TEAM & the Future of Value-Based Care Models

Transcript

CHAD MULVANY

On today's episode of Achieving Health, I've got the latest policy and legislative updates from Washington, D.C., for the week of August 4th, 2025. Then I'll be joined by my Forvis Mazars colleagues Michael Wolford and Stephen Kitterman. We'll discuss the upcoming Transforming Episode Accountability Model from CMS and the potential for more mandatory risk under the agency's new leadership. Stay tuned.

ANNOUNCER

This is Achieving Health, a podcast from Forvis Mazars, where we delve into the topics that matter most to healthcare organizations across the continuum of care. Our goal is to help you navigate the dynamic healthcare landscape and achieve health at your organization. Here's your host, Chad Mulvany.

CHAD MULVANY

Welcome to Achieving Health. I'm Chad Mulvany, director in the Healthcare Practice at Forvis Mazars. Thank you for joining me today. Before we get started with Washington Watch, I'd like to let you know about our new webinar series, OBBBA Tuesdays, which will dive into the healthcare implications of the One Big Beautiful Bill Act. My colleagues and I will explore how hospitals, health systems, and other providers can prepare for Medicaid cuts and the expected increase in the uninsured.

The series starts August 26th and will continue every other Tuesday through November 4th. We'll have a link in the show notes where you can register and hope you'll be able to join us for this important conversation. We'll begin today with our Washington Watch segment, where I share updates on the most recent actions of federal policymakers and their anticipated impact on healthcare providers and payers.

Today's Washington Watch reflects information as of 8:00 Eastern, Monday, August 4th, 2025. My comments are based on what's being reported by the D.C. trade press at this time, mixed with a good bit of judgment about where things may go, based on my experience in D.C. So, today's remarks reflect information as of this moment and will likely change. As far as our agenda is concerned,

I really want to dig into the July 31st HRSA announcement about the 340B rebate model pilot. While the proposal is limited, it certainly has significant ramifications for covered entities and provides some indication as to how they're going to need to prepare. Also on July 21st, the Congressional Budget Office released its final OBBBA score. The bill results in a significant increase in the federal deficit over ten years and likely triggers the S-PAYGO sequester, which could result in additional Medicare cuts if Congress doesn't step in.

Also on July 31st, CMS released its fiscal year 2026 IPPS Final Rule. In a bit of good news for hospitals, CMS estimates the inpatient payments will increase by $5 billion nationally, that's about 4.3%, in Fed fiscal 2026 as a result of all changes in the rule. This is worth noting it's significant over the 4 billion that was proposed and is probably, like I said, some of the best news that hospitals have received in a couple of months.

On the opposite end of the spectrum, also want to cover the 2026 OPPS proposed rule, which makes for an interesting and challenging read. The payment update is again inadequate, although that will fall in line with the IPPS. But there are also a number of policy proposals that honestly were telegraphed or retreads from the prior Trump administration that are going to be difficult for hospitals to deal with.

CMS also, in mid-July, issued the 2026 Physician Fee Schedule Proposed Rule. While it was certainly lower key than the OPPS rule, there is a significant change to work-in-practice RVUs that will disproportionately impact hospital-based positions. So, starting with the 340B pilot rebate model. On Thursday, HRSA released its long-anticipated rebate model guidance. The guidance implements a relatively narrow, program focused on the 10 drugs that are subject to Medicare drug price negotiations for 2026.

Because this list is Part D, the initial impact will occur for drugs dispensed through community and contract pharmacies. Therefore, the impact on covered entities may vary by state and also participation with Apexus. The proposed rule notes that HRSA may allow for an expansion of the rebate model based on an assessment of the program. The rule also notes that the model is intended to address 340B and Inflation Reduction Act maximum fair price deduplication.

However, it is worth noting and important to note that the model requirements state that rebates should not be denied based on compliance concerns with diversion or Medicaid duplicate discounts. Also, any denial of a rebate, the manufacturers must provide specific documentation. In terms of timelines, manufacturers interested in participating must submit an application to HRSA that addresses specific questions in the Federal Register Notice by September 15th.

The application also requires assurances that all costs for data submission through an IT platform be borne by the manufacturer, with no additional administrative costs for running the rebate model passed on to covered entities. HRSA will approve applications for a January 1st, 2026 start date by October 15th, and HRSA is requiring that manufacturers approved for the rebate model pilot provide at least 60 calendar days’ notice to covered entities before implementation of the model.

And this notice must also include instructions for registering for any IT platforms that will be required. HRSA notes that manufacturers should allow covered entities to submit data for up to 45 calendar days, from the date the drug was dispensed. Participating manufacturers are also required to pay all rebates to covered entities, or, if they are denied, to provide documentation and support within 10 calendar days of submission.

While the model is far narrower in scope than those manufacturers attempted to implement last fall, I think there's still potential for disruption to cash flow for hospitals and covered entities. First, covered entities will have limited time to set up a rebate cycle to capture all of the data necessary and submit it timely.

In addition, when you think about what you're going to need to set this rebate cycle up, in addition to 340B expertise, you're also going to need experience managing rebates and also setting up systems of internal control to manage the workflow and ensure that data is collected and submitted accurately and timely. Second, and I think when I put my policy hat on, while the rule mentions denials and it mentions them exactly twice, it does not make any specific reference to an appeals process.

I would hope that HRSA will allow for one, but given that the parameters aren't addressed in the rule, that's concerning, and that's certainly something that covered entities and their associations should raise in comments back to HRSA about the model. Were I a covered entity subject to the model, in addition to investing the resources necessary to quickly stand up a rebate cycle,

I would also want to put infrastructure in place to track certain data elements, almost sort of like what you do now with your revenue cycle. So, starting to track how often the rebate was paid within 10 days by manufacturer, some type of equivalent metric to days in AR by manufacturer, denial rates. So, think about it by raw claims count, by raw dollar value, and as a percentage of both by manufacturer.

