hospitalizations and procedures
• Ensure providers are evaluated based on performance measures that are linked to the care they offer their patients
• Optimize data transparency to allow providers to compare their performance with their peers when being measured on patient-centered outcomes

Performance will be assessed based on the Merit-based Incentive Payment System (MIPS) Value Pathways (MVPs) across four factors:

1. Improving outcomes, such enhancing patients’ functional status or controlling their blood pressure
2. Lowering costs, especially through reduced provision of unnecessary services
3. Increasing patient engagement through clinical care processes
4. Expanding interoperability and data communication through certified electronic health record technology

Though based on the MIPS MVPs, the ASM will enhance the focus of performance measures, thereby simplifying reporting and allowing for comparisons across different providers and regions.

Table 1. ASM Model Payments, Participants, and Timeline

Category	Details
Model Type	Two-sided risk payment model
Payment Adjustment Range	-9% to +9% based on performance relative to peers
Performance Tiers	– Positive adjustment for high performance – Neutral for average performance – Negative adjustment for low performance
Geographic Scope	Rolled out in ~25% of core-based statistical areas (CBSAs) and metropolitan divisions nationwide
Specialties Included	– Low back episodes: Anesthesiologists, pain management, interventional pain management, neurosurgeons, orthopedic surgeons, physical medicine or rehabilitation specialists– Heart failure episodes: General cardiologists
First Performance Year	January 1, 2027
Duration	5 years
Relation to Other Models	– ASM is the second mandatory model proposed by CMS, following TEAM (Transforming Episode Accountability Model). While TEAM focuses on hospital-based episodes, ASM shifts accountability to specialists.– Both models align with CMS’s broader strategy to reduce low-value care, a theme also reflected in the recently announced the Wasteful and Inappropriate Service Reduction (WISeR) model.
Policy Context	Part of CMS Innovation Center’s strategy to promote evidence-based prevention, high-value care, and reduce unnecessary utilization

Cell and Gene Therapy Model

On July 15, 2025, CMS announced the participants in the Cell and Gene Therapy (CGT) Access Model. A total of 33 states, plus the District of Columbia and Puerto Rico, will participate in this model, which has the federal government negotiating outcomes-based agreements with CGT manufacturers of sickle cell disease treatments. Participating states represent approximately 84 percent of Medicaid beneficiaries with the condition. Under the model, participating states receive guaranteed discounts and rebates from participating CGT manufacturers if the therapies fail to deliver their promised therapeutic benefits. States also have the option of receiving federal support of up to $9.55 million each to assist with implementation, outreach, and data tracking. States may choose when to begin their participation between January 2025 and January 2026. CMS indicated it may modify the model in the future to cover other diseases with high-cost, high-impact therapies.

Connect with Us

The ASM introduces opportunity and financial risk for specialists, hospitals, and health systems. Providers should consider strategies and tactics that will strengthen their collaboration with primary care teams to manage the chronic conditions addressed in the ASM model, which may require workflow redesign and new communication protocols. Providers also should consider whether they will need to make investments in data infrastructure and reporting to meet their performance quality goals.

HMA’s Medicare team—including actuaries, data analysts, and policy experts—helps organizations model, understand, and navigate the impact of proposed frameworks and policy changes, quantify risk, and more, so organizations can improve both financial performance and patient outcomes.

For details about these model announcements or the new proposed rules, contact the HMA Medicare team tracking these policies.

We recently sat down with Medicare experts from HMA and Wakely to break down the most important and most pressing developments shaping the future of Medicare Advantage, including the latest updates from CMS on Risk Adjustment Data Validation (RADV) audits, specifically the two major announcements released on May 21st and May 30th that are sending waves through the payer and provider communities alike. 

On May 21st, CMS issued new guidance related to extrapolation and how sampling methodology and medical record review standards will evolve under the updated RADV Final Rule. 

Then, just nine days later, on May 30th, CMS released additional operational instructions that may tighten reporting windows, add new thresholds for error rate evaluation, and expand expectations around provider documentation compliance—particularly for retrospective reviews and risk adjustment data sourcing. 

To help unpack this fast-moving landscape, we’ve spoken with our Medicare experts, Tony Pistilli, Ryan McEntee and David Nater, each bringing a unique lens to the RADV conversation. 

What was your first thought when you read CMS’s latest RADV update last week? 

