Signature
g_S = (B - E) / B; S_raw = s * q * N * (B - E); PPL = c_P * N * B; P = (g_S >= MSR) * min(S_raw, PPL)
| Inputs | Definition | Unit |
|---|---|---|
B | Updated benchmark of the ACO for the performance year, per assigned beneficiary person year, risk-adjusted under 42 CFR 425.605(a)(1) or 425.610(a)(2); above zero | US dollars per person year |
E | Average per capita Medicare Parts A and B fee-for-service expenditure of the ACO's assigned beneficiaries for the performance year, each beneficiary truncated at the national 99th percentile | US dollars per person year |
s | Sharing rate of the ACO's track and level for performance years from 2024, 0.40 for BASIC Levels A and B, 0.50 for BASIC Levels C to E and 0.75 for ENHANCED; halved for a low revenue ACO paid under 42 CFR 425.605(h) | proportion |
q | 1 when the ACO meets the quality performance standard, or its quality score under 42 CFR 425.512 when it meets only the alternative quality performance standard; 0 when it meets neither, since it then does not qualify | proportion, at most 1 |
N | Assigned beneficiary person years of the ACO for the performance year, equal to the number of assigned beneficiaries when each is assigned for the whole year | person years |
c_P | Share of total benchmark expenditure that caps the shared savings payment, 0.10 in every BASIC level and 0.20 in ENHANCED | proportion |
MSR | Share of the benchmark by which spending must fall below it before any savings are shared, set under 42 CFR 425.605(b) or 425.610(b); 0, or 0.005 to 0.02 in steps of 0.005, or the size-based rate | proportion |
g_S | Updated per capita benchmark minus per capita spending, as a share of the benchmark; negative when spending exceeds the benchmark | proportion |
|---|---|---|
S_raw | Final sharing rate times all the savings under the benchmark, before the performance payment limit is applied | US dollars |
PPL | Largest shared savings payment the ACO can receive, the limit share times total benchmark expenditure N times B | US dollars |
P | Amount CMS pays the ACO as shared savings for the performance year, zero when the savings ratio is below the MSR | 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 savings payment of an accountable care organisation in one cell
With named cells Benchmark, Spending, Beneficiaries, SharingRate, QualityFactor, MinSavingsRate and PayLimitShare, the formula returns the payment in a cell named SharedSavingsPayment. A blank Benchmark is treated as 0 and the formula returns #DIV/0!. For the 42 CFR 425.605(h) low revenue route, enter MinSavingsRate as 0 and SharingRate as half the level's rate.
=IF((Benchmark-Spending)/Benchmark>=MinSavingsRate,MIN(SharingRate*QualityFactor*Beneficiaries*(Benchmark-Spending),PayLimitShare*Beneficiaries*Benchmark),0)
Assumptions
Track rates for performance years from 2024 in the shared savings payment
The sharing rate and performance payment limit are those of 42 CFR 425.605(d)(1)(i) to (v), paragraphs (A)(4) and (B), for the BASIC levels and 425.610(d)(4) and (e) for ENHANCED, which apply to performance years beginning on or after 1 January 2024. Earlier performance years used other rules, such as rates set on quality performance under 425.502 up to 2020, and are not covered. For agreement periods from 2027 an ACO with fewer than 5,000 assigned beneficiaries in a benchmark year may face an alternative, lower payment limit under 425.605(i)(1)(ii) or 425.610(l)(3), which the formula does not include.
Benchmark and spending on one assigned population and basis
B and E are per capita amounts for the same assigned beneficiaries and the same performance year, with the benchmark risk-adjusted and both measured on Parts A and B fee-for-service claims excluding IME and DSH payments, as 42 CFR 425.605(a) and 425.610(a) set out. Total benchmark expenditure is the per capita updated benchmark times assigned beneficiary person years, 425.605(i)(1)(i)(A), so N is in person years.
Qualification at the minimum savings rate and the low revenue route
A savings ratio equal to the MSR qualifies, since the rule pays an ACO that qualifies by meeting or exceeding the MSR (42 CFR 425.605(d)(1)(v)(B)(1), 425.610(e)(1)). The ACO must also meet the quality performance standard or its alternative and keep its eligibility, 425.605(c)(2). The 425.605(h) route applies only to a BASIC ACO that is a low revenue ACO, has at least 5,000 assigned beneficiaries, is in an agreement period beginning on or after 1 January 2024, has spending below its benchmark and, for agreement periods from 2027, has at least 5,000 assigned beneficiaries in each benchmark year, 425.605(h)(1); it is entered as MSR = 0 with s halved.
Worked examples
Shared savings of the illustrative Level E accountable care organisation with 3% savings
The article's illustrative BASIC Level E ACO has 20,000 assigned beneficiaries, a benchmark of USD 12,000 per beneficiary and an MSR of 2.0%. Spending of USD 11,640 saves 360 per beneficiary, a ratio of 0.03 that clears the MSR. With the quality standard met, half of the USD 7.2 million savings is paid, USD 3.6 million, well under the payment limit of USD 24 million, as in the article's case 1.
B = 12000; E = 11640; N = 20000; s = 0.5; q = 1; MSR = 0.02; c_P = 0.1; g_S = 0.03; S_raw = 3600000; PPL = 24000000; P = 3600000
Shared savings of the illustrative Level E accountable care organisation meeting only the alternative standard
The same ACO meets only the alternative quality performance standard with a quality score of 70%, so the sharing rate of 0.5 is multiplied by 0.7. The payment falls to USD 2.52 million, the figure in the article's case 1.
