As Medicare ACOs grow, key model improvements emerge

ACOs forge more accountable care relationships

CMS recently announced that over half (53.4%) of traditional Medicare beneficiaries are in an accountable care relationship with a provider as of January 2025. This percentage represents 14.8 million people, a 4.3 percentage point increase compared to January 2024, and includes beneficiaries who see providers in Medicare ACOs, such as those in the Medicare Shared Savings Program (MSSP) and Innovation Center models.

The latest numbers mean CMS is another step closer to its accountable care goals. CMS wants all beneficiaries in traditional Medicare to be in an accountable care relationship by 2030, and the recent uptick in accountable care relationships is the largest recorded by CMS since it started tracking the metric.

ACOs are pushing CMS closer to its accountable care goal. The federal agency announced 476 ACOs participating in its flagship ACO model, the MSSP, this year, with 655,725 healthcare providers and organizations providing care to more than 11.2 million people with traditional Medicare. About 3.7% more people are treated by providers and organizations in the MSSP compared to 2024.

Additionally, CMS renewed the most ACOs in the MSSP since the model launched in 2012; 173 ACOs renewed or reentered the model in 2025, while 55 new ACOs joined. There is also a 16% increase in the number of federally qualified health centers, rural health clinics and critical access hospitals participating in MSSP ACOs.

In addition to the MSSP, CMS operates other ACO models through its Innovation Center. The Innovation Center's ACO Realizing Equity, Access, and Community Health (ACO REACH) Model has 103 ACOs continuing this year, while 78 Kidney Contracting Entities and 15 CMS Kidney Care First Practices are maintaining their participation in the Kidney Care Choices (KCC) Model.

The Innovation Center also recently launched the ACO Primary Care Flex Model, which includes 24 ACOs that jointly participate in the MSSP. The ACO Primary Flex Model launched on Jan. 1, 2025, serving 349,000 traditional Medicare beneficiaries.

Benchmarks continue to challenge ACOs

Growth in Medicare ACO models is encouraging, according to the National Association of ACOs. NAACOS believes the Medicare ACO models provide physicians the flexibility to deliver patient-centered care while empowering them to manage costs and outcomes.

"ACOs -- and alternative payment models more broadly -- are a strong option for providers to shift how they deliver care, have more autonomy, have some more flexibility and improve the care and quality for their beneficiary," said Aisha Pittman, senior vice president of government affairs at NAACOS.

However, more can be done to push ACOs to forge more accountable care relationships in Medicare. Sustainability is still a major challenge for the MSSP and other CMS-run ACO models, Pittman explained.

"One of the challenges that we continually see is around the benchmarks and budgets within the models," she elaborates. Because of these benchmarking challenges, participating ACOs end up "penalized for [their] own success."

CMS uses financial benchmarks to incentivize ACOs to reduce spending and establish performance thresholds across models, including the ACO REACH model and the KCC Model. The financial benchmarks in Medicare ACO models estimate expected costs for treating attributed beneficiaries during a performance period. CMS uses CMS claims data, as well as historical spending, potential payment changes and patient characteristics, to calculate the benchmarks.

However, Pittman described a "benchmark ratchet" coming from CMS' benchmarking methodology. If ACOs lower spending below their benchmark, then future benchmarks become lower -- and harder for ACOs to meet.

CMS has been working to fix benchmarking challenges across its ACO models. Specifically, the federal agency has included adjustments to benchmarks based on risk, outside trends and health equity. However, more work needs to be done on benchmarking methodologies to incentivize ACOs to participate in programs.

Downstream payments in ACOs to expand value-based care

Adjusting downstream payments to healthcare providers is another opportunity to bolster Medicare ACO models, according to Pittman.

Downstream payments are reimbursements ACOs make to providers and clinicians rendering care to attributed beneficiaries. These payments are meant to incentivize providers to coordinate care for attributed beneficiaries, hopefully resulting in high-quality care at lower costs.

The ACO REACH Model gives capitated payments to participating ACOs, which the organizations can use for "innovative value-based payment arrangements with their providers," among other uses. Similarly, the new ACO Primary Care Flex Model provides prospective payments to participating ACOs, which can be used for downstream payments negotiated between the ACO and participating providers.

NAACOS has supported the downstream payment approach, such as the one employed by the ACO REACH Model. The industry group has said allowing ACOs to administer payments, such as capitated reimbursements, to practices involved in the ACO can encourage broad participation.

Additionally, downstream payments might be able to incentivize specialty care providers to participate in ACOs, which is an area of improvement for ACOs.

"ACOs are very primary care driven because of how you align patients to the models," Pittman said. "But primary care docs are interacting with specialists who are helping to coordinate care. However, how do we meaningfully engage specialists in the models?"

According to health policy experts, specialty care providers have had limited opportunities to participate in accountable care models despite delivering needed care to attributed beneficiaries. However, many ACOs want more specialist alignment if they can overcome top challenges, such as a heavy reliance on fee-for-service for specialty care, lack of good data on specialist performance and insufficient organizational bandwidth.

"How do we think across the continuum of engaging specialists?" Pittman asked. "And some of that might go back to how we change the downstream payment arrangement. Do we put prospective payments for specialists within the context of an ACO? Do we put bundled payments nested within the context of an ACO? That concept gets to the next level of maturity for these types of models."

ACOs are starting to develop ways to engage specialists, particularly through downstream payments. But it isn't something for which ACOs have tried-and-true best practices, Pittman stated.

"Everyone has slightly different approaches, and we're just now getting to the point where we can start identifying best practices," she said. "In the coming years, this is where we'll see scale on those approaches."

Opportunities to innovate within ACO models

It has been over a dozen years since the MSSP launched, kicking off Medicare ACO initiatives. In those years, ACOs have developed strategies for reducing costs and improving care quality. Many of those strategies have not drastically changed; ACOs still focus on reducing post-acute care costs and they still stratify patients by risk to determine the best population health approaches to care, to name a few tried-and-true strategies. However, it's time to look for more innovation, according to Pittman.

"For ACOs that have been doing this for a really long time, there are thoughts around where else we can innovate," she said. "How do we release burden from fee-for-service regulation even more than we have? Can we bring more waivers and flexibilities into the models? Can we expand flexible downstream payment arrangements?"

Waivers have supported the evolution of tried-and-true strategies. For example, the ACO REACH Model allows providers to make home visits more easily to patients following a hospital stay and for chronic care management. The model also offers cost-sharing support. These waivers are not allowed in traditional Medicare but are major supports for risk-bearing ACOs, according to NACCOS. The trade group has advocated for additional waivers in Medicare ACO models.

Innovation might not take the form of major overhauls to Medicare ACO models or ACO strategy, Pittman suggested. Instead, it will be more about evolution.

"The base approach is what works well and there's a real focus on expanding those approaches across all patient populations," Pittman explained. "What our members are finding is you are most successful if you can do this work not just in Medicare but across all of your payers because it is ultimately about understanding your populations and being able to customize things to individual patients."

Medicare has led the way for ACOs, but providers are now capable of taking their lessons learned from years of participating in Medicare models and applying them on a larger scale. That is, with the help of more flexible rules that enable strategies like capitated downstream payments and waivers from Traditional Medicare rules. As the models continue to evolve, ACOs have found a happy home in the value-based payment landscape.

"We think there are some opportunities to improve the program," Pittman said, "it's still something that works well for both providers and their beneficiaries."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.