ACO PC Flex (ACO Primary Care Flex) Model: Executive Summary and Model Architecture Analysis

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1. Executive Summary and Strategic Context

What Is This Model and What Problem Does It Solve?

The ACO Primary Care Flex (ACO PC Flex) Model is a voluntary CMMI payment innovation launched January 1, 2025, running through December 31, 2029, that operates as a layer on top of the Medicare Shared Savings Program (MSSP). It is authorized under Section 1115A of the Social Security Act and currently enrolls 23 participating ACOs.

The model addresses a structural failure in Medicare's fee-for-service architecture: primary care practices—particularly those serving medically underserved and low-income populations—are chronically underpaid relative to their actual costs of delivering coordinated, team-based care. Visit-based FFS payment creates unpredictable, episodic revenue streams that cannot support the infrastructure investments required for proactive care management, behavioral health integration, patient navigation, or population health analytics. The result is workforce atrophy, ACO formation barriers for new entrants, and self-reinforcing cycles of low primary care investment in high-need communities.

ACO PC Flex attacks this problem through two mechanisms: (1) a Prospective Primary Care (PPC) Payment—a per-beneficiary per-month (PBPM) capitated payment for primary care that replaces FFS billing for eligible services—and (2) a one-time Advance Shared Savings Payment of $250,000 disbursed in Q1 2025 to offset ACO formation and administrative startup costs. Both payments are specifically designed to be flexible in their permissible uses, with Appendix A of the financial methodology establishing three expenditure categories: Category 1 (Advanced Primary Care Expenditures), Category 2 (Operations Expenditures), and Category 3 (Prohibited Uses)—giving ACOs real operational latitude to invest in care delivery infrastructure rather than merely coding and billing optimization.

The model's intellectual foundation is the National Academies of Sciences, Engineering and Medicine report Implementing High-Quality Primary Care: Rebuilding the Foundation of Health Care, which specifically recommended channeling primary care funds through ACOs to support team-based care and provider infrastructure. This grounding in peer-reviewed health systems research is significant: it positions the model as evidence-based policy rather than administrative experimentation.

Strategic Significance for the VBC Market

The PPC Payment's most consequential design feature is that its rate is not based on an ACO's historical FFS spending. Instead, rates are derived from county-average primary care spending—the so-called County Base Rate—computed from a national reference population. This is a deliberate redistribution mechanism. ACOs operating in historically underfunded markets—rural areas, safety-net settings, FQHCs, RHCs—receive the same regional rate as peers with higher historical utilization. The financial methodology explicitly states this design "will increase payment for providers that have entrenched patterns of inappropriately low spending for medically underserved communities and populations."

This is structurally different from traditional MSSP benchmarking, which locks ACOs into their own historical expenditure patterns. ACO PC Flex breaks that lock by substituting a geographically calibrated external reference point—a significant advantage for low-revenue ACOs (as defined under 42 CFR § 425.20), which are the exclusive eligible participant category. Low-revenue ACOs typically lack the capital reserves and administrative infrastructure that hospital-sponsored ACOs take for granted; the $250,000 Advance Shared Savings Payment and the predictable monthly PPC Payment cash flow directly address this disadvantage.

The PPC Payment Enhancements are explicitly designated as not at risk—they will not be recouped by CMS regardless of financial settlement outcomes. This provision transforms a portion of prospective payment into permanent operating capital for primary care infrastructure, increasing long-term revenue predictability in a way that no standard MSSP track offers. For CFOs modeling primary care investment decisions, this is the operative variable: a subset of the PPC Payment is effectively a guaranteed floor, insulated from shared losses reconciliation.

Political Context and Administrative Alignment

The ACO PC Flex Model launched under the Biden administration but is now administered under the Trump administration, with CMS Administrator Dr. Mehmet Oz and CMMI Director Abe Sutton overseeing its ongoing execution. Critically, CMS has stated that it does not intend to offer another round of applications for the ACO PC Flex Model. The current cohort of 23 ACOs constitutes the entirety of the model's participant universe for its full five-year run.

This creates a closed-market dynamic. The 23 participating ACOs hold exclusive access to payment mechanisms that no new entrant can access. Under a DOGE-influenced CMS environment focused on administrative efficiency and value demonstration, the model's explicit cost-reduction objective—"Reduce program expenditures while preserving or enhancing the quality of care"—is well-positioned to survive scrutiny, provided early performance data show favorable total cost of care trends. The Trump administration's CMS has signaled interest in primary care innovation that reduces Medicare expenditures; a model that prospectively pays for primary care to avoid more expensive downstream utilization is conceptually compatible with that priority.

However, the model's sustainability is not guaranteed. The absence of a new application round means CMMI will not be expanding the model's reach regardless of early results. Executives and strategists should interpret this not as abandonment, but as a deliberate test-and-observe posture consistent with the current administration's preference for demonstrable outcomes before scaling.

