Inadequate Risk Adjustment for Emergency Surgical Care in Episode Pricing Under Medicare’s Transforming Episode Accountability Model

Introduction: The Transforming Episode Accountability Model (TEAM) is a mandatory Medicare bundled payment model that began in January 2026. It provides regionally benchmarked, risk-adjusted target prices for 30-day surgical episodes of care but does not adjust for emergency case status. This national analysis assesses the contribution of emergency and elective surgery to price variation under TEAM. Methods: Using 100% Medicare Part A and B fee-for-service data from 2022 to 2024, episodes were constructed for major bowel operations. Emergency and elective episodes were compared by fee-for-service reimbursements, target prices, clinical severity, and quality. Emergency status was included in risk adjustment to episode pricing to assess policy alternatives. Analysis: Emergency episodes were $13,390 more expensive than elective under fee-for-service. Under TEAM specifications, average target prices for emergency episodes fell by 4.8%, while mean elective prices rose by 1.5%. As expected, emergency episodes had higher Hierarchical Condition Category (1.835 vs 1.749), Diagnosis-Related Group (DRG) index (3.504 vs 2.629), and Length of Stay (13.5 vs 8.2 days) ( P < 0.0001). The addition of emergency case status to the TEAM risk adjustment model improved modeling explanatory power by 10% to 37% stratified by DRG. Discussion: This study finds that omitting emergency status from TEAM risk adjustment leads to significant losses for emergency cases compared to fee-for-service reimbursement rates, while elective cases are reimbursed more. As emergency cases may not be modifiable by hospitals and surgeons, the inclusion of emergency procedures under TEAM may disproportionately penalize hospitals providing necessary emergency surgical operations. The Centers for Medicare & Medicaid Services should consider accounting for procedural urgency in TEAM’s implementation.