Commercial contracts that have not been actively managed in three years are almost certainly paying below market. And starting in 2026, 741 hospitals are mandatory participants in a new bundled payment model that reaches directly into how orthopedic surgeons are paid.
Key Takeaways
- Commercial payers frequently use Medicare fee schedule multiples as their internal benchmark; knowing your Medicare rate for each high-volume code is the starting point for any commercial negotiation.
- BPCI Advanced generated $344 million in savings for CMS in model year five; CMS launched the mandatory TEAM model in January 2026, covering joint replacement, spinal fusion, and hip fracture at 741 hospitals across 188 markets.
- Under TEAM, the hospital is the accountable entity, but surgeon practice patterns – implant choices, post-acute care routing, readmission rates – directly affect whether the hospital shares savings or absorbs risk, creating new leverage points in hospital-physician relationships.
- A payer contract renegotiation cycle of three to four years is a minimum; the practice that treats contracts as evergreen is typically operating at rates that have been eroded by inflation and fee schedule reductions the payer implemented without renegotiation.
Orthopedic practices are among the most commercially valuable providers in any payer’s network, and most of them negotiate accordingly – which is to say, not very. The typical orthopedic group signed its major commercial contracts years ago, accepted the payer’s renewal terms because fighting them seemed like more work than it was worth, and now operates at rates that have been quietly eroded by fee schedule adjustments, carve-outs added at renewal, and reimbursement changes the payer implemented without notice. The gap between what a well-negotiated orthopedic contract pays and what a default-renewed one pays is not marginal. Across high-volume orthopedic codes, it can run to tens of thousands of dollars per physician per year.
Commercial payers have an internal logic that most physicians never see. They set rates using Medicare fee schedule multiples as their primary benchmark, which means that understanding your Medicare payment for every high-volume procedure code is the foundation of any commercial negotiation. If you do not know what CMS pays for a primary total knee, a rotator cuff repair, or a lumbar fusion at your facility type, you do not know whether the payer’s multiple is competitive, and you cannot make a credible argument that it is not.
The MedPAC payment basics documentation notes that commercial fee schedules for professional surgical procedures routinely use Medicare-like reimbursement structures based on the resource-based relative value system. That structure makes the math tractable: know your top twenty procedure codes by volume and by Medicare payment, request the payer’s fee schedule for those codes, compute the implied multiple, and compare it to what a well-advised practice of your size in your market should be able to obtain. The negotiation is then about moving the multiple, not about fighting over individual codes.
The Bundled Payment Landscape, Accurately Described
CMS has spent a decade building volume in episode-based payment models for orthopedic procedures. BPCI Advanced, the voluntary predecessor program, held providers financially accountable for the total cost of a defined clinical episode – typically 90 days following surgery or discharge. CMS reported that BPCI Advanced generated $344 million in savings in model year five. That track record provided the analytical foundation for what came next.
On January 1, 2026, CMS launched the Transforming Episode Accountability Model, known as TEAM. Unlike its predecessors, TEAM is mandatory. It covers five surgical episode types: lower extremity joint replacement, surgical hip and femur fracture treatment, spinal fusion, coronary artery bypass graft, and major bowel procedure. It applies to inpatient prospective payment system hospitals in 188 core-based statistical areas – 741 hospitals in total. The model period runs five years, through December 31, 2030.
Under TEAM, the hospital is the accountable entity. The hospital receives a target price for each episode, bears the financial risk if actual episode costs exceed the target, and shares in the savings if costs come in below it. Physician practices are not directly at risk – but they are not outside the equation either. Surgeon practice patterns drive a substantial share of episode cost: implant selection, post-acute care routing, length of stay, readmission rates. A hospital operating under TEAM has a direct financial interest in aligning with surgeons whose practice patterns generate lower episode costs, and it has new tools to do so.
TEAM makes the hospital accountable, but the surgeon’s implant choices and post-acute routing are where the episode cost is actually determined. That creates leverage in hospital-physician relationships that did not exist two years ago.
What TEAM Means for Independent Orthopedic Practices
For independent orthopedic groups operating in one of the 188 TEAM markets, the model creates both risk and opportunity. The risk is that hospitals under TEAM pressure will preferentially direct surgical volume to employed or closely affiliated surgeons whose practice patterns are known quantities. Independent practices that have not engaged proactively with their hospital partners on episode cost data may find that their surgical volume is quietly redirected rather than openly reduced – a pattern that is difficult to detect until it has been occurring for a year.
