Signature
g_L = (E - B) / B; L_raw = r_L * N * (E - B); LRL = min(rho_R * Rev, rho_B * N * B); SL = (g_L >= MLR) * min(L_raw, LRL)
| Inputs | Definition | Unit |
|---|---|---|
E | Average per capita Medicare Parts A and B fee-for-service expenditure of the ACO's assigned beneficiaries for the performance year | US dollars per person year |
B | Updated benchmark of the ACO for the performance year per assigned beneficiary person year; above zero | US dollars per person year |
r_L | Shared loss rate of BASIC Levels C, D and E, fixed at 0.30 by 42 CFR 425.605(d)(1)(iii)(C), (iv)(C) and (v)(C) | proportion |
N | Assigned beneficiary person years of the ACO for the performance year | person years |
rho_R | Share of ACO participants' Medicare revenue that sets the revenue-based limit, 0.02 in Level C, 0.04 in Level D and 0.08 in Level E, the 8 percent of 42 CFR 414.1415(c)(3)(i)(A), which applies to QP performance periods from 2023 on | proportion |
Rev | Total Medicare Parts A and B fee-for-service revenue of the ACO participants in the ACO for the year | US dollars |
rho_B | Share of total benchmark expenditure that the revenue-based limit may not exceed, 0.01 in Level C, 0.02 in Level D and 0.04 in Level E, one point above the 3% of 42 CFR 414.1415(c)(3)(i)(B) | proportion |
MLR | Share of the benchmark by which spending must exceed it before losses are shared, entered as a positive number of the same size as the symmetric MSR chosen under 42 CFR 425.605(b)(2); not the medical loss ratio of HE-FM-ACR-002 | proportion |
g_L | Per capita spending minus the updated per capita benchmark, as a share of the benchmark; negative when spending is below the benchmark | proportion |
|---|---|---|
L_raw | Shared loss rate times the whole excess of spending over the benchmark, before the loss recoupment limit | US dollars |
LRL | Largest amount of shared losses the ACO can owe, the revenue-based limit unless it exceeds the benchmark-based limit | US dollars |
SL | Amount the ACO must repay CMS for the performance year, zero when the loss ratio is below the MLR | US dollars |
Function
Medicare Shared Savings Program annual settlement of an accountable care organisation
Maps an accountable care organisation's per capita benchmark, its assigned beneficiaries' per capita Medicare Parts A and B spending for the performance year and the parameters of its track to the shared savings payment CMS makes to it or the shared losses it repays, as set in 42 CFR 425.605 for the BASIC track and 425.610 for the ENHANCED track. HE-FM-ACO-001 gives the shared savings payment, gated by the minimum savings rate and capped by the performance payment limit, HE-FM-ACO-002 the shared losses of a two-sided BASIC level with its minimum loss rate and loss recoupment limit, and HE-FM-ACO-003 the shared losses of the ENHANCED track, whose loss rate falls as the quality score rises. Each settlement is gated, so the amount jumps from zero once the gap between spending and benchmark reaches the minimum rate and is then shared from the first dollar. This differs from a deductible layer such as the aggregate stop-loss payment HE-FM-ASL-001 (claims above an attachment point, capped at a maximum), the mean and variance of specific stop-loss reimbursement over a claims distribution HE-FM-ATTP-001 or the medical loss ratio rebate HE-FM-ACR-004 (the shortfall of the ratio below the standard times adjusted premium, floored at zero), all continuous in their claims or ratio argument. Only the final min step, a cap on the shared amount, takes the form of HE-FM-ASL-001 with no attachment point. The fee-for-service payments that continue underneath the settlement are not modelled, the per case blend of a fixed amount and a cost share is HE-FM-CTH-001, the margin reading of shared savings as a blend belongs to the blended-payment concept, and the expected profit per member that drives selection, payment minus expected cost, is HE-FM-CSKM-001. Notation follows the Accountable Care Organization article.
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Implementations
Excel
Shared losses of a two-sided BASIC accountable care organisation in one cell
With named cells Benchmark, Spending, Beneficiaries, LossRate, MinLossRate, RevLimitShare, ParticipantRevenue and BmkLimitShare, the formula returns the amount owed in a cell named SharedLossBasic. A blank Benchmark returns #DIV/0!; a blank ParticipantRevenue is treated as 0, which sets the limit to 0 and returns 0.