And then also, I'd track your cost, how much it's costing in terms of staffing, legal, IT support, other costs necessary to manage the rebate cycle. And I'd be certain to share that information not only with my hospital associations or my provider associations and 340B health, but I'd also want to share this information directly with HRSA and my elected officials at both the state and federal level, so they can understand that a) this is not cost-free to the covered entity, that you are incurring costs, and b) so that they can understand how this is skimming resources that should be otherwise used from the 340B program for its actual purpose, which is to expand access to care for socio-economically challenged populations.

Moving on to the second topic, the OBBBA updated CBO score. So, two weeks ago, the Congressional Budget Office released its updated estimate of the impact of OBBBA on Medicaid spending, the number of uninsured, and the deficit. The CBO now projects that the law will leave 10 million people without insurance by 2034, as well as increase the deficit by $3.4 trillion over the period 2025 to 2034, relative to the 2025 baseline. And this is despite the trillion dollars in federal Medicaid spending reductions that were included in Subtitle B.

What's interesting about this is, while we saw commentary after the House passed its bill, that OBBBA, because it increased the deficit, would trigger the mandatory 4% Medicare S-PAYGO sequester. We haven't seen similar commentary, but because the deficit is increased, I would anticipate that the sequester is triggered.

And if this is allowed to go into effect, that 4% cut to Medicare, it would be all Medicare payments or providers and Medicare Advantage plans and would now be on top of the standing 2% sequester that Congress tends to re-up annually to fund the various extenders. The S-PAYGO issue has come up from time to time, and at least over the course of my career, Congress has always, quote unquote, “wiped the PAYGO scorecard clean‚” and normally I would bet that will happen in one or more of the various bills that end up funding the federal government for 2026, because my guess is we're going to end up in a mix of, you know, some budget titles, pass some continuing resolution, some combination of both.

However, I would say that the historical rules for how Congress behaves haven't exactly held true for six months. So, I think this is something that's going to bear watching closely, particularly as we approach the end of this fed fiscal year and we get into next fed fiscal year. In terms of the IPPS final rule, on July 31st, CMS released the 2026 final rule.

CMS estimates that inpatient payments to hospitals will increase by $5 billion as a result of all changes in the rule. As I mentioned at the top, this is a significant increase over the $4 billion in the proposed rule. In addition to the payment updates, CMS also finalizes refinements to the mandatory Transforming Episode Accountability Model or TEAM Episode Payment Model, which now will begin on January 1st, 2026 for more than 700 hospitals.

Generally, the IPPS rule was finalized as proposed, and unlike the OPPS rule, most of the provisions that were finalized were non-controversial. Just to kind of cover a couple of things in the rule that I thought were interesting. The Market Basket update. CMS finalizes a net market basket update of 2.6%, and this is increased from 2.4%. So, you can put a pin on that and that will be your market basket update for outpatient as well.

And this is for hospitals meeting quality and interoperability reporting requirements. CMS also finalizes a capital update of 2.8%. Again, increased from 2.6%. Again, the Market Basket update is considerably lower than what Medpac recommendation would have been, which was 3.6%. And that's the combination of current loss. So, the final 2.6 plus 1%.

The nonpartisan advisory body believes that an increase to Medicare PPS payments for hospitals is merited, given that its group of relatively efficient hospitals have negative Medicare margins. It's also worth noting that the proposed Market Basket update does not account for anticipated increases in supply cost as a result of tariffs. Additionally, given that nursing and other clinical staff make up a disproportionate percentage of hospital cost structures, it's difficult, if not impossible, for hospitals to improve productivity at the same rates as the general economy, right?

You can't offshore nurse, you can't automate a nurse. So therefore, hospitals will need to find ways to reduce non-clinical labor costs and non-labor costs as a way to offset the compounding productivity reductions and costs of tariffs. In terms of wage index, based on reclassifications submitted by the deadline for the final rule, CMS estimates that 961 hospitals will receive their state's rule floor wage index value for 2026, and this is up considerably from 556 in the proposed rule.

In the final rule, CMS notes that in 2026, approximately 70% of geographically urban hospitals will receive a wage index equal to their state's rule floor, imputed floor, or frontier floor prior to any outmigration or 5% decrease cap adjustments. That's up from 58% in 2025. Other thing worth noting in the final rule is the uncompensated care pool for DSH hospitals.

CMS finalizes increasing UCDSH dollars available for distribution by $2 billion, and that's up from $1.15 in the proposed and that $2 billion is 2026 compared to 2025. This is the result of a couple of things. First, Medicare traditional dollars, so factor one, increased and that increase is a result of the increased market basket update and a slight upward adjustment by CMS to its assumptions about inpatient utilization.

Second, part of the increase was related to factor two or the rate of uninsured. In the proposed rules, CMS projected a one percentage point increase in CY 2026 uninsured rate from 7.7% in 2025 to 8.7% for a composite uninsured rate of 8.5%. Again, that was proposed. In the final, CMS adjusts its projection of the 2025 and 2026 uninsured rates upwards to 7.9 and 9.0%, respectively, resulting in a composite Fed fiscal 2026 uninsured rate of 8.7%.

You know, despite CMS’ recognition of the impact of the expiration of the Inflation Reduction Act's enhanced health insurance exchange subsidies, even this may be an under-projection of the uninsured rate. The Kaiser Family Foundation estimates that the number of individuals receiving advanced premium tax subsidies grew from 9.6 million in 2020, so the year before the enhanced subsidies began, to 19.7 million in 2024.

