There's a reason CMS is launching TEAM

The soon to be fully published final rule on the 2025 inpatient prospective payment system includes several sections that detail what I refer to as DRG+30, and the CMS Innovation Center refers to as TEAM. The model will be mandatory in about 190 CBSAs spread out across most states. This is a good thing and long overdue. In fact, it's certainly frustrating that it won't start any sooner than 2026, but then again, there are still a lot of details to be hammered out.

The program is simple and centered on five high volume Medicare DRGs. Hospitals will be on the hook for all costs of care from the moment of admission through 30 days post discharge. There will be a few services that will be excluded, but the biggies such as all post-acute care and any readmissions during those 30 days will be included. That means hospitals will have to manage post acute care and not preferentially refer to facilities with which they have a financial interest, as is the case today.

In a recently published paper by Jason Buxbaum to which I had the privilege of contributing, it's clear that facilities that have these financial relationships had a lower participation in programs like the Medicare Bundled Payment Program than those that didn't. As Charlie Munger used to say: Show me the incentive and I'll show you the outcome.

Or as I'm fond of saying: It's still the incentives, stupid.

The Medicare bundled payment program has been in place for close to a decade and the evaluations have systematically shown that savings accrue from better management of post-acute care. Everyone knows it. But unless you make these programs mandatory or change the payment, those whose total revenue will be negatively impacted will sit it out. If it were up to me, I would change the DRG system to include all post-acute care and call it a day. In fact, that's what XO Health Inc. is doing with its more than 150 conditions and treatments and procedures around which it has created fixed prices for employers and plan members. Stop fiddling around and get it done.

But there is an upside for all hospitals in this mandatory program. Today, hospitals accept 90% of Medicare DRG rates from MA plans (sometimes a little more, and sometimes less). Granted, in exchange, the carriers that own the MA plans give them 250% and way more on commercial rates since it doesn't affect their bottom line (it's the employers and employees who pay). But the increase in the volume of MA beneficiaries combined with the substantial portion of all inpatient stays that are Medicare/MA means that hospitals are not making a lot of margin on those patients. Further, MA plans have been wielding the big prior auth stick to block discharges, lengthening the inpatient stay. In case you're wondering, MA plans do this to reduce the post-acute costs and therefore end up by having a cake and eating it to, at the expense of hospitals. The trade-off of higher commercial rates is coming under scrutiny and pressure as prices become increasingly public, so hospitals are in a bit of bind. So how is this an upside?

Well, instead of just waiting around for TEAM to come to their front doors, hospitals should take advantage of it. Use the same methods to renegotiate inpatient rates with all MA plans. Bundle the DRG with 30 days post-acute and take full responsibility for those costs. And don't bother with just five DRGs, go all in. The MA plan can still get 10% savings on the total, but instead of it coming from lower DRG rates, it will come from lower post-acute costs. And the savings can in fact be much greater than 10%, giving hospitals a nicely positive margin per patient. Further, since the hospital is taking risk on total inpatient and post-acute costs, all discharge-related prior auth would immediately cease.

I can tell you with 100% certainty the outcome of such a shift in payment. Post-acute care will finally be optimized in the United States. Readmissions during the 30-days post discharge would all but be eliminated. Every patient that can be would be discharged to home with home health support. Hospitals would hire social workers and other para-professionals to make sure that addressable social determinants of health were addressed. And the health systems with SNFs and IRFs would have to find a way to divest from now money-losing assets.

Of course, readmissions beyond 30 days would rise, which is a bad thing, and also fully predictable. However, that's also solvable by extending the time window of the bundle to 90 days. The pigs at the trough will inevitably squeal, but for everyone else that means fewer wasted dollars and better patient outcomes.