Medicare Accountable Care Organizations (ACOs)

Legal Authority

• 42 U.S.C. § 1395jjj — Social Security Act § 1899 (as added by ACA § 3022); establishes the Medicare Shared Savings Program; directs CMS to develop and approve ACO agreements; establishes shared savings and loss-sharing framework; requires CMS to set quality benchmarks for ACO participation
• 42 CFR Part 425 — CMS implementing regulation; establishes the legal and operational framework for Medicare ACOs: eligibility criteria, governance requirements, assignment of beneficiaries to ACOs, benchmark-setting methodology, shared savings/loss tracks, quality reporting, and program compliance requirements

Key Mechanics

Medicare ACOs participate in the Shared Savings Program (MSSP) through one of two basic tracks: basic (shared savings only, no downside risk in early years, rising risk as the ACO matures) or enhanced (two-sided risk — ACO shares in both savings and losses). Beneficiary assignment is retrospective and primarily based on the primary care provider they see most frequently; beneficiaries are not locked into ACOs and may see any Medicare-participating provider. CMS sets an ACO-specific spending benchmark reflecting historical per-beneficiary spending for the ACO's assigned population; the benchmark is risk-adjusted and trend-adjusted annually. If the ACO delivers care below the benchmark while meeting quality standards, CMS shares a percentage of the savings (50%–75% depending on track); ACOs in enhanced track risk-sharing may retain higher percentages but owe payments back to Medicare if spending exceeds the benchmark. Quality is measured annually across required domains including preventive care, patient experience, care coordination, and clinical management of chronic conditions; failure to meet minimum quality thresholds eliminates shared savings eligibility. As of 2025, approximately 600+ ACOs participate in MSSP covering over 10 million assigned Medicare beneficiaries.

Current Rule (2026)

What This Rule Does

The Medicare Shared Savings Program (MSSP) — administered by CMS under 42 CFR Part 425 — is the federal government's largest value-based care program, organizing providers and hospitals into Accountable Care Organizations (ACOs) that collectively take responsibility for the quality and total cost of care for an assigned panel of Medicare fee-for-service beneficiaries. An ACO is a legal entity formed by a group of physicians, hospitals, and other providers who voluntarily coordinate their care delivery under a shared governance structure and formal participation agreement with CMS. When an ACO delivers care below its CMS-established spending benchmark while meeting quality standards, CMS shares a percentage of the savings with the ACO — creating a financial incentive for providers to reduce unnecessary utilization and improve care coordination. ACOs that accept downside risk also share in losses if spending exceeds the benchmark.

The program was created by Section 3022 of the Affordable Care Act (2010) as a central pillar of Medicare's shift from fee-for-service payment (which rewards volume) toward payment models that reward value. Before ACOs, each Medicare provider was paid separately for each service with no mechanism for coordinating care across settings or sharing financial accountability for total spending. An ACO replaces that fragmented accountability with collective accountability: a primary care physician, a cardiologist, and a hospital might all be part of the same ACO, and together they are responsible for keeping their shared Medicare patients healthy and out of the hospital, because the entire ACO benefits from avoided hospitalizations.

As of 2026, approximately 500+ ACOs participate in MSSP, covering more than 10 million Medicare fee-for-service beneficiaries — roughly 30% of all Medicare FFS enrollees. ACOs have collectively generated billions in Medicare savings since 2012, though individual ACO performance varies widely: some ACOs consistently earn shared savings; others fail to reduce spending below their benchmarks and earn nothing or pay losses. The program is distinct from CMS's CMMI Innovation Center models (REACH, Next Generation, etc.) which operate under different rules and are not governed by Part 425.

