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This week, in our In Focus section, 红领巾瓜报鈥� Medicare experts review the changes to the Center for Medicare and Medicaid Innovation鈥檚 (CMMI)  proposed in the Fiscal Year (FY) 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Proposed Rule (). 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鈥檚 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鈥檚 implementation.

Background on 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鈥檚 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鈥檚 required  the impact of the possible  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 鈥渟hould not result in dramatic shifts to the Medicare savings estimate鈥� of $481 million in savings to CMS across the model鈥檚 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听听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.

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红领巾瓜报鈥� (红领巾瓜报鈥檚) 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听below.

April is always a busy month for Medicare. It is the month when (MA) policies get finalized and the bid season moves into the final stretch. It is also the starting month for annual rule making for the next cycle of Medicare payment rules. These provide important signals about the Center for Medicare & Medicaid Services (CMS) plans for modernizing Medicare鈥檚 quality programs and commitment to value-based care. 

This month, we鈥檝e highlighted the work that do to support organizations鈥� Medicare projects. We鈥檝e discussed our experts’ ability to support organizations with the transition to digital quality measures. Our experts were on top of policies that made it into final MA rate notices and policy rules. We also flagged what wasn鈥檛 included and what this may mean for the future of Medicare policy. We examined the notable policy proposals in Medicare payment rules for inpatient hospitals and how these are a 鈥渃anary in the coal mine鈥� for other upcoming rules, especially related to making quality reporting and measurement more efficient and actionable. And we asked whether Medicare is ready for the next era of innovation?  

We are at the start of a new season of priority setting for CMS. Early signals of what will be important to policy officials include alignment with the Make America Healthy Again (MAHA) initiative, digital health, transparency, and addressing fraud. 

Impact of Recent Policy Changes 

Recent policy changes have impacted the Medicare landscape in various ways. Changes announced in recent Medicare Advantage and Part D rate notices and policy include updates to payment models, quality reporting requirements, and measures to enhance transparency and accountability. The focus on digital health and the integration of digital tools into clinical models are reshaping how care is delivered and measured. Additionally, the emergent emphasis on chronic disease and program integrity is driving organizations to take a fresh look at their data, models of care, and strategies for collaborating with partners to improve patient care. Staying informed and adapting to these policy changes is crucial for organizations to remain competitive and deliver high-quality care to Medicare beneficiaries. 

The Future of Medicare 

Medicare will continue to play a vital role in providing healthcare to the in the program, as it is poised for significant transformation through the integration of digital tools, increased focus on quality care, and the need for cost efficiency in both Medicare Advantage and in Fee-for-Service Medicare. Organizations that stay ahead of these changes and align with policy priorities will be well-positioned to drive meaningful improvements and ensure the sustainability of the program. 

As we look ahead, the commitment to innovation, transparency, and quality will be key to shaping the future of Medicare. 红领巾瓜报 is helping clients navigate this dynamic landscape in , integrated care programs for dual eligibles, Medicare Advantage Stars and Medicare value-based care programs, PACE, and rural-focused health by providing actuarial support, long term strategic plans for data and quality initiatives, modeling of payment policies, and analyses of alternative payment models.   

If you missed it, watch the replay of our Medicare Town Hall from Wednesday April 30^th. And to learn more about our work in Medicare, read our recent blog post Navigating Uncertainty in Medicare and other Federal Health Programs or visit our Medicare page. Our policy team, actuaries, clinicians and digital quality experts are ready to help advance your Medicare projects. Contact us at鈥�[email protected]. 

This week, our second In Focus article addresses the transition to end the Medicare Advantage Value-Based Insurance Design (VBID) model, which launched in 2017 and subsequently has been expanded with bipartisan support. This model was designed to promote flexible benefit design, reduce cost barriers, and enhance care for targeted populations, especially dual eligibles and individuals with chronic conditions. In December 2024, however, the  that the model would be terminated by the end of 2025, citing unmitigable costs to the Medicare Trust Funds, totaling more than $4.5 billion across 2021 and 2022 alone鈥�.

Despite its popularity and effectiveness in improving medication adherence and addressing social determinants of health, CMS concluded that the cost trajectory was unsustainable within the parameters of the Innovation Center鈥檚 mandate.

The end of the VBID model is not the end of innovation in Medicare Advantage (MA); rather, it is a strategic inflection point. Plans that approach this transition with a proactive, data-driven lens will be best positioned to maintain competitive advantage, compliance, and member trust. This article reviews critical steps VBID plans should be taking and how Medicare Advantage Organizations (MAOs) and their partners can best prepare for future opportunities.