=IF((Spending-Benchmark)/Benchmark>=MinLossRate,MIN(LossRate*Beneficiaries*(Spending-Benchmark),MIN(RevLimitShare*ParticipantRevenue,BmkLimitShare*Beneficiaries*Benchmark)),0)
Assumptions
Two-sided BASIC levels for performance years from 2024
The ACO is in BASIC Level C, D or E; Levels A and B are one-sided and share no losses. The shared loss rate and limits are those of 42 CFR 425.605(d)(1)(iii) to (v), paragraphs (C) and (D). The Level E revenue-based percentage is the 8 percent of 42 CFR 414.1415(c)(3)(i)(A). That paragraph reads "For QP Performance Periods beginning in 2023", and the CY 2023 physician fee schedule final rule that wrote it removed the earlier 2024 end date so that the 8 percent standard applies to every QP performance period from 2023 on (HE-SR-ACO-008). Levels C and D use 2% and 4%, which 425.605 states directly.
Adjustments to shared losses outside the formula
The reduction for extreme and uncontrollable circumstances, applied after the shared loss rate and the loss recoupment limit under 42 CFR 425.605(f), and the alternative benchmark-based limit for agreement periods from 2027 with fewer than 5,000 assigned beneficiaries in a benchmark year, 425.605(i)(2)(ii), are not included. A loss ratio equal to the MLR counts, since the rule requires spending above the benchmark by at least the MLR (425.605(b)(4)).
Worked examples
Illustrative Level D accountable care organisation with a 3% overspend
The article's case 3 figures (20,000 beneficiaries, benchmark USD 12,000, spending USD 12,360, MLR 2.0%) are placed in Level D with an illustrative participant revenue of USD 100 million. The 3% overspend clears the MLR and 30% of the USD 7.2 million excess is USD 2.16 million. The revenue-based limit of USD 4 million is below the benchmark-based USD 4.8 million, so the limit is USD 4 million and does not bind. The result equals the article's Level E figure, since the loss rate is the same.
B = 12000; E = 12360; N = 20000; r_L = 0.3; MLR = 0.02; rho_R = 0.04; Rev = 100000000; rho_B = 0.02; g_L = 0.03; L_raw = 2160000; LRL = 4000000; SL = 2160000
Illustrative Level D accountable care organisation held by the revenue-based limit
With participant revenue of USD 40 million, an illustrative figure for an ACO whose participants bill a small share of its beneficiaries' spending, the revenue-based limit is 4% of 40 million, USD 1.6 million. The ACO repays USD 1.6 million instead of USD 2.16 million.
B = 12000; E = 12360; N = 20000; r_L = 0.3; MLR = 0.02; rho_R = 0.04; Rev = 40000000; rho_B = 0.02; g_L = 0.03; L_raw = 2160000; LRL = 1600000; SL = 1600000
Illustrative Level D accountable care organisation with an overspend below the minimum loss rate
Spending of USD 12,180 exceeds the benchmark by 1.5%, below the 2.0% MLR, so nothing is owed although 30% of the excess would be USD 1.08 million.
B = 12000; E = 12180; N = 20000; r_L = 0.3; MLR = 0.02; rho_R = 0.04; Rev = 100000000; rho_B = 0.02; g_L = 0.015; L_raw = 1080000; LRL = 4000000; SL = 0
Illustrative Level C accountable care organisation held by the benchmark-based limit
In Level C, with illustrative participant revenue of USD 200 million and spending 10% above the benchmark at USD 13,200, 30% of the USD 24 million excess is USD 7.2 million. The revenue-based limit of 2% of revenue, USD 4 million, exceeds 1% of the USD 240 million benchmark, so the limit is USD 2.4 million and the ACO repays that amount.
