With the CJR-X final rule now released in July 2026, the first mandatory, nationwide episode-based payment model for lower extremity joint replacement is set to begin on January 1, 2028. For most acute care hospitals, participation is now settled and required, and attention turns to readiness. Readiness under a model of this kind is decided well before the first reconciliation.
Two models have already shown what that readiness requires. The original CJR model ran its full course and has been evaluated, so its record of which hospitals earned a reconciliation payment and which repaid is a matter of evidence rather than opinion. The Transforming Episode Accountability model, known as TEAM, is in its first performance year now, so it offers a live view of where hospitals struggle when a mandatory episode model takes effect.
To help clients understand how CJR-X will be different from prior models, we asked Milliman consultants Pamela Pelizzari and Dan Muldoon for their thoughts. Both Pamela and Dan worked at the CMS Innovation Center, with Pamela serving as Senior Technical Advisor and Program Lead, and Dan as Director of Data Analytics and later as Deputy Director of Research and Evaluation. Both now serve as consultants at Milliman, where they advise providers and other healthcare clients on episode-based payment models, readiness, and performance improvement.
We asked them what will separate success from failure under CJR-X, and their answers return to one feature hospitals underestimate: a hospital can hold its spending below the target price and still earn nothing, because quality performance now determines whether it is eligible to be paid at all. What follows examines why our experts believe CMS built the model that way, where hospitals most often fall short, and what an organization can still influence in the year that remains.
The conversation
Q1. Looking back at the original CJR model, what separated the hospitals that earned a reconciliation payment from those that owed money?
Dan: CMS looked at this directly, in the reconciliation and evaluation results, so the pattern rests on evidence rather than impressions. Hospitals that engaged their orthopedic surgeons early, coordinated with post-acute providers, and set up formal financial arrangements with them were more likely to succeed. Hospitals meeting the CJR definition of a safety net hospital, based on a high share of dually eligible patients, were more likely to owe a repayment. That is a structural disadvantage rather than a failure of effort, and CMS has worked to address it in the later models, including TEAM and CJR-X.
Q2. TEAM is in its first performance year now. Operationally, where is it showing hospitals struggling first once a mandatory episode model goes live, in the workflow, documentation, and post-acute coordination that decide an episode?
Pamela: One of the first struggles is grasping the full scope of what the hospital is now accountable for and which parts it can influence. Hospital leaders understand what happens inside a hospital’s walls, and they usually have a strong relationship with the surgeons, but they often lack a clear view of what happens after the patient leaves. TEAM holds the hospital financially responsible for that post-acute period immediately, whether the hospital decision-makers understand spending patterns or not, so the first task is to understand that entire window. Some of the work is on-the-ground, studying current standards in care transitions and discharge planning, and some is a data exercise, requiring the hospital to turn what CMS provides into actionable insights.
Dan: I would add the discipline of taking in the CMS data regularly and learning its cadence, since episodes take time to complete and the claims that capture them take longer still. For a hospital with low volumes or a variable case mix, a single outlier episode with unusually high spending can make early results look far worse than they will be at the end of the performance year. Conversely, a single episode with unusually low spending may make results appear only somewhat better than they will be at the end of the year because an episode can never cost less than its anchor stay. Until more episodes complete, it can be hard to know whether an outlier signals the year ahead or noise that will settle as the case mix normalizes.
Q3. CJR-X makes quality a gate on eligibility, so a hospital can beat its target and still earn nothing. Why did CMS give quality that much weight, and what does this signal about the program’s intent?
Pamela: In a program like CJR-X, which will be mandatory nationwide within the core Medicare fee-for-service program, CMS has a strong interest in confirming that beneficiaries still receive high-quality care. It cannot reward hospitals because they provided fewer or cheaper services without building in protections to verify that patients still get the care they need. Applying quality directly to the financial result signals that CMS treats quality as seriously as cost. The biggest change from earlier programs is that strong quality now carries real financial upside: CMS effectively removes the discount factor for the highest quality scores, letting a hospital keep the full savings without any reduction in its target price.
Dan: It is also worth understanding why quality carries this weight. For CMS to expand a model under the Innovation Center’s authority, it must satisfy a statutory test: the Health and Human Services Secretary must determine that the expansion is expected to reduce spending while maintaining quality, maintain spending while improving quality, or, ideally, both reduce spending and improve quality. That tie to quality, and CMS’s ability to measure it, is part of how CJR-X qualifies as a permissible expansion under the statutory test.