Tony – My main takeaway was that CMS was really upping the game in terms of what payers need to do to not only do the appropriate measures to optimize their risk scores but then audit claims that are coming in from providers. So this isn’t just a matter of ensuring that risk score optimization strategies are appropriate, not overstepping, but also adding a new administrative task of auditing claims that you’re getting from providers that may have errors in them. 

Can you quickly summarize what CMS actually changed in this latest announcement, and what’s most significant about it compared to the previous announcement in November last year and previous RADV audits? 

Ryan – The core of these changes, prior to the old way of doing RADV is, of course the extrapolation methodology that CMS will be introducing, as well as the elimination of the fee-for-service adjuster, which is going to be huge. Then we can move on to that with the announcement of enhancements of staffing and technology.  

It’s going to be very interesting how CMS looks to utilize that. As well as every single contract being audited that is eligible are probably the focus points within this, and with CMS they give you a little, and then you have to look into it a lot, so I think there’s still a lot more to come related to these initial announcements that are coming through. 

What exactly does this mean from a health plan perspective in the near term – especially for those already in the trenches of risk adjustment audits or pre-audit reviews? 

David – Most financial teams use claims as forecasting and having concurrent risk adjustment processes is really the optimal approach to make sure that there are no surprises on the financial end for month end and quarterly reports. Making sure that plans are getting ahead of this cleanup now is imperative to mitigate those financial impacts, and then on a concurrent level, optimizing the operational processes ensures just better forecasting and overall better financial outcomes. 

With the latest announcements regarding RADV, what are the current unknowns at play related to this new look RADV strategy? 

Tony – On a technical level, the key things we don’t know are how CMS is going to sample claims – They’ve indicated that they’re going to move from random sampling to targeted sampling – and we don’t know how they’re going to extrapolate that. So, if you do a targeted sample, do you extrapolate that just to a targeted extrapolation, or do you extrapolate that to the whole plan? And that’s your range of low impact to high impact.  

Similarly, we don’t know what confidence interval CMS is going to use. There’s been some indications of 99% in the past. That’s going to be very conservative, but 95 or 90% would be plausible confidence intervals as well, and that gets you to much more aggressive recovery rates. There are a few other small technical issues that I don’t think will have as big of an impact, but those are the three ones that we’re really looking to CMS to figure out.  

What’s the one thing you think plans need to prioritize immediately in light of this update – and what’s the trap they need to avoid? 

Ryan – I think plans need to very quickly understand their exposure. One of the ways to do that—and one of the ways we are engaging our clients—is to run analytics looking at these high-risk codes. There are also certain indicators you can look at to see what needs to be reviewed and what has high error rates, based on previous OIGYG and CMS audits. From there, you need to get a quick plan in place to document and assess whether or not those codes are relevant. If they are not, submit them before the aggressive timeline CMS has put in place.  

As I mentioned, there are less than two weeks to submit deletes for 2019 dates of service, and every 7 days after that thereafter for each payment year. So, the time to act is now. You need to quickly understand where your risk is and take action. And if you don’t have those capabilities, engage with strong consulting groups or partners who can support you through this. 

What closing thoughts or takeaways would you like to share? 

Ryan – If I put myself on the plan side, I see both a short-term, immediate plan and a long-term sustainability plan.  

That short-term immediate plan is action to act NOW. Whether that is engaging with a partner, or engaging in your internal team, you need to be able to highlight where your risk areas are. Take action on this prior to CMS coming in and acting for you. What’s just as important is setting up a long-term roadmap to be able to mitigate this risk going forward.  

To look at it concurrently, do you have the right analytics in place? Do you have the correct staffing in place to be able to look at these risk codes coming in? Assess them and send the necessary deletes coupled with closing the loop related to feedback. Are you pushing that information and education back to your physician groups? Because they’re the most important part to this. You need to be able to educate, communicate and meet with your providers to explain how important the act of documentation and coding is and have this at the forefront of every one of your initiatives and incentive programs going forward in value-based care. 

David – HMA and Wakely are well-positioned to help in both the short-term and the long-term approach, and ideally both. Organizations need to act quickly and align their steady-state processes to ensure that they’re managing both the exposure at the health plan level and with the providers, especially those in risk-based arrangements. 

Tony – Plans need to be thinking of the RADV risk here, apart from the risk that they might see from chart reviews and other add activity. You may be a plan that’s relatively unaggressive in chart reviews and adds that think “we’re not risk here”, but CMS has now assigned you risk for all the claims that providers are submitting, and you need to be ensuring that those are correct as well.  