And so, the loss of these subsidies, assuming they expire on December 31st of 2025, will likely cause greater increases in the rates of uninsured, particularly in non-expansion states. Moving on to the OPPS proposed rule, on July 16th, CMS released its calendar year 2026 Outpatient Perspective Payment System rule. The rule includes payment updates for hospital outpatient departments and ASCs.

CMS estimates that before the accelerated recoupment related to 340B separately payable drugs, changes in the rule will increase OPPS payments by $1.61 billion in 2026 compared to 2025. CMS proposes a net market basket update of 2.4%. Obviously, that will be increased in the final rules we just discussed, and after budget neutrality and other adjustments, the resulting OPPS conversion factor is $91.75 for hospitals not subject to the 340B recoupment. For hospitals that are, the conversion factor will be $89.96. The net update is 2.4% for ASCs meeting the ASC quality reporting, resulting in a conversion factor of $56.21.

CMS estimates applying the Market Basket update to ASCs will increase payments by approximately $160 million in 2026. As I mentioned, CMS proposes to accelerate the recoupment of increased payments for non-drug services related to 340B payment policy that was overturned by the Supreme Court.

If finalized, CMS will increase the recoupment for non-drug related services from 0.5%, which was finalized in this year's OPPS rule, to 2% starting in calendar year 2026. That would shorten the recoupment period by 10 years. So instead of ending in 2041, it would end in 2031. And CMS believes this change is now necessary to ensure a more equitable impact on all hospitals by minimizing the potential changes in non-drug services over time.

It's estimated the recoupment will reduce payments by $1.1 billion in calendar year 2026 for providers that are subject to the 340B remedy offset. And so just to kind of clarify who that group is, the recoupment does not apply to providers that began billing Medicare under OPPS after January 1st, 2018. The proposed rule also includes an expansion or proposal to expand site neutral payment for drug administration services.

So, beginning in calendar year 2026, CMS proposes to pay for drug administration services provided and accepted off-campus HOPDs at the physician fee schedule equivalent rate, which is 40% of the applicable APC. If finalized, the policy would apply to APCs 5961 through 5964. The agency estimates in 2026 it will save $280 million. $210 of that will be saved by CMS, $70 million of that will be saved by beneficiaries in the form of reduced cost sharing, or I should say beneficiaries, state Medicaid programs and beneficiaries Medigap plans.

Like the site neutral clinic visit policies, CMS proposes to exempt rural sole community hospitals. And CMS is also proposing to apply this change in a non-budget-neutral manner. So, similar to the clinic visit policy that was finalized during the first Trump administration.

It justifies this action as a quote unquote “volume control method,” incites the growth in spending and drug administration services in accepted HOPDs. It's worth noting that, again, this was telegraphed by the president in an executive order on drug pricing that was released earlier this year. And in terms of the justification for doing this non budget-neutral, as I mentioned, CMS used the same rationale for the clinic visit policy.

When hospitals challenged that policy in court, it was upheld by a federal appeals court and the Supreme Court declined to hear an appeal. CMS is also requesting feedback on expanding the site-neutral clinic visit policy to apply to clinic services provided in on-campus HOPDs. It also seeks feedback on developing a systematic process for identifying ambulatory services at risk of being shifted to, quote unquote, “more expensive hospital-based settings due to financial incentives.”

In terms of other policies that are making a comeback in the 2026 OPPS proposed rule, in response to the president's drug pricing executive order, CMS announces it will field a drug cost acquisition survey for covered hospital outpatient drug costs. Based on the proposed rule, CMS anticipates the survey opening in late 2025 and closing in early 2026. And the rule notes that the results of the survey will be used to inform payment rates for covered outpatient drugs in the 2027 OPPS rule.

Reading between the lines, it is very likely that the results of this survey will be used to reprise a reduction in payment for separately payable Part B drugs acquired under the 340B program. Given there were response rate issues when the prior Trump administration attempted to field a similar survey in the spring of 2020, the 2026 proposed rule considers approaches to account for non-responses to ensure the data set provides a large enough sample size to be statistically reliable and meets statutory requirements.

Based on this commentary, CMS appears to assume that if a hospital does not respond to the survey, its outpatient covered drug costs are not significant. As a result, it discusses assigning these hospitals the lowest reported acquisition cost for its peer group. The rule also notes that CMS may consider expanding packaging in some instances, as low response rates might indicate insignificant outpatient drug costs.

Another change within the rule that is aligned with where the administration has indicated that it's going is related to price transparency. CMS proposes changes effective January 1st of 2026 to the hospital transparency requirements related to the machine-readable file. Also addresses penalties for noncompliance and compliance attestation.

In terms of the changes to the machine-readable file for prices based on algorithms and percentages, CMS proposes replacing the estimated allowed amount when negotiated charges included in the file are based on a percent or algorithm, with requiring hospitals to instead include the 10th percentile, 90th percentile, and median allowed amounts. And then to help machine readable files understand the reliability of these three statistics, CMS also proposes requiring hospitals to include the count of allowed amounts used to calculate these values. And the proposed rule provides a considerable amount of detail on how these statistics should be calculated.

In addition, with the machine-readable files, CMS is proposing requiring hospitals to encode the name of the hospital chief executive officer, president, or senior official designated to oversee the encoding of true, accurate, and complete data in the machine readable file. The rule also proposes hospitals include its National Provider Identifier to, quote unquote, “advance the comparability of data.”