Q4. The Composite Quality Score is capped at twenty points across five measures. Which measures are hospitals most likely to underperform on, and how much can they move in a year?
Pamela: The Composite Quality Score is built from five measures, which fall on a spectrum of how specific they are to the orthopedic service line. Two of the measures are only applicable to primary total hip and knee procedures, where a hospital can benchmark itself and clinical leaders can work with the clinicians who run the CJR-X pathways, so there is a realistic path to move them within a year. Others are hospital-wide, assessing the whole institution rather than a specific service line like orthopedics. Hospital leaders still need to know where the institution stands on those measures, but they are harder to change quickly, since they reflect more than the patients touched by CJR-X.
Q5. Beyond day-to-day execution, what is the most common strategic misjudgment leadership tends to make in year one, the assumption that quietly costs a hospital its reconciliation?
Pamela: I would put it plainly: the misjudgment is believing there is time to wait before acting. We regularly see hospitals end up in a materially different position at reconciliation than their leaders had expected at the beginning of the model, and they do not learn this until a year later, because the financial consequences are not visible until then. Complacency is the greatest risk, because once hospital leaders examine where there is spending variation or utilization above the benchmark, they discover how hard those patterns are to change, and that the work takes more runway than they expect.
Dan: It follows from what Pamela described. The most common misjudgment is not taking the time, across leadership and staff, to absorb the full extent of what the hospital is now accountable for, financially and on quality. When that groundwork is skipped or delayed, it can become easy to defer the things that take longest to arrange: engaging the surgeons and post-acute providers, building new care pathways, and finding new ways to understand and influence what happens to patients after discharge. Waiting on that work is the early misstep.
Q6. Where does the spending that decides a reconciliation sit, and where are hospitals surprised to find that they are bleeding it, whether in post-acute placement, readmissions, or length of stay?
Dan: It sits mainly in post-acute placement and readmissions. Any internal savings on the anchor stay do not show up in the reconciliation amount. By the end of the original CJR model, more than three-quarters of these procedures were already performed in the outpatient setting, so much of the site shift has happened. Moving a procedure out of the hospital (and to an ambulatory surgical center) also moves it out of the episode. So within CJR-X episodes, this all points to what happens after the anchor procedure. For a hospital that has never done episode-based payment, or not in the past several years — perhaps not since the original Bundled Payments for Care Improvement model eight or more years ago — the question is how often patients go to inpatient rehabilitation facilities, long-term care hospitals, or skilled nursing facilities rather than home, whether some could go home safely, and how often they return to the hospital.
Q7. If a hospital wanted one honest read of where it stands today, what would you have it measure first?
Pamela: I would begin with accurate benchmarking against comparable institutions, not only in terms of financials but also in terms of utilization. Hospital leaders often start the program believing that they already manage post-acute care well and give patients what they need without excess. Without comparing their own patients against similar patients elsewhere, and seeing whether their hospital uses high-cost post-acute care like skilled nursing facilities more or less often than their peers, they do not really have a clear read. Because the CJR-X target prices are set based on the hospital’s regional peers, the hospital’s performance relative to others matters a great deal to its success.
Dan: That is also where I would start and then connect it to the next step. Once a hospital knows where it stands, it can map out the areas to focus on, aiming to match its peer institutions or improve on their results for comparable patients.
What this means for your hospital
A consistent lesson runs through both programs. The hospital leaders who did well understood their position early and acted on it, while the leaders who struggled were often the ones who waited for the program to begin before examining where they stood. CJR-X will reward the same discipline. Because reconciliation is retrospective and baseline data is already accruing, the result of the first performance year is being shaped now.
What has changed is the weight placed on quality. Cost control alone no longer secures a reconciliation payment, because a hospital that scores poorly on quality can forfeit its earnings even after beating its target price. That makes quality performance a financial matter that belongs on the same dashboard as spending against the regional benchmark, rather than a clinical detail managed separately.
The honest first step is to measure where you stand. A hospital leadership team that can see the hospital’s projected position against its regional benchmark, understand how its quality score might move its reconciliation, and identify the documentation and post-acute gaps that quietly erode its target has what it needs to act while there is still time. MedInsight Bundles was built to provide that view, using claims data to model episodes, project reconciliation across quality levels, and surface the variation that separates a strong position from a weak one.
CJR-X begins in 2028, and the hospitals that will do well are answering these questions in 2026. Request an opportunity analysis to see where your organization stands under CJR-X, using Medicare research data with no lift from your team.