There’s a wholly separate administrative task here that plans have now assumed responsibility for, and your revenue is just as at risk for not doing the RADV as it is for being inappropriate in your chart reviews and adds and whatnot. So, you really want to be thinking of this as two separate things and acting from both fronts. 

Check out our full conversation.

This week, in our In Focus section, Health Management Associates’ Medicare experts review the changes to the Center for Medicare and Medicaid Innovation’s (CMMI) Transforming Episode Accountability Model (TEAM) proposed in the Fiscal Year (FY) 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Proposed Rule (CMS-1833-P). The IPPS proposed rule, released April 11, 2025, maintains the model with no changes to the timeline, participants, accountable care organization overlap policies, or required episodes.

While most changes are technical in nature, involve minor methodological tweaks, or seek to align with the Trump Administration’s policy priorities, stakeholders should continue to assess their readiness and prepare to implement the TEAM model. This is a critical time for healthcare stakeholders to stay on top of this specific proposed rule, the TEAM model, and other federal and state-level developments that are affecting the healthcare system.

This article reviews key aspects of the IPPS proposed rule policies related to TEAM with strategic steps for stakeholders as they continue to prepare for the model’s implementation.

Background on TEAM

TEAM is a value-based care initiative that requires participating hospitals to manage costs for a range of surgical procedures, including both inpatient and outpatient services. The program involves bundled payments covering all aspects of care from the surgical procedure itself to most post-acute care occurring within a 30-day window following discharge from the hospital. Payments will be calculated based on regional benchmarks, and hospitals will assume financial responsibility for the quality and cost of care provided.

TEAM is scheduled to begin in 2026 with 741 hospitals required to enter into value-based arrangements. The program will affect how hospitals manage five types of surgical episodes in both the inpatient and outpatient hospital setting by shifting more risk to the hospitals themselves. This risk includes not only the cost of the surgery but also post-acute care, including readmissions, complications, and downstream provider services. The goal is to incentivize hospitals to improve care coordination, reduce costs, and enhance patient outcomes.

Proposed Changes to the Model

According to the proposed changes, CMS is moving forward with the five-year mandatory model largely as planned, with minor updates focusing on technical details rather than a significant overhaul. Some of the proposed changes were expected based on the administration’s policy priorities, including removal of:

• The Decarbonization and Resilience Initiative
• Health equity plans
• Health-related social needs data reporting

Other technical changes address flexibility for newly opened hospitals within TEAM’s required geographies, the impact of the possible expiration of the Medicare Dependent Hospital (MDH) program, and modified episode attribution to be based on discharge date, rather than start date. CMS is also still seeking comment on how to finalize the low-volume threshold policy, where hospitals under a certain number of procedures would only have Track 1 (upside only) applied.

Overall, CMS expects that its proposed changes to TEAM “should not result in dramatic shifts to the Medicare savings estimate” of $481 million in savings to CMS across the model’s five performance years.

Stakeholder Considerations for the Future

Keeping this model largely intact and maintaining the mandatory nature signals that the Trump Administration intends to continue with value-based arrangements and is looking for ways to achieve program savings. A mandatory model will generally achieve a higher level of savings than a voluntary one.

As they prepare for implementation, stakeholders will need to take action, including:

• Thoroughly reviewing the proposed changes to the TEAM model to understand the changes and their implications to model of care policies and operations, financing, and collaborations with clinicians and care teams outside of the facility. Consider submitting comments to CMS on the proposed changes. Review the list of hospitals in TEAM.
• Contextualizing their work to implement this model alongside other pending federal and state policy changes. Stakeholders will benefit from staying on top of developments in this dynamic policy landscape since many pending proposals have financial and structural implications for healthcare providers.
• Preparing for the mandatory model by developing strategies to manage the financial risk associated with the bundled payments and improving care coordination. This may include modeling hospital payment policies and assessing the implications of the proposed changes.
• Assessing the system and technology changes and collaborations that will be required to effectively manage risk in the model.

Connect With Us

Health Management Associates’ (HMA’s) Medicare Practice Group monitors federal regulatory and legislative developments in the inpatient setting and assesses the impact on hospitals, life science companies, and other stakeholders. Our experts interpret and model hospital payment policies and assist clients in developing CMS comment letters and long-term strategic plans. Our team replicates CMS payment methodologies and model alternative policies using the most current Medicare fee-for-service and Medicare Advantage claims data. We also support clients with Diagnosis Related Group (DRG) reassignment requests, new technology add-on payments (NTAP) applications, and analyses of Innovation Center alternative payment models.

For more information about the proposed policies, contact our featured experts below.