Pain Points and Key Strategic Decisions for MAOs

As plans prepare for a post-VBID world, they face a series of complex trade-offs鈥攅specially those with Dual Eligible Special Needs Plans (D-SNPs) that had $0 drug cost sharing under VBID. With the end of CMS鈥檚 drug cost offset in the initial coverage phase, MAOs will need to determine whether and how to absorb those costs through alternative mechanisms. In addition, plans will need to make important decisions regarding their other VBID benefits, namely, whether to discontinue or transition them to the special supplemental benefits for the chronically ill (SSBCI) program. MAOs should consider the following key strategic decisions:

• Offer an Enhanced Alternative (EA) or Basic Alternative (BA) Part D Plan:听To replicate $0 cost sharing, MAOs would need to use EA or BA plan designs with $0 deductibles and $0 copays across all tiers鈥攁n expensive move and potentially untenable investment for many.
• Tier-Specific Buy-Downs (T1/T2):听Some plans may consider buying down T1 and T2 copays to $0, a much less costly approach. Others may consider moving key T2 drugs to T1, while keeping T1 copays at $0 to protect access and using non-zero dollar T2 copays to limit costs.
• Competitive Alignment Considerations:听MAOs offering broader cost-sharing reductions (e.g., $0 copays on both T1 and T2 drugs) may experience undesirable shifts in enrollment patterns depending on how competitors structure their formularies and benefit designs. MAOs should consider competitive parity and attempt to maintain a balanced benefit structure that aligns with market norms.
• Transferring VBID Benefits to SSBCI:听Some benefits鈥攍ike non-health-related transportation, healthy foods, and general supports for living鈥攃ould migrate to the SSBCI program. But SSBCI has strict eligibility, documentation, and operational requirements, calling for nuanced workflows and cross-departmental coordination.

Action Plan: What MAOs Should Be Doing Now

To navigate this transition successfully, teams of experts at Wakely, a 红领巾瓜报, Inc. (红领巾瓜报) Company, are already working with VBID stakeholders to evaluate multiple transition scenarios. Our experts recommend that MAOs take the following actions:

What to Watch: Future Innovation in Medicare Advantage

Though VBID is ending, the innovation landscape is far from static. With the new Trump Administration and the return of Abe Sutton鈥攁 VBID expansion advocate鈥攁ppointed as Director of the CMS Innovation Center, our experts are closely monitoring the potential for a revised version of VBID or similar models. Stakeholder advocacy could influence how CMS prioritizes the next wave of innovation. Plans should consider engaging in dialogue now to shape what happens next.

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Wakely is embedded in MA strategy and policy. Wakely and 红领巾瓜报 teams are working with clients to evaluate multiple transition scenarios, helping them optimize value, protect Star Ratings, and preserve member satisfaction during this pivotal shift, while also supporting targeted policy engagement efforts to ensure their perspectives are reflected in future CMS and Innovation Center decision making.

Our joint capabilities bring together:

• Actuarial modeling expertise听to quantify cost and risk impacts of design alternatives
• Regulatory insight听to ensure compliance with CMS requirements
• Operational support听to help you implement SSBCI programs efficiently
• Market strategy consulting听to align your plan offerings with local competition and enrollment goals
• Policy advocacy听to help clients engage in the conversation around what comes next after VBID

To connect on additional questions contact our featured experts听below.

This week, our In Focus section reviews the policy changes that the Centers for Medicare & Medicaid Services (CMS) proposes to make in the Fiscal Year (FY) 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Proposed Rule (). The IPPS proposed rule, released April 11, 2025, includes several important policy changes that will alter hospital margins and change administrative procedures, beginning as soon as October 1, 2025.

Key Provisions of the FY 2026 Hospital IPPS and LTCH Proposed Rule

For FY 2026, CMS proposes to modify several hospital inpatient payment policies. We highlight and interpret six of these proposed policies that may be among the most impactful for Medicare beneficiaries, hospitals and health systems, payers, and manufacturers, as follows:

1. Annual inpatient market basket update
2. Labor share reduction
3. Medicare Advantage (MA) data integration in measuring hospital readmissions
4. New Technology Add-on Payment (NTAP) program growth
5. Transforming Episode Accountability Model (TEAM) modifications
6. Uncompensated care payment increase for disproportionate share hospitals (DSHs)

Annual Inpatient Market Basket Update

Proposed Rule: CMS鈥檚 FY 2026 Medicare IPPS Proposed Rule will increase payments to acute care hospitals overall by 2.4 percent from FY 2025, amounting to an estimated $4 billion increase in reimbursement. This update is based on a hospital market basket increase of 3.2 percent and a 0.8 percent reduction for total factor productivity.

红领巾瓜报 Analysis: CMS鈥檚 2.4 percent increase results from the estimated rate of increase in the cost of a standard basket of hospital goods鈥攖he hospital market basket. For beneficiaries, this payment increase will lead to a slightly higher standard Medicare inpatient deductible and an increase in out-of-pocket costs. For hospitals and health systems, payers, and manufacturers, the proposed payment increase (2.4 percent) is consistent with economy-wide inflation over the past year (2.4 percent) and below the amount that MA plans will receive for 2026 (5 percent).^[1], [2] Although the published payment update for FY 2026 is 2.4 percent, other policy changes result in the average change in inpatient payments totaling slightly more than 3 percent. We anticipate the proposed 2.4 percent increase will increase somewhat by the time CMS finalizes these rates later in the year.

