The Medicare Shared Savings Program (MSSP) is the largest value-based care initiative in Medicare. It allows groups of doctors, hospitals, and other healthcare providers to form organizations called Accountable Care Organizations (ACOs) that coordinate care for Medicare patients. When these ACOs keep costs below a spending target while meeting quality standards, they share in the money saved. In the most recent performance year, ACOs in the program earned $4.1 billion in performance payments, with 75% of participating ACOs generating enough savings to receive a payout.
How ACOs Work in This Program
An ACO in the Shared Savings Program is essentially a network of providers who agree to take collective responsibility for the cost and quality of care delivered to a defined group of Medicare beneficiaries. To participate, the ACO must have at least 5,000 Medicare fee-for-service beneficiaries assigned to it. Assignment happens based on where beneficiaries get most of their primary care, not through any enrollment decision by the patient.
The providers in an ACO can include primary care physicians, specialists, hospitals, post-acute care facilities, and other Medicare-enrolled suppliers. They don’t have to merge or share a single building. They just need to formally agree to coordinate care, share data, and work toward common cost and quality targets. The ACO applies to CMS, and if accepted, enters an agreement period during which its performance is tracked against a financial benchmark.
The Financial Benchmark
Each ACO gets a spending benchmark based on what Medicare historically spent on its assigned beneficiaries. CMS calculates this by looking at past expenditures and adjusting them forward using a blend of national and regional spending growth rates. The blend is weighted: the more of the local Medicare population an ACO covers, the more the national growth rate matters in the calculation, and vice versa.
CMS also applies a regional adjustment that accounts for whether the ACO’s historical spending was higher or lower than the average for its geographic service area. This means an ACO operating in a high-cost region won’t simply be rewarded for being expensive to begin with. If the ACO’s actual spending during a performance year comes in below this benchmark, the difference represents savings. If spending exceeds the benchmark, there may be losses, depending on which participation track the ACO has chosen.
Participation Tracks and Risk Levels
ACOs don’t all face the same financial stakes. The program offers two main tracks, BASIC and ENHANCED, with different levels of reward and risk.
The BASIC track has a glide path designed to ease ACOs into financial accountability. At the entry levels (A and B), the model is one-sided: ACOs can earn shared savings but don’t owe anything back to Medicare if they overspend. At Level A, the ACO keeps 40% of savings generated (capped at 10% of its benchmark). At Level B, that rate rises to 50%, with the same cap. As ACOs progress through the BASIC track, they begin taking on downside risk, meaning they’re responsible for a share of losses if spending exceeds the benchmark.
The ENHANCED track (Level E) offers the highest potential reward: up to 75% of savings, capped at 20% of the benchmark. But it also carries the most downside risk. ACOs at this level owe money back to Medicare if they fail to keep costs in check. This structure is meant to push ACOs toward deeper accountability over time while giving newer organizations room to build infrastructure before facing penalties.
Quality Standards ACOs Must Meet
Generating savings alone isn’t enough. To receive any shared savings payment, an ACO must also meet quality performance standards set by CMS each year. Quality is measured across four domains: patient and caregiver experience, care coordination and patient safety, preventive health, and care for at-risk populations.
ACOs must report on every measure within each domain. To qualify for shared savings, the ACO needs to hit at least a minimum attainment level on one measure in each of the four domains. Falling below that threshold across all measures in any single domain disqualifies the ACO from receiving any savings, even if it performed well financially. This requirement exists to prevent ACOs from cutting costs by simply providing less care.
What This Means for Medicare Patients
If you’re a Medicare fee-for-service beneficiary, you may already be part of an ACO without realizing it. Your assignment to an ACO is based on the primary care providers you visit, and it doesn’t change how your Medicare coverage works. You keep full freedom to see any Medicare-accepting provider, whether or not they’re in the ACO. The program explicitly prohibits ACOs from restricting where you get referrals, as long as you express a preference or the referral serves your medical interests.
Your ACO is required to notify you that you’ve been assigned to it. That notification must also inform you of your right to decline claims data sharing. If you opt out, the ACO won’t receive detailed information about the services billed to Medicare on your behalf, though your assignment to the ACO itself isn’t affected. In practical terms, most patients experience the program as slightly more coordinated care: fewer duplicate tests, better follow-up after hospital stays, and more communication between their providers.
Support for Underserved Areas
One challenge with the program has been getting providers in rural and underserved communities to participate. Forming an ACO requires upfront investment in data systems, care management staff, and coordination infrastructure. To address this, CMS created Advance Investment Payments (AIP), which give eligible new ACOs startup funding: a one-time payment of $250,000 plus up to two years of quarterly payments based on beneficiary volume (up to $45 per beneficiary per quarter, capped at 10,000 beneficiaries).
To qualify for AIP, an ACO must be brand new to the Shared Savings Program, classified as a low-revenue organization, and inexperienced with performance-based risk Medicare ACO initiatives. The goal is to lower the barrier to entry so that providers serving communities with fewer resources can participate in the same value-based model available to large health systems. These payments are eventually recouped from any shared savings the ACO earns, functioning more like an interest-free loan than a grant.
How Savings Are Actually Generated
The program doesn’t dictate how ACOs reduce spending. Instead, it creates a financial incentive and lets providers figure out the approach that works for their patient population. In practice, the most common strategies include reducing avoidable hospital readmissions, steering patients toward lower-cost care settings when clinically appropriate, improving management of chronic conditions like diabetes and heart failure, and cutting down on duplicative imaging and lab work.
Care coordinators play a central role in many ACOs, acting as a point of contact for patients with complex needs and ensuring that information flows between specialists, primary care providers, and hospitals. The underlying logic is straightforward: better-coordinated care catches problems earlier, avoids unnecessary emergency visits, and reduces the kind of fragmented treatment that drives up costs without improving outcomes.