And then in terms of penalties for noncompliance, CMS actually proposes decreasing noncompliance penalties in certain situations by 35% when a hospital waives its right to a hearing by an administrative law judge. Finally, CMS proposes replacing the existing compliance statement with a new compliance statement to make clear the agency's expectations that hospitals will encode all available negotiated rate information, including all information necessary to derive a dollar value when the hospital is unable to display negotiated rates as a dollar value.

The proposed attestation statement is more nuanced and specific than the existing requirement and would encourage hospitals to review that language carefully and provide feedback to CMS and their associations. A couple of other things in the OPPS proposed rule certainly not unexpected. Beginning in 2026, CMS is proposing to phase out the inpatient-only list by three years by removing 285 CPT codes that are mostly musculoskeletal services.

So, again, something the prior Trump administration proposed, but the Biden administration overturned. The services CMS proposes removing are listed in table 69, page 496 of the display copy so you can get a sense of what would come off. Correspondingly, CMS proposes to create a seven-level musculoskeletal procedures APC, to which it will assign procedures moved from the inpatient-only list based on applicable estimated cost.

CMS will complete the phaseout by calendar year 2029. Correspondingly, CMS is also expanding the ASC covered procedure list. The proposed rule expands ASC covered procedure lists by 547 services, 276 procedures in general, and then 271 of them are coming over from the inpatient-only list. In the list of procedures that CMS is proposing adding to the CPL are in tables 80 and 81, and those begin on page 568 of the display version.

Moving on to the physician fee schedule proposed rule. Again, mid-July, CMS issued it. Obviously, there's a lot more here than we have time to cover so I just want to hit a couple of things that stuck out. Starting in ‘26, as CMS it was required by MACRA. There will be separate conversion factors for physicians who qualify as Advanced Alternative Payment Model participants and those who don't.

The proposed CY 2026 qualifying APM conversion factor is $33.59, a 3.83% increase from the current conversion factor. The proposed 2026 conversion factor for non-APM qualifiers is $33.42, projected increase of 3.62%. And also important to remember here, the bump in physician payments is a result of the one-year increase in OBBBA. And so, unless Congress steps in for 2027, this is a one-time plus up.

The physician fee schedule proposed rule also creates a new mandatory alternative payment model, the Ambulatory Specialty Model, which is focused on specialists who treat fee-for-service beneficiaries with lower back pain or heart failure. The performance years would span 2027 through 2031. Impacting payment years 2029 through 2033. The model is designed to test how payment adjustments could incentivize specialists to focus on chronic disease prevention, early diagnosis and disease management.

Under the ASM, performance of participating specialists would be assessed at the individual level on four merit-based incentive payment system MIPS categories: quality, cost, improvement activities, and promoting interoperability. Scores from these categories will determine the payment adjustment, which could range from a low of -9% to positive 9% in the first year and would be applied to future Part B claims for Medicare fee for services.

The model is intended to be budget neutral, and the other thing to note is that, much like SNF VBP, CMS will take a chunk off the top of the pool of savings so it will automatically generate savings for the program. While CMS did not list the physicians that are required to participate, the agency notes that the model will target specialists who treat at least 20 fee-for-service beneficiaries per year with heart failure or low back pain over a 12-month period in roughly, quote unquote, “one quarter of core based statistical areas.”

Heart failure participants would include physicians who specialize in general cardiology. The low back pain cohort would include physicians specializing in anesthesiology, pain management, interventional pain management, neurosurgery, orthopedic surgery or physical medicine, and rehabilitation. The other two things that I'll flag in the rule are the efficiency adjustment in the changes to the facility practice expense RVUs. CMS has longstanding concerns about the reliability of the AMA Relative Value Scale Update Committee, or RUC survey data used to update practice expense RVUs.

For 2026, the agency is proposing an efficiency adjustment to RVUs and related intra-service portion of physician time for non-time-based services, based on the assumption that efficiency in performing these services should increase with experience. CMS is proposing to use the prior five-year Medicare Economic Index Productivity Adjustment, which would result in a -2.5% adjustment for the services that it's applied to.

In addition to this, CMS is proposing updates to the methodology used to calculate practice expense RVUs for facility-based physicians given the decline in the number of physicians working in private practices and the increase in employment by hospitals and health systems. For calendar year 2026, CMS is proposing to recognize greater indirect costs for practitioners in office-based settings.

The proposed 2026 Medicare payment increase marks the first for several years. However, providers will need to review the CPT codes they bill frequently as both the proposed efficiency adjustment and change to price expense RVUs will redistribute payments across both provider types and settings of practice. These changes will likely have a disproportionate negative impact on procedural and hospital-based physicians.

This concludes today's Washington Watch. Up next, I'll be joined by my colleagues, Michael Wolford and Stephen Kitterman, for a conversation about TEAM and other value-based care priorities for CMS.

CHAD MULVANY

I'd like to welcome our guest for today's episode, Michael Wolford and Steven Kitterman. Michael is a principal and Stephen is a managing director in the healthcare consulting practice at Forvis Mazars. They work closely together as the firm's go-to resources on value-based care, alternative payment models and episodes of care. Steven, Michael, thank you for joining us today.

I like to start by asking each of you to tell our listeners a little bit about your background in healthcare and how you came to the field. So, Michael, let's start with you.

MICHAEL WOLFORD

Yeah. Thanks, Chad. It's really a pleasure to be with you all today and to talk about some of my favorite topics here. But about me, I've been with our firm since 2010, and, obviously when I came here in 2010, bundled payments were just getting their start. Alternative payment models were more of a concept than reality. And so, one project in 2012 led to another and to another.

And we've really kind of ridden the wave of alternative payment model and value-based care activity at our firm, now Forvis Mazars, now for the last 13 years and counting. Just really, really thrilled to be sharing some insights with our listeners today.