Market Transformation Implications

For the 23 participating ACOs, ACO PC Flex represents a fundamental restructuring of revenue recognition for primary care. Monthly PPC Payments replace unpredictable FFS billing cycles, enabling multi-year workforce planning, technology investment, and care model transformation that FFS economics cannot support. The capacity to fund proactive care management, patient navigation, and behavioral health integration through a predictable PBPM stream—rather than through shared savings distributions that arrive 12–18 months after care delivery—changes the operational calculus for primary care practices affiliated with these ACOs.

For non-participating organizations, the model's architecture signals the directional trajectory of primary care payment reform. The Rate Book's county-based pricing methodology, its alignment with the MA and ACO REACH Rate Book frameworks, and its prospective risk adjustment approach via CMS-HCC models all reflect increasing convergence between Medicare FFS, MSSP, and capitation-based payment design. Organizations not in ACO PC Flex should treat the model's financial methodology as a roadmap for understanding how CMMI may structure future primary care payment models.

For Medicare Advantage plan strategists, the model's exclusive focus on FFS beneficiaries assigned through MSSP creates a clean boundary. But the operational infrastructure investments ACO PC Flex ACOs make in team-based care and care coordination will improve their competitive positioning for MA contracts and value-based arrangements across commercial payers as well.

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2. Model Architecture and Payment Structure

Participation Structure and Eligibility Criteria

Eligibility is tightly constrained. Participants must be ACOs already participating in the Shared Savings Program and must qualify as low-revenue ACOs under 42 CFR § 425.20. Participants were selected through a 2024 Request for Applications. CMS has stated it does not intend to open additional application rounds.

Mutual exclusivity rules are critical operational constraints:

• ACOs may not simultaneously receive Advance Investment Payments (AIP) or Prepaid Shared Savings (PSS) while participating in ACO PC Flex.
• Beneficiaries assigned to organizations participating in Kidney Care First, the Primary Care AHEAD model, or the Geo AHEAD model are not PPCP-eligible due to capitation-based initiative overlap prohibitions.
• Primary care providers not already on the ACO Participant List before the start of a Performance Year are ineligible to participate.

The participant count stands at 23 ACOs as of the model page's most recent update.

Beneficiary Assignment and PPCP Eligibility

ACO PC Flex inherits MSSP's beneficiary assignment infrastructure but imposes additional eligibility filters. Beneficiaries must be assigned via one of two methodologies:

Assignment Option	Key Feature	PPCP Eligibility Implication
Prospective Assignment	Assigned at start of performance year; no quarterly re-verification required	Step 1 and Step 3 CBA, plus voluntary alignment to PCP, are PPCP-eligible
Preliminary Prospective Assignment with Retrospective Reconciliation	Assignment re-verified quarterly	Beneficiary must remain assigned via Step 1 or Step 3 through ALL quarterly runs to maintain PPCP eligibility

Beneficiaries assigned via Step 2 are categorically ineligible for PPCP under both assignment options. Step 2 applies when a beneficiary has no primary care visits from PCPs or NPPs but receives plurality of specialist services from ACO providers—a population structurally excluded from the prospective primary care payment stream.

Additional PPCP eligibility exclusions include: beneficiaries enrolled in any Medicare health plan (MA), Part A-only or Part B-only enrollees, beneficiaries without a valid U.S. address, those declining data sharing, those designated to specialist primary clinicians through voluntary alignment, and beneficiaries whose primary TIN was terminated mid-year from the ACO.

Care focus (FQHC, RHC, or Other) is determined by plurality of allowed charges during the assignment window and drives whether FQHC or RHC Add-On amounts apply to the PPC Payment.

Payment Methodology

The PPC Payment has three structural components:

Component	Description	At Risk?
Base PPC Payment Amount	Derived from County Base Rate × risk adjustment × PCPAT trend × seasonality factors	Yes—subject to full financial settlement
ACO Enhanced PPC Payment Amount (Enhanced Amount)	County Enhancement amount, not based on ACO's historical spending	No—not recouped by CMS
Population Adjustment Amount	Additional adjustment layer for equity/population considerations	Yes

The Advance Shared Savings Payment:

• Amount: $250,000 (one-time)
• Disbursement: Q1 2025
• Repayment: Deducted from shared savings earned each performance year until fully repaid; unpaid balances carry forward year to year
• Purpose: ACO formation costs and administrative costs for model activities

Rate Book Construction

The ACO PC Flex Rate Book establishes county-level PBPM rates separately for Aged and Disabled (A&D) and End-Stage Renal Disease (ESRD) populations. Its architecture mirrors the MA and ACO REACH Rate Books.

Rate Book Version	Base Years (BYs)	National Conversion Factor Trend Applied?	Completion Factor
2025 Preliminary Rate Book	CY2021, CY2022, CY2023	Yes: 5.114% for A&D; 6.588% for ESRD (trended to 2024)	1.013 (overall)
2025 Updated Rate Book	CY2022, CY2023, CY2024	No (BY3 = 2024, already in 2024 dollars)	1.021 (3-month, PC Flex–specific)
2026–2029 Rate Book	CY2022, CY2023, CY2024	No	1.021

CMS has stated it currently anticipates the PY2026 Rate Book will also be used for PY2027–2029.