B = 12000; E = 11640; N = 20000; s = 0.5; q = 0.7; MSR = 0.02; c_P = 0.1; g_S = 0.03; S_raw = 2520000; PPL = 24000000; P = 2520000
Illustrative Level E accountable care organisation with savings below the minimum savings rate
Spending of USD 11,820 saves 180 per beneficiary, a ratio of 0.015 below the 2.0% MSR, so nothing is paid although the shared amount before the gate would be USD 1.8 million, as in the article's case 2.
B = 12000; E = 11820; N = 20000; s = 0.5; q = 1; MSR = 0.02; c_P = 0.1; g_S = 0.015; S_raw = 1800000; PPL = 24000000; P = 0
Illustrative low revenue Level E accountable care organisation paid at half the sharing rate
If the ACO of the previous example is a low revenue ACO that meets the other conditions of 42 CFR 425.605(h), its savings below the benchmark are shared at half the Level E rate, 0.25, with no MSR test. The payment is USD 900,000, the article's figure for case 2.
B = 12000; E = 11820; N = 20000; s = 0.25; q = 1; MSR = 0; c_P = 0.1; g_S = 0.015; S_raw = 900000; PPL = 24000000; P = 900000
Illustrative ENHANCED accountable care organisation at its performance payment limit
An illustrative ENHANCED ACO with the same population, benchmark and MSR spends USD 8,400, saving 30% of the benchmark. Three quarters of the USD 72 million savings is USD 54 million, above the 20% payment limit of USD 48 million, so the payment is USD 48 million. The limit binds whenever the savings ratio exceeds c_P divided by s q, 0.2667 here and 0.20 for BASIC Levels C to E at full quality (derived, checked on a grid of 600 savings ratios).
B = 12000; E = 8400; N = 20000; s = 0.75; q = 1; MSR = 0.02; c_P = 0.2; g_S = 0.3; S_raw = 54000000; PPL = 48000000; P = 48000000
Common errors
Treating the minimum savings rate as a deductible
Once the MSR is met the sharing rate applies to all savings on a first dollar basis (42 CFR 425.605(d)(1)(v)(B)(1)). Sharing only the savings above the MSR pays 0.5 times 120 per beneficiary in the first worked example, USD 1.2 million instead of USD 3.6 million, two thirds too little, and removes the jump at the MSR.
Applying the performance payment limit to savings before sharing
The limit caps the amount of shared savings the ACO receives, not the savings that are shared (42 CFR 425.610(e)(2), 425.605(d)(1)(v)(B)(2)). In the ENHANCED example, capping savings at 20% of the benchmark and then taking three quarters gives USD 36 million instead of the USD 48 million limit that binds on the payment.
Multiplying by the quality score when the quality standard is met
The quality score scales the sharing rate only for an ACO that meets the alternative quality performance standard; an ACO that meets the standard itself is paid the full rate. Applying a 70% score in the first worked example would pay USD 2.52 million instead of USD 3.6 million.
Sources
BASIC track shared savings rules 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, last amended 5 November 2025 (90 FR 50018). Paragraph (a) compares per capita Parts A and B spending with the updated benchmark and requires it to be below by at least the minimum savings rate. Paragraph (b) sets the MSR options, a sliding scale for one-sided levels and a zero, 0.5 to 2.0% or size-based MSR/MLR for two-sided levels. Paragraph (d)(1)(i) to (v), sub-paragraph (A)(4), gives sharing rates of 40% for Levels A and B and 50% for Levels C to E from 2024, multiplied by the quality score for the alternative standard; sub-paragraph (B) applies the rate on a first dollar basis once the MSR is met and limits shared savings to 10% of the updated benchmark. Paragraph (h) allows a low revenue ACO below its benchmark to be paid at one half of the applicable rate, and (i)(1) computes the limit on total benchmark expenditure as per capita benchmark times assigned beneficiary person years. Section 425.20 (same eCFR date) defines a low revenue ACO as one whose participants' Parts A and B fee-for-service revenue is less than 35 percent of its assigned beneficiaries' Parts A and B fee-for-service expenditure.
ENHANCED track sharing rate and performance payment limit in 42 CFR 425.610
Code of Federal Regulations, Title 42, section 425.610, Calculation of shared savings and losses under the ENHANCED track. eCFR text up to date as of 15 October 2026. Paragraph (b)(2) requires spending below the benchmark by at least the MSR; (d)(4) sets the sharing rate at 75% for performance years from 2024, multiplied by the quality score for an ACO meeting the alternative quality performance standard; (e)(1) applies it on a first dollar basis and (e)(2) caps shared savings at 20% of the updated benchmark; (l)(2) computes the limit from per capita benchmark times assigned beneficiary person years.
Quality performance standard and alternative standard for shared savings in 42 CFR 425.512
Code of Federal Regulations, Title 42, section 425.512, Determining the ACO quality performance standard for performance years beginning on or after January 1, 2021. eCFR text up to date as of 15 October 2026. Paragraph (a)(5) sets for performance years from 2024 the standard of a quality score at or above the 40th percentile of MIPS Quality performance category scores and, in (a)(5)(ii), an alternative standard of a score at or above the 10th percentile of the performance benchmark on at least one outcome measure of the APP Plus set from 2025. Paragraph (b)(3) states that for 2025 the quality score with bonus points may not exceed 100 percent.
Statutory minimum savings percent and shared savings in Social Security Act section 1899
Social Security Act, section 1899 (42 U.S.C. 1395jjj), Shared savings program, as amended, text read on the Cornell Legal Information Institute page on 18 October 2026. Subsection (d)(1)(B)(i) requires spending to be at least a percent specified by the Secretary below the benchmark, set to account for normal variation in expenditures and based on the number of assigned beneficiaries. Subsection (d)(2) allows a percent of the difference between spending and the benchmark to be paid to the ACO as shared savings, subject to the quality performance standards, leaves the remainder with Medicare and requires limits on the total amount of shared savings.
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