CHAD MULVANY

You know, Michael, I remember when we first had the opportunity to work together when I was at HFMA starting up the Value-Based Healthcare Innovation Council and certainly as I was doing policy work in this space, you know, you were incredibly instrumental in helping me sort of think through some of these issues, have always appreciated the partnership and certainly your expertise. Stephen, same question to you.

STEPHEN KITTERMAN

Yeah. Thanks, Chad, for having me. And, I like it when Michael goes first in these things because as you said, we've worked together on these initiatives for a long time. And so, I just get to kind of edit what he says. I've been with the firm since 2012. In the industry prior to that, was in the accounting profession.

And as Michael said, this really energizes us. It’s what we get up thinking about from a professional standpoint. And, I think this is a great timed conversation just with everything that's going on, both in Washington and with these new alternative payment models coming out.

CHAD MULVANY

Yeah. No, I, Stephen, couldn't agree with you more particularly given that we're five months to the start of the mandatory bundle payment model TEAM. Can you both tell us a little bit about how Forvis Mazars helps organizations succeed in value-based care and value-based payment models?

MICHAEL WOLFORD

As we've mentioned, we do a lot of alternative payment model work. Which, alternative payment models are essentially a niche of value-based care. And so, when we say we help folks with value-based care and payment models really work, combining three assets or facets of the types of work we do.

Everything we do is deep in policy understanding, policy, interpreting policy, helping clients, which, for TEAM and for many alternative payment models are hospitals, health systems and physician practice, helping them understand the policies and their options for implementing those policies and complying with these rules, regulations, contracts, etc.

Second is, it's about the money. We help folks understand their financial risk and opportunity where they've got opportunities to improve their financial situation.

And, the final piece is the actual strategies to combine the policy with the financial to do different things. I think there's a little bit of a misnomer out there that alternative payment models allow organizations to just do the same thing, but earn a bonus, and that is false on its face.

There have been prior models like, other alternative payment models, like model payments, where organizations have succeeded without making substantial clinical and operational changes based on, you know, some of their past history or, certain provisions of the payment model. TEAM won't be that way. And so, to kind of come back to Chad's original question, we help people understand policy, understand where their performance exists today, and create strategies to improve performance in the future.

STEPHEN KITTERMAN

Yeah. And I'd maybe just add to that, Michael. I mean, you're exactly right. Taking a macro-level policy and putting it in a local context for providers and the industry. Just from a...it's going to impact. There is a macro-level impact of each of these implementations, but at the local context, there's going to be different levers that providers are going to have to look at in order to be successful.

Whether it's a mandatory value-based arrangement or a voluntary model in that sense. So, I think the other thing that I would add there is when we perform those services, you talked about the strategy that comes out of it, but there also is required a deep understanding of healthcare economics and what that looks like and how, those different methodologies work into a particular provider's performance.

And so, we've been really successful in kind of evaluating these models before they begin, doing the implementation part from a strategic perspective, and then kind of monitoring performance as you go through and making changes to increase chances of success.

MICHAEL WOLFORD

You know, I guess I'll just add one more thing, Steven. And I think a lot of people can say, yeah, we help with TEAM, we help with alternative payment models, and it's important to say things that we don't do. And one of the things we don't do is we don't take over as the managers for the hospital. We, to use the old proverb, the old saying, we teach you to fish, we don't fish for you.

MICHAEL WOLFORD

And so, I think that's an important differentiator, I think. Secondly, some of the ways that we help are more than just this specific alternative payment model because some, other folks that we run into in the marketplace, are very focused on one thing, and we tend to be less focused on just one thing and more focused on being a long-term adviser for anything related to value-based care.

00;37;09;22 - 00;37;47;04

CHAD MULVANY

You know, the way I think about it is, Michael, to your point, it's we help them with the strategy. We help them understand the data. We help them understand how to use the data to re-engineer clinical care delivery and clinical workflows, and to structure the work and to structure the incentives correctly.

So, to your point about the economics that the incentives become a line to improve outcomes for patients and help these organizations succeed in lowering the total cost of care, sharing in the savings and again, improving outcomes for patients, which is all incredibly rewarding work to the extent that, you know, I've had opportunities to work with you guys in the past.

Over the past 15 years, we've seen CMMI’s value-based care priorities shift with each new presidential administration. Tell us a little bit about what you've seen from the Innovation Center under the current Trump administration.

STEPHEN KITTERMAN

Yeah, Chad, I think that's a good question. And maybe if I could back up to the first Trump administration and then get to the present Trump administration, because I think it was a little bit different, right? I think in 2017 to 2020, there was a bit of a build-out and realignment, if you will. If you remember, there was a comprehensive joint replacement model that was mandatory when the first Trump administration came in.

That was kind of, peeled back a little bit. So, half the markets were exited from that model. They also had some other mandatory bundles that were canceled in the way of some cardiac and some surgical hip and femur fracture additions. So, I think we saw kind of a rollback of mandatory, influx of voluntary when they started the BPCI advanced model in that time period.

And then, you know, they tweaked a couple of other models in that time period. Then after that, when you had the Biden administration, and Adam Boehler came in, you saw CMMI kind of launch a lot of different models. They were focused on a bunch of different areas. We saw some episodic based, some primary care focus, some disease specific models, basically kind of a let's just test a lot of different models.

Let's see how they perform. Let's see if we can find an improvement in quality, an improvement in expenditures and savings for the Medicare trust fund. And I think you'll see that those models, as now they've had some evaluation reports done, have mixed results. Some did not save, did not have net savings, and some did have success, from an ROI perspective.