The National Conversion Factor = (Sum of ACO PC Flex primary care expenditures for Rate Book Reference Population in eligible beneficiary months) ÷ (Total eligible beneficiary months) × Trend Factor.

The County Relative Cost Index adjusts for local cost variation using three-year average County Indices (adjusted by Geographic Adjustment Factor [GAF] Trend Indices), then risk-standardized using CMS-HCC prospective risk adjustment models to remove health status variation across counties.

For A&D beneficiaries in the 2025 Updated Rate Book, risk scores reflect a blend of 67% V28 (2024 model) and 33% V24 (2020 model). For ESRD beneficiaries, the 2023 prospective CMS-HCC ESRD model (based on V24) applies.

GAF Trend Index construction for the 2025 Updated Rate Book reprices claims using 2025 FFS geographic adjustments across professional, FQHC, RHC, ETA, CAH, and HOPD claim types. For professional claims, 100% of payment is eligible for GAF repricing; for outpatient claims, 60% is eligible. FQHC and RHC claims are excluded from GAF repricing due to their alternative Prospective Payment System methodologies.

Key Payment Adjustments Applied to PPC Payment

Adjustment	Description
Risk Adjustment	CMS-HCC prospective model (V28/V24 blend for A&D; V24-based ESRD model) applied at beneficiary level
Primary Care Prospective Administrative Trend (PCPAT)	Trends County Base Rates from 2024 dollars to each performance year
Seasonality Adjustment	Applied separately for A&D and ESRD populations to account for within-year utilization patterns
VA/DoD Adjustment	Adjusts county rates for VA/DoD utilization patterns
Credibility Adjustment	Applied to counties with insufficient data credibility
Population Adjustment	Previously called "Health Equity Overall Adjustment"; renamed in June 2025 revision to align with Participation Agreement terminology
Operational Payment Precision Withhold	Applied to manage payment precision
Medicare Sequestration	Applied per standard Medicare sequestration rules

FQHC and RHC Add-On Payments

Beneficiaries with FQHC-focused care receive an FQHC Add-On applied to the PPC Payment. Beneficiaries with RHC-focused care receive an RHC Add-On. These add-ons are calculated separately from County Base Rates using the primary care activity of FQHC- and RHC-focused beneficiaries who are excluded from the main Rate Book Reference Population. The base add-on amount was updated in the June 2025 revision (Version 2) of the financial methodology.

A Base Rate Add-On Amount applies to all PPCP-eligible beneficiaries (Section 3.6 of the financial methodology).

Fee Reductions

The model's prospective payment replaces FFS billing for eligible primary care services through a fee reduction mechanism applied to claims from PPCP-eligible participants. Key fee reduction parameters:

• Performance Year 2025 Delay: ACOs could designate providers as deferring fee reductions until 2026; beneficiaries assigned to those providers were not PPCP-eligible for PY2025
• Providers designated as "participation in fee reduction to-be-determined" and later confirmed for fee reductions starting July 1, 2025 were not PPCP-eligible for January–June 2025 but became eligible July 1, 2025 if all other criteria met
• HCPCS codes G2086, G2087, and G2088 (office-based opioid use disorder services) are excluded from fee reductions (added in June 2025 revision)
• Specific rules govern fee reductions for specialist physicians performing primary care services and NPPs in specialty practices

Financial Settlement and Rate Book Guardrail

For Performance Year 2025, CMS implemented a Rate Book Guardrail Provision (Section 4.8) to determine payable rates between the Preliminary and Updated Rate Books, protecting ACOs from adverse payment effects during the mid-year rate book revision process.

Financial settlement incorporates PPC Payments into performance year expenditures and applies a Total ACO PC Flex Settlement Adjustment to reconcile the difference between prospective payments made and actual care costs. The Advance Shared Savings Payment is deducted from shared savings prior to any distribution.

Early termination provisions distinguish between voluntary end-of-year termination, voluntary mid-year termination (with and without Shared Savings Program financial reconciliation exposure), and involuntary termination—each with distinct recoupment and recovery methodologies for both PPC Payments and the Advance Shared Savings Payment.

Model Timeline

Milestone	Date
Model launch	January 1, 2025
Advance Shared Savings Payment disbursed	Q1 2025
PY2025 Preliminary Rate Book released	Prior to January 1, 2025
PY2025 Updated Rate Book released	June 2025
PY2025 Financial Paper (Version 2) released	June 2025
PY2026 Rate Book released	Prior to January 1, 2026
PY2026 Financial Paper (Version 3) released	June 2026
Fee reductions deferred (select PY2025 participants)	Deferred to July 2025 or PY2026
Model end date	December 31, 2029
New application rounds	None planned

The PY2026 Rate Book (using CY2022–CY2024 base years) is currently anticipated to serve as the operative Rate Book for PY2027, PY2028, and PY2029 as well, absent material changes warranting a methodology update.