The opportunity is that TEAM creates a basis for a more explicit economic conversation with the hospital. An independent group that can demonstrate low implant costs, high rates of discharge to home rather than skilled nursing facility, and low 30-day readmission rates has a quantifiable value to a hospital under TEAM that did not exist before the model. That value is worth negotiating over: co-management agreements, preferred network status, and gainsharing arrangements are all structures that can capture it. Gainsharing arrangements under TEAM are subject to the Stark Law and Anti-Kickback Statute, and any such arrangement requires a legal review that accounts for both – but the structures exist and have been used successfully under prior episode models.
Running a Commercial Contract Audit
Before you renegotiate, you need to know what you have. A contract audit for an orthopedic practice starts with identifying your top twenty procedure codes by volume and revenue, then pulling the allowed amount from your practice management system for each payer for each code for the trailing twelve months. That gives you the realized rate, which is more useful than the contracted rate for two reasons: it captures the effect of downcoding, bundling, and modifier denials that reduce actual payment below the contracted fee schedule, and it surfaces payers whose claim processing behavior does not match their contracted terms.
Compare your realized rates to Medicare for the same codes. Compute the implied multiple. Then benchmark that multiple against what practices of similar size and specialty in your region are obtaining – your state medical association, specialty society contacts, or a practice management consultant with regional payer data can provide useful context. Payers know which practices track this and which do not, and the negotiating posture you bring to a renewal conversation is informed by that knowledge on their side.
The renegotiation itself is a process, not a conversation. It begins with a written notice of intent to renegotiate, submitted well before the contract anniversary date. The initial ask should be higher than your target, and it should be supported by specific data: your volume of procedures, your quality outcomes if you have them, and the competitive alternatives available to payers who do not maintain you in network. Most payers respond to the first request with a counter that is below what you can ultimately obtain. The practices that stop at the first counter leave the most money on the table.
From the Field
A four-physician orthopedic group in the Southeast had not renegotiated its two largest commercial contracts in five years. A realized-rate audit found that their effective multiple on high-volume joint and spine codes was running at 118 percent of Medicare, well below regional benchmarks. Their two largest payers together accounted for 61 percent of professional collections. Our fractional COO engagement built the procedure-level realized-rate analysis, prepared the written negotiation packages, sat in on both payer calls, and managed the back-and-forth over twelve weeks. One payer moved to 138 percent of Medicare on the core surgical codes. The other required a credentialing review before a rate conversation could happen – we managed that process as well. The combined rate improvement added several hundred thousand dollars to annual collections on the same surgical volume, with no change to clinical operations.
The Difference Between Advice and Negotiation
A consultant can build the audit, prepare the benchmarking analysis, and hand you a negotiation strategy that is well-reasoned and accurate. If you have a practice administrator with experience in payer contracting who can carry the letters, the calls, and the counter-offer management, that plan is executable and consulting is the right purchase. We will tell you that directly.
What more often happens is that the payer negotiation lands on the practice administrator alongside credentialing, prior authorizations, billing follow-up, and the month-end close. Something gives, and in most practices it is the payer negotiation, which has no immediate deadline and whose consequence – a rate that is below market for another three years – is invisible. A fractional executive runs the payer strategy while being embedded in the practice: sitting in on the calls, managing the timeline, working the counter-offers, and keeping the process moving. The label “fractional executive” is not regulated, and some firms use it for ordinary consulting delivered remotely. The test is whether the person is working inside your systems with your team. For a payer negotiation to close, somebody has to keep it moving from week to week, and that work happens inside the practice or it does not happen.
Sources
- CMS, Transforming Episode Accountability Model (TEAM), January 2026 — https://www.cms.gov/priorities/innovation/media/document/bpcia-my7-rfa
- CMS, Bundled Payments for Care Improvement Advanced — https://www.cms.gov/priorities/innovation/media/document/bpcia-my7-rfa
- AAOS Now, What OHSU Orthopaedics Has Learned from CMS Episodes of Care Programs (May 2026) — https://www.aaos.org/aaosnow/2026/may/managing/managing03/
- MedPAC, Outpatient Hospital Services Payment System, October 2024 — https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_25_OPD_FINAL_SEC.pdf
More in the Orthopedics Series
- Building Ancillary Revenue in Orthopedics: Imaging, PT, and ASC — the ancillary revenue model that adds durable income without adding clinical hours.
- Orthopedic Physician Compensation: wRVUs, Conversion Factors, and What Goes Wrong — the compensation model that pays for performance without generating partner disputes.
- The PE Offer in Orthopedics: What to Evaluate Before You Sign — the framework for evaluating a PE offer against a credible independence plan.
- Block Time and Clinic Flow: The Throughput Problem Most Orthopedic Groups Ignore — the scheduling and block time changes that increase surgical volume without adding a surgeon.