I think as we pivot to the current Trump administration, you're seeing a pivot in strategy. from CMMI. We're seeing models getting canceled quicker, we're seeing a shorter leash, we're seeing ROI take center stage versus some of the other initiatives or the other goals that CMMI may have had. And I think what you're going to see as we continue in that administration is very different than the first Trump administration, and that you're going to see more mandatory models, less voluntary.

You're going to see two-sided risk happen a lot more. And I also think you're going to see this creep into other payers, meaning how do we test these models that have been successful that do have an ROI? How do they impact Medicare Advantage or commercial payers? And that type of thing. So, Michael, anything to kind of add to that with?

MICHAEL WOLFORD

I think I'm just going to reinforce a point that you made, Stephen, which is you said that during the Biden administration, a lot of different models were tested. And even before the Biden administration, in the first 10 years of CMMI, from 2010 to 2020, they tested a lot of models to see what would work. The results are: CMMI was supposed to save billions of dollars, and the headline is they increased healthcare expenditures by more than $5 billion, clearly going in the wrong direction.

So new administration, new priorities in 2025. We are done testing. We are implementing what we know works. Episodes. Surgical episodes. Search. Things that are mandatory are working, and we need to, as a government, they say, we need to be pushing forward with things that are going to save money for the Medicare trust fund and get CMMI back to its originally stated purpose, which was to improve the health of Americans and do so more efficiently.

CHAD MULVANY

I think both of those are great insights and just want to pick up on threads that both of you pulled. So, you know, Michael, you talked about the Innovation Center sort of mission and mandate and the way I've thought about because the Trump administration came in and canceled a number of models, or the new Trump administration canceled a number of models.

And, you know, as you think about the original sort of thinking on the Innovation Center, it was to, quote unquote, “let a thousand flowers bloom.” Well, to your point, they're now pruning the garden. And then to Stephen’s point about Trump one and canceling the mandatory EPM model and then also dialing back on the mandatory piece of CJR.

I think a lot of people post-election in 2024 read that as TEAM was also going to get canceled because the administration had some issue with mandatory. And I think that fundamentally misread the circumstances around why both of those models were altered under the first Trump administration. And I think that had more to do with then at the time, CMS administrator prices, preferences for how some of those models were rolled out and who should be involved with them, as opposed to any philosophical bent by President Trump or his health policy staff other than former CMS administrator, or former HHS Secretary Price. When you think about everything that we've just talked about, what are the implications for healthcare organizations?

MICHAEL WOLFORD

Well, I think there's a realigning in our government around CMMI priorities. And clearly, one of the few places CMMI can influence decisions is in the hospital and provider settings. They're trying to create incentives or mandates, penalties, to change provider behavior. I mean, if you really boil it down, that's it. And so to the extent the federal government is going to try to get CMMI back to its original purpose, save money, improve health, prune back the garden of flowers to continue your analogy,

Chad, we're going to see more focused models and less voluntary participation. Just a little side note on voluntary: the same organizations, the same roughly 25 to 35% of hospitals participate in all of the voluntary alternative payment models, and very few of the remaining participate, very little or not at all. And that's not achieving the goals that CMMI was set out to accomplish.

And so the only way to avoid selection bias and to truly test improvement in health is to force providers into participating in these models. There have been a lot of forces over time, right? Forcing value-based, purchasing, forcing hospital-acquired condition penalties or readmission penalties and forcing MIPS. A lot of those models are still in place. All four of those that I just mentioned are still in place at the time of this recording, but they haven't had the same impact as something like a mandatory CJR or mandatory TEAM, which we'll talk about here in a few minutes.

STEPHEN KITTERMAN

Yeah. And I may add to that, you know, I think, as Michael, you said before, you know, there historically there's been chances for, call it arbitrage or what have you, where there are tailwinds to participating in these models. What you're going to probably see now, is CMMI go less in the innovation space and more in the ROI, right?

They are looking at they're probably under a little bit of pressure to make sure that these savings are going to be achieved. And so we're going to go from, and Michael, you and I have talked about this for years, the perfect and popular test of models. We're probably going to see models go from that popular scale to more perfect in terms of achieving savings versus being popular with providers.

MICHAEL WOLFORD

When we say perfect and popular, though, we really mean that when there is an option to participate in something. Organizations are ... organizations, like providers, are looking for imperfection. Imperfections in the model, or loopholes, or unintended policy gaps, which are totally legal and appropriate, are imperfect and drive participation. The flip side of that is, when you get a perfect model that has no loopholes, that has no arbitrage, where you really have to change a bunch of stuff to either not lose or win.

Those models are not super popular, and you can see that that evolution comes straight forward with Bundled Payment for Care Improvement Advanced Program, where there were a lot of arbitrage opportunities and loopholes in 2018, ‘19 and ‘20. The program was very popular. At one point, there were, I think, 800 IPPS hospitals enrolled in BPCI Advance. That’s our acronym for it: BPCI.

And then at the end of ‘20, they closed all those loopholes. CMMI closed all the loopholes, and participation, by the end of ‘21, was down to a shell of its former self. Today, with all of those loopholes closed, there are barely a hundred hospitals left participating in BPCI Advanced. Listen, I'm not making a judgment call of whether it's good or bad that there are or aren't loopholes.

We simply need to acknowledge that in mandatory models there is no demand curve. They have established a demand curve and if you're on that list, you're participating and the response is, how do we understand what we're doing today? The deep understanding of policy and the strategies we can undertake to, you know, win, or not lose.

CHAD MULVANY

If we shift our focus to TEAM, the mandatory bundled payment model that begins on January 1st of 2026, can you give us just a one-minute overview of the model for those listening, who may not be familiar with it?

