(a) Preliminary target price application. CMS establishes preliminary target prices for TEAM participants for each performance year of the model as follows:

(1) MS-DRG/HCPCS episode type. CMS uses the MS-DRGs and, as applicable, HCPCS codes specified in § 512.525(d) when calculating the preliminary target prices for each MS-DRG/HCPCS episode type.

(i) CMS determines a separate preliminary target price for each of the 24 MS-DRGs specified in § 512.525(d).

(ii) Preliminary target prices for a subset of the MS-DRGs specified in § 512.525(d) include certain HCPCS codes as follows:

(A) HCPCS 27130 and 27447 are included in MS-DRG 470.

(B) HCPCS 27702 is included in MS-DRG 469.

(C) HCPCS 22551 and 22554 are included in MS-DRG 473.

(D) HCPCS 22612 and 22630 are included in MS-DRG 451.

(E) HCPCS 22633 is included in MS-DRG 402.

(2) Applicable time period for preliminary target prices. CMS calculates preliminary target prices for each MS-DRG/HCPCS episode type and region for each performance year and applies the preliminary target price to each episode based on the episode's date of discharge from the anchor hospitalization or the date of the anchor procedure, as applicable. CMS also does all of the following:

(i) Accounts for MS-DRG and HCPCS/APC code changes between the baseline period and performance year by identifying diagnosis or procedure codes that are being moved from one MS-DRG or HCPCS/APC to another for the relevant performance year and mapping the new or revised MS-DRG or HCPCS/APC codes to the original codes that were used in the baseline period.

(ii) Constructs preliminary target prices using the remapped MS-DRG or HCPCS/APC codes in the same manner described in paragraph (b) of this section, with target prices for each MS-DRG/HCPCS episode type, inclusive of episodes initiated by anchor hospitalizations and anchor procedures that would be related to the remapped MS-DRG or HCPCS/APC codes.

(iii) Adjusts the preliminary target price by calculating and applying the scaling factor to the standardized episode spending of the MS-DRG portion for the anchor hospitalization or standardized episode spending of the HCPCS/APC portion of the anchor procedure.

(3) Episodes that begin in one performance year and end in the subsequent performance year. CMS applies the preliminary target price to the episode based on the date of discharge from the anchor hospitalization or the date of the anchor procedure, as applicable, and reconciles the episode based on the date of discharge from the anchor hospitalization or the date of the anchor procedure.

(b) Preliminary target price calculation. (1) Calculation of the preliminary target price. CMS calculates preliminary target prices based on average baseline episode spending for the region where the TEAM participant is located.

(i) The region used for calculating the preliminary target price corresponds to the U.S. Census Division associated with the primary address of the CCN of the TEAM participant, and the regional episode spending amount is based on all hospitals in the region, except as specified in § 512.540(b)(1)(ii).

(ii) In cases where a TEAM participant is located in a mandatory CBSA selected for participation in TEAM which spans more than one region, the TEAM participant and all other hospitals in the mandatory CBSA are grouped into the region where the most populous city in the mandatory CBSA is located for pricing and payment calculations.

(2) Baseline periods and associated performance years. CMS uses the following baseline periods to determine baseline episode spending:

(i) Performance Year 1: Episodes with anchor hospitalization start dates or anchor procedure dates beginning on or after January 1, 2022, and anchor hospitalization discharge dates or anchor procedure dates between January 1, 2022, and December 31, 2024.

(ii) Performance Year 2: Episodes with anchor hospitalization or anchor procedure start dates beginning on or after January 1, 2023, and anchor hospitalization discharge dates or anchor procedure dates between January 1, 2023, and December 31, 2025.

(iii) Performance Year 3: Episodes with anchor hospitalization or anchor procedure start dates beginning on or after January 1, 2024, and anchor hospitalization discharge dates or anchor procedure dates between January 1, 2024, and December 31, 2026.

(iv) Performance Year 4: Episodes with anchor hospitalization or anchor procedure start dates beginning on or after January 1, 2025, and anchor hospitalization discharge dates or anchor procedure dates between January 1, 2025, and December 31, 2027.

(v) Performance Year 5: Episodes with anchor hospitalization or anchor procedure start dates beginning on or after January 1, 2026, and anchor hospitalization discharge dates or anchor procedure dates between January 1, 2026, and December 31, 2028.

(3) Baseline episode spending weights. CMS calculates the benchmark price as the weighted average of baseline episode spending, applying the following weights:

(i) Baseline episode spending from baseline year 1 is weighted at 17 percent.

(ii) Baseline episode spending from baseline year 2 is weighted at 33 percent.

(iii) Baseline episode spending from baseline year 3 is weighted at 50 percent.

(4) Exclusion for high episode spending. CMS applies a high-cost outlier cap to baseline episode spending at the 99th percentile of regional spending for each of the MS-DRG/HCPCS episode types specified in paragraph (a)(1)(ii) of this section for each baseline year individually.

(5) Exclusion of incentive programs and add-on payments under existing Medicare payment systems. Certain Medicare incentive programs and add-on payments are excluded from baseline episode spending by using, with certain modifications, the CMS Price (Payment) Standardization Detailed Methodology used for the Medicare spending per beneficiary measure in the Hospital Value-Based Purchasing Program.

(6) Prospective normalization factor. Based on the episodes in the most recent calendar year of the baseline period, CMS calculates a prospective normalization factor at the MS-DRG/HCPCS region level, which is a multiplier that ensures that the average of the total risk-adjusted benchmark price does not exceed the average of the total non-risk adjusted benchmark price, by doing the following:

(i) CMS applies risk adjustment multipliers, as specified in § 512.545(a)(1) through (3), to the most recent baseline year episodes to calculate the estimated risk-adjusted target price for all performance year episodes.

(ii) CMS divides the mean of the preliminary target price for each episode across all hospitals and regions by the mean of the estimated risk-adjusted target price calculated in § 512.540(b)(6)(i) for the same episode types across all hospitals and regions.

(7) Prospective trend factor. CMS calculates a multiplier for each MS-DRG/HCPCS episode type and region which is applied to the most recent calendar year of the applicable baseline period. The multiplier is calculated using linear regression on the logarithmically transformed average regional spending for each MS-DRG/HCPCS episode type in the baseline years and trend years at both the regional and national level. CMS exponentiates the coefficient from this regression to calculate the estimated annual change (where an exponentiated coefficient of 1 signifies no change) in average regional spending for each MS-DRG/HCPCS episode type from year to year. CMS then squares this value to calculate the 2-year prospective trend factor. The prospective trend factor for each MS-DRG/HCPCS episode type and region is the average (arithmetic mean) of the multiplier for that MS-DRG/HCPCS episode type and region and the national average for that MS-DRG/HCPCS episode type.

(8) Communication of preliminary target prices. CMS communicates the preliminary target prices for each MS-DRG/HCPCS episode type for each region, and the preliminary target prices for each MS-DRG/HCPCS episode type specific to the TEAM participant before the performance year in which they apply.

(c) Discount factor. CMS incorporates an episode category specific discount factor of 1.5 percent for CABG and Major Bowel episodes and 2 percent for LEJR, SHFFT, and Spinal Fusion episodes to the TEAM participant's preliminary episode target prices intended to reflect Medicare's potential savings from TEAM.

[89 FR 69914, Aug. 28, 2024, as amended at 90 FR 37204, Aug. 4, 2025]