B = 12000; E = 13200; N = 20000; r_L = 0.3; MLR = 0.02; rho_R = 0.02; Rev = 200000000; rho_B = 0.01; g_L = 0.1; L_raw = 7200000; LRL = 2400000; SL = 2400000
Illustrative Level E accountable care organisation with the article case 3 overspend
The article's case 3 in Level E itself, with an illustrative participant revenue of USD 100 million. Thirty percent of the USD 7.2 million excess is USD 2.16 million. The revenue-based limit is 8% of USD 100 million, USD 8 million, below the benchmark-based ceiling of 4% of USD 240 million, USD 9.6 million, the figure the article gives, so the limit is USD 8 million and does not bind.
B = 12000; E = 12360; N = 20000; r_L = 0.3; MLR = 0.02; rho_R = 0.08; Rev = 100000000; rho_B = 0.04; g_L = 0.03; L_raw = 2160000; LRL = 8000000; SL = 2160000
Common errors
Treating the minimum loss rate as a deductible on losses
The 30% loss rate applies to the whole excess once the MLR is reached. Applying it only to the excess above the MLR gives 0.3 times 120 per beneficiary in the first Level D example, USD 720,000 instead of USD 2.16 million, a third of the amount owed.
Using the revenue-based loss recoupment limit without its benchmark ceiling
The revenue-based limit applies only while it is below the benchmark-based limit (42 CFR 425.605(d)(1)(iii)(D)(2)). In the Level C example the revenue-based figure alone would let CMS recoup USD 4 million when the limit is USD 2.4 million, 1% of the benchmark.
Sources
BASIC track minimum loss rate, shared loss rate and loss recoupment limit in 42 CFR 425.605
Code of Federal Regulations, Title 42, section 425.605, Calculation of shared savings and losses under the BASIC track. eCFR text up to date as of 15 October 2026. Paragraph (b)(2) has a two-sided ACO choose a zero, symmetrical 0.5 to 2.0% or size-based MSR/MLR, and (b)(4) makes it share losses when spending is above the benchmark by at least the MLR. Paragraphs (d)(1)(iii), (iv) and (v), sub-paragraph (C), fix the shared loss rate at 30% for Levels C, D and E. Sub-paragraph (D) limits losses to 2% of ACO participant revenue but not above 1% of the benchmark in Level C, 4% of revenue but not above 2% of the benchmark in Level D, and in Level E the percentage of 414.1415(c)(3)(i)(A) of revenue but not above one point more than the 414.1415(c)(3)(i)(B) percentage of the benchmark. Paragraph (f) reduces losses for extreme and uncontrollable circumstances after the rate and limit, and (i)(2) defines the revenue-based and benchmark-based limits.
Benchmark-based nominal amount standard used for the Level E loss limit in 42 CFR 414.1415
Code of Federal Regulations, Title 42, section 414.1415, Advanced APM criteria. eCFR text up to date as of 15 October 2026. Paragraph (c)(3)(i)(B) sets the generally applicable nominal amount standard at 3 percent of the expected expenditures for which an APM entity is responsible, so the Level E benchmark-based loss recoupment limit of 425.605(d)(1)(v)(D)(2) is 4% of the updated benchmark. Paragraph (c)(3)(i)(A) gives the revenue-based standard as 8 percent of revenue for QP performance periods beginning in 2023, the Level E revenue-based limit of 425.605(d)(1)(v)(D)(1); HE-SR-ACO-008 records that this applies to every QP performance period from 2023 on.
Eight percent revenue-based nominal amount standard kept for all QP performance periods from 2023
Centers for Medicare & Medicaid Services. Medicare and Medicaid Programs; CY 2023 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; Implementing Requirements for Manufacturers of Certain Single-dose Container or Single-use Package Drugs To Provide Refunds With Respect to Discarded Amounts; and COVID-19 Interim Final Rules. Final rule, CMS-1770-F. Federal Register 2022;87(222):69404-70700, 18 November 2022. The preamble section Generally Applicable Nominal Amount Standard, under Advanced APM Criteria (87 FR 70117), finalises as proposed the removal of the 2024 end date from 414.1415(c)(3)(i)(A), so that the 8 percent revenue-based nominal amount standard applies to all QP performance periods beginning on or after 1 January 2023; the amendment to 414.1415 in the same rule gives the paragraph its current wording, "For QP Performance Periods beginning in 2023, 8 percent".
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