Key Provisions

• § 425.102 — Eligible ACO participants: ACOs may be formed by (1) ACO professionals in group practice arrangements; (2) networks of individual practices; (3) partnerships or joint ventures between hospitals and ACO professionals; (4) hospitals employing ACO professionals; (5) Federally Qualified Health Centers (FQHCs) or Rural Health Clinics (RHCs); or (6) combinations of these. "ACO professionals" include physicians, nurse practitioners, physician assistants, and clinical nurse specialists — the full range of practitioners who bill under Medicare physician fee schedule or FQHC/RHC rates
• § 425.110 — Minimum beneficiary threshold: an ACO must include primary care professionals sufficient to serve at least 5,000 assigned Medicare fee-for-service beneficiaries; this threshold prevents very small ACOs that lack statistical reliability for cost and quality measurement
• § 425.104 — Legal entity and governance: the ACO must be a valid legal entity (LLC, partnership, corporation) authorized to conduct business in each state where it operates; must have a governing body with meaningful authority — including clinical representation of at least 75% of members being ACO participants or their representatives; the governing body must oversee the ACO's quality and clinical performance and be empowered to define and implement the ACO's care coordination strategy
• § 425.400 — Beneficiary assignment: CMS assigns Medicare FFS beneficiaries to ACOs prospectively (at the start of the performance year) based on where they received the plurality of their primary care services in the prior year; assignment follows the beneficiary, not the provider — if a beneficiary sees a primary care doctor in the ACO, they are attributed; beneficiaries are not locked in (they can see any Medicare-participating provider) and are not notified of assignment except by request; prospective assignment allows ACOs to plan care management interventions for their assigned population at the start of the year
• § 425.600 — Performance tracks: since the 2019 Pathways to Success restructuring, ACOs operate on one of two tracks:
  • BASIC track (graduated risk, Levels A–E): new ACOs typically enter at Levels A or B (one-sided risk — share in savings only, no loss liability); after 1–2 years, ACOs move to Levels C, D, and E (two-sided risk — share in savings and losses); BASIC track ACOs receive up to 50% of savings and bear losses up to 30% of their benchmark
  • ENHANCED track (two-sided risk from day one): for experienced, high-performing ACOs; receive up to 75% of savings and bear losses up to 60% of their benchmark; ENHANCED track ACOs qualify for certain payment flexibilities (SNF 3-day waiver, telehealth expansion) that BASIC track ACOs do not
• § 425.601 — Benchmark establishment: CMS sets each ACO's spending benchmark at the start of each 3-year agreement period using the ACO's own historical Medicare FFS expenditures (Parts A and B) for its assigned beneficiaries in the 3 prior years, adjusted for changes in beneficiary health status and national spending trends; the benchmark represents the CMS prediction of what Medicare would spend on the ACO's beneficiaries in the absence of the program — savings are measured against this counterfactual
• § 425.604 / 425.605 — Minimum savings rate (MSR) and shared savings calculation: an ACO must achieve savings that exceed the MSR (a percentage threshold, typically 0–3.9% depending on ACO size, with smaller ACOs having higher MSRs because their spending is more statistically variable) before any savings are shared; once savings exceed the MSR, CMS calculates the shared savings amount and applies the track-specific sharing rate (up to 50% or 75%); shared savings are capped at a percentage of the benchmark
• § 425.500 — Quality reporting: ACOs must report on a set of quality measures covering patient/caregiver experience, care coordination, preventive health, and at-risk populations; since 2023, MSSP quality reporting has been aligned with MIPS (Merit-based Incentive Payment System), using the MIPS Promoting Interoperability and Improvement Activities performance categories; quality performance affects the percentage of savings an ACO can earn — ACOs with higher quality scores get a larger share of savings
• § 425.630 — Advance Investment Payments (AIPs): low-revenue ACOs (those without significant attributed Medicare revenue) entering the ENHANCED track for the first time may receive upfront payments at the beginning of each performance year — an advance against potential future shared savings — to fund care coordination infrastructure, health information technology, and population health management before the ACO generates savings

How It Affects You

If you're a physician, hospital, or health system considering joining or forming an ACO: Joining MSSP is voluntary and carries real administrative and financial requirements. You'll need to form a legal entity, establish governance structures, execute participant agreements, and invest in care coordination capacity (nurse care managers, health IT, analytics). In return, you gain access to CMS's monthly claims data on your assigned beneficiaries — a significant advantage for proactive patient outreach. The financial model matters: BASIC track Levels A–B offer upside-only sharing, meaning you can earn bonuses but bear no loss risk — a good starting point. ENHANCED track requires accepting downside risk, but offers higher sharing rates and payment flexibilities (the SNF 3-day waiver allows ACOs to place beneficiaries in skilled nursing without a prior 3-day hospital stay — a significant care redesign tool). Contact your regional CMS office or visit cms.gov/medicare/payment/fee-for-service-compliance-programs/shared-savings-program to review the application process.

If you're a Medicare beneficiary: You may be assigned to an ACO without being told. Assignment doesn't change your Medicare benefits — you can still see any Medicare-participating doctor or use any Medicare-covered service. The difference is that your primary care doctor is part of a network working to coordinate your care more proactively. Some ACOs will reach out to you for care gap closures (preventive screenings, medication management), care transitions after hospitalizations, or chronic disease management. You can ask your doctor whether they participate in an ACO and what that means for your care.

If you're a payer, employer, or private health system: MSSP creates a template for value-based contracting that commercial markets have largely replicated. The ACO structure — shared governance, population assignment, benchmark-based shared savings — is the foundation for most commercial ACO contracts and state Medicaid managed care initiatives. CMS's quality measure sets and the BASIC/ENHANCED risk model architecture have become the de facto industry standard for value-based care contracts.

Statutory Authority

This rule implements:

• 42 U.S.C. § 1395jjj — Section 1899 of the Social Security Act, as added by Section 3022 of the Affordable Care Act (2010); directs the Secretary of HHS to establish the Shared Savings Program no later than January 1, 2012; specifies that ACOs may participate only if they meet quality performance standards and agree to be accountable for the quality, cost, and overall care of their assigned beneficiaries
• 42 U.S.C. § 1302 — Secretary of HHS general regulatory authority to issue rules and regulations necessary to carry out the functions of CMS programs

Recent Rulemakings

• 83 FR 67816 (December 31, 2018) — "Pathways to Success": CMS's major restructuring of MSSP, replacing the original Track 1/2/3 architecture with the BASIC/ENHANCED track system; shortened the one-sided risk "glide path" (ACOs can no longer stay in one-sided risk indefinitely); raised sharing rates for ENHANCED track; introduced the advance investment payment concept for low-revenue ACOs; effective for 2020 performance year
• 87 FR 69404 (November 18, 2022) — 2023 Physician Fee Schedule ACO updates: aligned MSSP quality reporting with MIPS; expanded beneficiary data sharing; updated benchmark methodology for experienced ACOs to use regional spending averages rather than historical own spending (reducing the perverse "ratchet effect" where ACOs that saved money in prior years were penalized with tighter future benchmarks)
• 88 FR 79452 (November 16, 2023) — 2024 Physician Fee Schedule ACO provisions: clarified ACO participant agreement requirements; updated the advance investment payment program; expanded prepaid shared savings availability; revised quality reporting alignment with CY2024 MIPS program

Pending Action