MICHAEL WOLFORD

Well, TEAM stands for Transforming Episode Accountability Model, and it is a five-year mandatory bundled payment model that starts in ‘26 and ends in ‘30. Hospitals were selected to participate based on where they're physically located, and 700 hospitals were selected in 188 CBSAs nationwide. These are surgical bundles for five inpatient and outpatient procedures, including joint replacements, hip and femur fracture treatments, spinal fusion, cabbage, and major bowel procedures.

They’re 30-day episodes, and the revenue cycle is not disrupted, except for once a year when Medicare pays the gains or recoups the losses from the hospital. The first year is upside only. But after the first year, a majority of hospitals will bear risk on 20% of the episode costs. Call that like 5 to $6000, on average, potential loss over the total case count. Organizations that are in TEAM can still participate in other alternative payment models like a Medicare ACO. And there are requirements. Think of these like enhanced conditions of participation in Medicare that don't have financial bearing, but simply must be done for these hospitals, for all TEAM patients, or risk other types of penalties.

CHAD MULVANY

And if I'm a hospital that's been drafted into it, into TEAM, how do I prepare?

STEPHEN KITTERMAN

Yeah, it's a question that we're getting a lot right now. And there probably is a couple of initial considerations there. One would be understand the methodology. Education to your stakeholders on what's included, what's not included, how do expenditures get calculated, how do target prices get set? And really, what's our exposure?

So, how many of these patients do we have coming in the door? What are the market conditions that may change as we go into 2026? And how do we perform from a expenditure versus benchmark perspective in these particular episodes. So that may be at the 10,000-foot level. If you go down a little bit and you determine that you are performing poorly or have opportunities for improvement, if you project that you may lose money or have to pay back CMS in a downside year, figuring out why that is.

So, we know that there's a number of primary key performance indicators that are going to drive performance in this model. If we can get in front of those right now and start to implement the correct strategies, then by the time we're looking at two-sided risk, we're going to be in a great position to impact our performance.

MICHAEL WOLFORD

Stephen, you just mentioned key performance indicators. And you're absolutely right. Those KPIs are great proxies for performance. I just want to comment that those KPIs are not traditional hospital KPIs. They are not hospital contribution margin. They are not hospital length of stay. They're not cost of the implant that you put in a hip or knee replacement patient.

They are how many patients do you send to inpatient rehab? How long do patients stay in skilled nursing? If they get readmitted, to whom do they get readmitted and for what reason? And how long do they stay? So, these are things that require additional data sets, additional insights that most hospitals don't have in their traditional hospital patient financial accounting systems.

STEPHEN KITTERMAN

Yeah. Great point, Michael. And maybe just to actually put a put a figure to that, you know, these particular surgeries, you're looking at anywhere from 25 to 60% of these bundles or these 30-day expenditures being outside of the four walls of the hospital that does the surgery. So that is at a premium as well.

CHAD MULVANY

And just to pick up on one of the points about the data. I mean, these are large data sets that are hard to manipulate. So, unless you've got expertise in doing it, it's not something that you do off the side of your desk on a Tuesday, because you've got the time and you need to figure it out. If you're an organization that hasn't started preparing and you've been drafted, is it too late to get your ducks in a row for 1/1/26?

MICHAEL WOLFORD

It's not too late. Certainly not too late. But I think the time to act is now. And it's because this is not a flip the switch type of activity. I use examples all the time where it takes 100 things to go right, for TEAM to succeed. And that's everything from discharge planning and registration and surgeons and anesthesiologists and, and, and the list goes on.

It takes a lot of coordination activity that isn't part of a hospital's typical day to day for TEAM to go right. And so, the more time you give yourself to make the plans and implement the strategies, the better. With that said, some of the things that are causing organizations the most headaches are clearly the data which we've talked about, but also these model requirements.

When we say model requirements, we mean primarily three things. Every TEAM patient must be screened for health-related social needs. Every TEAM beneficiary must receive notification that he or she is in the TEAM model, or may be in the TEAM model before they leave the hospital. And most of all, the third of three, is that patients must receive a referral to primary care before discharge, and that one particular is causing a lot of concern and consternation among the hospitals with whom we're working, because it's simply not built into today's work processes.

So, to come back to your question is it too late? Of course not. But every day that passes is one fewer day to even meet the most basic elementary requirements, not even to mention the opportunities you have to improve the financial performance.

CHAD MULVANY

Well, and because of the design of the model and the benchmarks or target prices for each of the episodes, it's incredibly important to perform well in the early years. Can you share a little bit about why that is?

STEPHEN KITTERMAN

Yeah. Happy to. So, as you mentioned, these benchmarks, which is the kind of denominator that you're going to be compared to, in these models is based at your census region level, which is a handful of states. I believe there's nine of these census regions and essentially every patient with the same diagnosis or same surgery, in those census regions is going to start at the same target price.

Of course, they're going to be adjusted for patient characteristics and things like that and patient acuity. But, that being the case, there is a pace of change element to this. They're going to continue to rebase those target prices each year of the model. So, if your performance is getting better, but it's getting better at a slower rate than the other providers in your region, you're going to face some headwinds if you will, as the model goes on.

So, you're going to see maybe targets get a little more aggressive and that type of thing. The other thing to consider there is, and this is, I think, a really important point that we've come to emphasize a lot is, when we talk about all the providers in your region, we're not only talking about the 750 or so that got picked for this model, we're talking about all IPPS hospitals.

So, you are actually compared to all of those hospitals, even if they're not participating. So, it's bigger in size, it has a more macro-level consideration. And it's also going to emphasize even more the importance of pace of change in your expenditure patterns and performance.

