Equity360: Gender, Race, and Ethnicity—CMS TEAM and the Elusive Goal of Health Equity

Everyone wants to be paid fairly for the work they do. If one works harder, longer, or requires more resources to get the job done, the payment should be higher. Otherwise, people—and healthcare systems—are likely to be less motivated to perform more complex work [12].

This is the problem with existing bundled payment models for lower extremity joint replacement: They provide no risk adjustment to payments based on patient factors that are more likely to result in a higher level of healthcare resources (and spend) through one’s episode of care. Orthopaedic surgeons have repeatedly expressed concern that this lack of risk adjustment decreases the motivation of healthcare systems and surgeons to provide equitable access to surgeries, as “cherry picking” of healthy patients and “lemon dropping” of less-healthy patients has been seen in some models [2, 8].

The good news is that the Center for Medicare and Medicaid Services (CMS) will be adding patient-level risk adjustment to the new bundled payment model, Transforming Episode Accountability Model (TEAM), that will become effective January 1, 2026. We believe that TEAM is a step in the right direction, but are concerned that some flaws in the model will diminish its positive impact on health equity. In this column, we share our thoughts on how to improve the model and emphasize the need for ongoing advocacy from orthopaedic surgeons to preserve equitable access to these procedures.

CMS TEAM Includes Patient Social Risk Adjustment

Recognizing that hospitals cannot change a patient’s social determinants of health, TEAM will be the first episode-based, alternative payment model that incorporates “a social risk adjustment to ensure target prices properly reflect the additional financial investment needs to care for underserved individuals” [4]. TEAM will apply only to patients enrolled in traditional Medicare. It is much broader in scope than prior bundles, with the inclusion of five surgical procedures (hospital inpatient stay or hospital outpatient procedure): lower extremity joint replacement, surgical hip and femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedures.

Starting in 2026, hospitals in select geographic areas will be held accountable for the cost and quality of surgeries through the first 30 days after discharge. These hospitals will earn a shared savings bonus or incur a financial penalty based on their cost and quality performance against the target price for each procedure. Additionally, hospitals can contract with surgeons to participate in TEAM under gainsharing (financial reward) and alignment payment (financial risk) agreements [4].

TEAM will provide financial risk adjustments for both medical complexity and social risk factors to each individual patient’s target price (minus a 2% automatic discount). Adjustment variables include a patient's age, Hierarchical Condition Category (a measure of clinical complexity), and whether they qualify for the Medicare Part D Low Income Subsidy or otherwise live in an area with a low Area Deprivation Index (ADI) [11]. This concept recognizes that different levels of resources may be required to achieve an equitable care outcome for each patient, which is a welcomed recognition.

Health Equity Concerns With the Model

We believe TEAM is well intentioned but has problematic features. The fundamental concern is whether the increased administrative burden and financial risk of TEAM will force hospitals with less ability to assume financial risk to discontinue procedures, thereby making access to such care—a critical component of health equity—more challenging for underserved patients.

ADI is an imperfect tool for social risk adjustment for all individuals. The ADI allows for “rankings of neighborhoods by socioeconomic disadvantage in a region of interest (such as at the state or national level). It includes factors for the theoretical domains of income, education, employment, and housing quality” [10]. However, in cities or regions with high property values and high costs of living, state and national ADI metrics will mask neighborhoods with significant disparities. Examples include California, the state with the highest cost of living in the nation, as well as cities like New York City and Washington, DC, where affluent and disadvantaged neighborhoods can be in close geographic proximity [1].

Additionally, we believe the broad scope of TEAM will put safety-net hospitals and those with lower volumes of procedures at particular risk. Hospitals with higher-volume inpatient THA and TKA have lower costs, shorter lengths of stay, and higher rates of discharges home compared to lower-volume hospitals and thus receive an advantage in bundled payment models [3]. While TEAM does permit safety-net hospitals to participate for 3 years at no financial risk, they will be subject to financial penalty thereafter if performance targets are not met. With 40% of American hospitals losing money from general, day-to-day operations in 2024, and the poorest-performing hospitals showing negative operating margins of -4% to -19%, this risk of financial penalty may impact the services they can offer [7]. This is particularly relevant for rural hospitals, which tend to generate a much lower financial margin than hospitals in urban areas to begin with and often respond to financial pressure by discontinuing money-losing services, such as obstetrics and delivery services.

What Can We Do?

While TEAM has taken a much-needed step forward in incorporating some form of social risk adjustment, improvements are needed to avoid the unintended consequence of decreased access to care, particularly for marginalized communities. Through our professional organizations, we can continue to advocate for bundled payment models that reward hospitals and surgeons for improvements in health equities they can control, and not hold them accountable for factors they cannot.

We recommend focusing these advocacy efforts on the following opportunities for improvement:

• Risk adjustment for poverty must be improved, given the limitations of the ADI

• Functional status of the patient must be part of risk stratification (which is something orthopaedic surgeons identified a long time ago)

• Evaluate hospitals on improvements in access to care and quality of care, not just on performance against all participants [6]

• Define high-risk populations and treat them as a specific risk group, with an emphasis on rewards for improvements in access and quality of care [6]

• Expand the criteria for safety-net hospitals to include a threshold for uncompensated care that is provided by the hospital [5]

• Allow all participating hospitals to elect the no-risk participation track for all performance years [5]

• Decrease the financial penalty risk

• Address the exclusion of Medicare Advantage (MA) patients from this model, which would improve health equity: More than 50% of Medicare beneficiaries are enrolled in a MA program, and rates of enrollment are higher for minorities (67% of Hispanic patients, 59% of Black patients, and 55% of Asian and Pacific Islander patients compared with 43% of White patients) [9].

We believe all orthopaedic surgeons recognize the need to continue studying the impact of these alternative payment models on hospital systems, ourselves, and most importantly, our patients. In our opinion, while including health equity concepts in a reimbursement model represents an advancement, the true impact TEAM will have on improving access to care is unknown. The battle for health equity is far from over.