Labor Share Reduction

Proposed Rule: CMS proposes to modify the hospital labor share used to reimburse hospitals for inpatient services. Using 2023 hospital cost report data CMS proposed a national labor鈥憆elated share of 66.0 percent, a decrease from the labor share of 67.6 percent.

红领巾瓜报 Analysis: Every five years, CMS recalculates the hospital market basket and the hospital labor share using updated cost data from the hospital cost reports. For FY 2026, CMS conducted its routine rebasing calculation using 2023 cost report data, replacing the 2018 cost data currently used. As a result, CMS calculated that the cost of labor accounts for a slightly smaller share of total hospital costs in 2023 than in 2018. The labor share is used within the IPPS to identify the proportion of payments that are affected by the hospital wage index in an effort to adjust payments for geographic variation in labor costs. The consequence of a lower hospital labor share is that a slightly smaller share of hospital inpatient payments will be adjusted by the hospital wage index. The subtle impact of this change is that hospitals with higher wage index values may experience reductions in payment. Further, this downward revision of the labor share signals that hospital wages, salaries, and employee benefits account for a smaller share of total costs in the post-pandemic environment. This change may come to a surprise to some, as hospital labor costs have been a subject of concern since the COVID-19 public health emergency.

Medicare Advantage Data Integration in Measuring Hospital Readmissions

Proposed Rule: CMS proposed to make several modifications to the Hospital Readmissions Reduction Program (HRRP), including:

• Refining all six readmission measures to add MA patient data
• Removing the COVID-19 patient denominator exclusion from measures
• Reducing the applicable period from three years to two
• Modifying the DRG payment ratios in the payment adjustment formula to include MA beneficiaries
• Clarifying that CMS has the discretion to grant an extension to hospitals under the extraordinary circumstances exception (ECE)

CMS also proposed to include MA data in other measures included in the Hospital Value-Based Purchasing (VBP) program and the Inpatient Quality Reporting (IQR) program.

红领巾瓜报 Analysis: The inclusion of MA data in the HRRP may have significant payment implications for many hospitals because it will alter their readmission rates in unanticipated ways, particularly if hospitals鈥� MA patients differ substantially from traditional Medicare beneficiaries. Importantly, the inclusion of MA data in the HRRP measures, and also within the VBP program and the IQR program, signals that CMS is moving toward broader integration of MA data into Medicare fee-for-service reimbursement systems.

New Technology Add-on Payment Program Growth

Proposed Rule: CMS proposed to continue NTAP status for 26 products because they continue to meet the newness criteria required under this program. In addition, within the proposed rule CMS discusses new NTAP applications for 43 additional products. Among these applications, 29 were submitted under the alternative pathways for breakthrough devices and qualified infectious disease products (QIDP).

红领巾瓜报 Analysis: The overall number of products with NTAPs is on par with other recent years, but the number of NTAP applications has blossomed in FY 2026 as the result of the alternative breakthrough application pathway. This alternative pathway allows breakthrough devices and certain antibiotic and antimicrobial drugs to apply for NTAP using an abbreviated application process.

Transforming Episode Accountability Model Modifications

Proposed Rule: CMS proposed several modifications to the forthcoming CMS Innovation Center TEAM framework. Among the various methodological modifications proposed to this mandatory payment model beginning January 1, 2026, CMS proposed to take the following actions:

• Limit the deferment period for certain hospitals
• Replace the Area Deprivation Index (ADI) with the Community Deprivation Index (CDI)
• Use a 180-day lookback period and Hierarchical Condition Categories (HCC) for risk adjustment
• Remove health equity and health-related social needs data reporting
• Expand use of the Skilled Nursing Facility (SNF) three-day rule waiver

红领巾瓜报 Analysis: The critical aspect of CMS鈥檚 TEAM provision is that the agency proposes to follow through with this Innovation Center model while cancelling other Innovation Center payment models in recent months. It also is noteworthy that the agency has proposed to remove the health equity data reporting requirements for TEAM in line with actions taken with many other CMS programs. Another proposal of note is the plan to expand the use of the waiver to circumvent the SNF three-day inpatient stay rule, which will allow hospitals to discharge patients more quickly to SNFs.

Uncompensated Care Payment Increase for Disproportionate Share Hospitals

Proposed Rule: CMS proposes to increase uncompensated care payments to DSHs by $1.5 billion in FY 2026.

红领巾瓜报 Analysis: CMS鈥檚 proposal will increase uncompensated care payments to hospitals by 26 percent. This increase is driven by CMS鈥檚 assumption that the rate of uninsured people will increase to 8.7 percent of the population in 2026 from 7.7 percent in 2025.

Stakeholder comments on the IPPS proposed rule are due no later than June 10, 2025.

Connect With Us

The 红领巾瓜报, Inc. (红领巾瓜报), 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 (100%) claims data. We also support clients with DRG reassignment requests, NTAP applications, and analyses of Innovation Center alternative payment models.

For more information about the proposed policies, please contact our expert below.

[1]听, by Expenditure Category. Modified April 10, 2025. Available at.

[2]听. April 7, 2025.