CHAD MULVANY

Yeah, it's a little bit like the old hiking joke. You don't have to outrun the bear, but you do have to outrun at least one of your hiking companions. You know, you guys have both alluded to it with 60% of the spend happening outside of the four walls of the hospitals.

Clearly, TEAM is going to impact other providers. Can you talk a little bit about what that means for post-acute care providers and TEAM markets?

MICHAEL WOLFORD

Well, when we say post-acute care providers, I just want to be more specific that we're talking about Part A billing rehab providers. So that's home healthcare agencies, skilled nursing facilities, inpatient rehab and LTAC, which is a long-term acute care hospital. So, when we talk about those, some might also throw in outpatient therapy to that bucket, those post-acute providers that provide services to TEAM patients.

The expense that Medicare bears on those providers for TEAM patients are, in effect, being paid by the hospital all through TEAM right? We’re not changing revenue cycle, but we're talking about every dollar paid to any other provider is not a $1 that comes back in gains to the hospital, or becomes a penalty to the hospital.

With that said, if you are representing a post-acute care provider and listening to this podcast, my recommendation is to call the hospital where a lot of your referrals come from to talk about their preparations for TEAM, understand where you sit in their historical performance and volume and costliness and quality results that they're looking at. All the things that matter to that TEAM hospital that you can help influence.

And the last point here on post-acute care providers is there are many TEAM hospitals that also own post-acute assets. And when you discharge to a post-acute asset that you own, this is ... this gets too simple, yet complicated financial mathematics.

And so those these have been pretty sensitive financial and strategic discussions with the hospitals with whom we're working, around how do we not cut off our nose to spite our face with the post-acute assets that we own? All that said, I can't shy away from the fact that post-acute providers should prepare for a change with TEAM patients come ‘26.

STEPHEN KITTERMAN

Well, and Michael, just to add to that, as you said before, just as hospitals should understand their performance, post-acute care providers, while they don't bear direct risk, need to understand how they're contributing to those mandated hospitals performance in TEAM. Also looking at, hey, how much volume are we looking at? How many of these patients are we caring for in our post-acute setting? And what is our value proposition? How do we fare in outcomes and those primary key performance indicators that we talked about before?

So, just as much as the hospitals are preparing to bear that direct financial risk, these post-acute providers are going to have some indirect contribution to that performance.

CHAD MULVANY

You know, I think those are great insights, particularly for our post-acute providers that are listening. You know, when you think about there are a lot of hospitals that were not selected for TEAM. How should they be thinking about TEAM and episodes in general, given that they might be next?

MICHAEL WOLFORD

Well, I'll jump in here because, episodes and hospitals go together. That's been, I don’t want to say proven over time, but hospitals bearing direct accountability for episodes, while some might not like it, there is a recipe there that seems to be working in CJR and they believe will work in TEAM. So, with that said, I think hospitals that weren't selected, if you represent one of the 23 or 2400 IPPS hospitals out there that was spared from TEAM, don't rest on your laurels for too long, because if this works, Medicare will expand TEAM to more surgical types and more hospitals.

CJR has already laid the groundwork for that. CJR is the Comprehensive Care for Joint Replacement model, which was the precursor to TEAM. CJR started with 300 hospitals and now TEAM has more than 700. So, it's only a matter of time before the right policy gets expanded to more hospitals. And what can you do about it? Like, how can you prepare?

A lot of hospitals are participating in Medicare ACOs, and if you're one of those, you ought to be looking at the episodic data that Medicare is giving you. They call it shadow bundle data. It's really rich and really valuable information. The data doesn't necessarily reflect all of the hospital’s patients based on the attributed provider. But, this is a great starting point to get data to understand your performance, to make strategies, to be prepared for the future.

I think this maybe like leads to the ultimate question. Chad, is what do we need to do to prepare? Whether we're in TEAM, not in TEAM, like bundles, don't like bundles, have started preparing, have it prepared. Like, it doesn't matter what the scenario is. What do you need to do today? And I would simply lead with three simple steps.

Step one, understand your history. The reality is history can't be found in your patient financial accounting system. It needs a different data set and a different set of data manipulation talent.

Second, you need to create a plan to make the future different than the past or to lock in that past so that it doesn't regress in the future.

And third, you need to have some way to continually monitor that performance so that you're not taking your eye off the ball. We know the atrophy that happens when you don't practice something regularly. When you don't practice episodes, skills all the time, they will regress in a matter of weeks or months, not years.

CHAD MULVANY

Perfect. You know. We have talked a lot about the value-based care space, but what else haven't we covered that you think our listeners should know?

MICHAEL WOLFORD

Chad, I feel like we covered a lot of stuff today, but I guess I would leave the listeners with this that value-based care is bipartisan and is here to stay. I cannot imagine a scenario, barring overhaul of the Medicare system and the way healthcare is paid for in America, where value-based care doesn't continue to grow.

The past has shown that. The number of two-sided risk arrangements has doubled in the last seven years. So, I just have to believe value-based care is going to continue to grow. And so, if you're listening to this and you think value-based care is not something we're good at today, it's not a big part of our revenue portfolio today, we can afford to wait. You may be right, but that won't be the answer forever.

Value-based care, alternative payment models, pop health, goes by lots of different names, but it is here to stay and it is a capability and competency that is related to hospital operations. But it is not hospital operations. It requires a different set of capabilities.

CHAD MULVANY

Michael. Stephen, thank you again for joining me today and sharing your insights. Certainly, always learn something from these conversations with you guys. I also want to thank our listeners for tuning in. If you'd like to learn more about TEAM and other value-based care models, we have links to some of our articles that are related in the show notes.

I hope you'll join me in two weeks for the next episode of Achieving Health. Till then, hope everybody stays well.

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