Cut through the noise, find the signal: Intelligence for serious healthcare leaders
ACO REACH is not simply another shared-savings model with extra steps. It is CMS's deliberate attempt to migrate a subset of Original Medicare into a quasi-managed-care architecture — without the statutory authority or political exposure of actually converting beneficiaries to Medicare Advantage. That design choice has profound implications.
The benchmark discount is the structural tell. Global-track ACOs accept a 3.5% discount applied to their Performance Year Benchmark before savings are calculated. In PY 2025, with 87 Global-track ACOs carrying an average PBPM benchmark of approximately $1,361 against roughly 2.18 million aligned beneficiaries, that discount represents a pre-negotiated CMS extraction of approximately $1.1 billion annually — before any ACO earns a dollar. The PY 2024 fact sheet confirms this directly: 95% of CMS's $988.3 million in net savings that year were generated by this structural discount, not by ACO performance improvement. The model is, by design, a discount mechanism dressed as a performance model.
The PY 2026 financial methodology revision deserves scrutiny. CMS cited the PY 2023 Evaluation Report's findings as the basis for adjusting the financial methodology. What those findings showed is uncomfortable: for Standard ACOs, net Medicare spending (accounting for shared savings payouts) increased in PY 2023 relative to comparison groups. CMS is adjusting the benchmark construction to close that gap — which likely means tighter benchmarks, not more generous ones. Organizations that modeled their participation economics on PY 2023–2024 settlement patterns should re-run those numbers.
The Substance Access BEI is a regulatory signal worth parsing. Allowing ACO participants to consult beneficiaries about eligible hemp products — funded entirely at participant expense, available only where state law permits — is operationally marginal. Its significance is political: under the Trump administration with Dr. Oz at CMS, this represents an unconventional beneficiary engagement mechanism that breaks from prior CMS conservatism. Its extension to the Enhancing Oncology Model and the forthcoming LEAD Model suggests it is a template, not a one-off.
The cohort maturation curve is the most actionable financial fact in the dataset. PY 2021 cohort ACOs generated $758.5 million in net savings in PY 2024 at a 6.5% net savings rate — more than double the 2.8% rate of PY 2022 cohort ACOs and nearly triple the 2.4% rate of PY 2023 cohort ACOs. This is not noise; it reflects the well-documented learning curve in risk-based contracting. ACOs entering the model in PY 2026 are entering its final year. Without a model extension or successor vehicle, they will exit at year one of their maturation curve — precisely when the PY 2021 cohort data suggests they would be generating negative returns. No new applications are being accepted.
Per-beneficiary economics are tightening. PBPM gross savings increased 24% year-over-year from PY 2023 to PY 2024, reaching $88.04. At face value this looks strong. However, 83% of ACOs generated net savings in PY 2024 — meaning 17% (approximately 20 ACOs out of 115) incurred net losses. High Needs ACOs achieved a 14.0% net savings rate and New Entrant ACOs 8.6%, both substantially outperforming Standard ACOs at 4.2%. Organizations choosing Standard ACO designation in a final performance year face a compressed timeline to reach the savings rates that make Global-track risk tolerable.
Cash flow is the underappreciated operational risk. Under TCC, participating providers forgo 100% of their FFS claims payments for aligned beneficiary services and receive capitation from the ACO. With the PCC minimum claims reduction reaching 100% in PY 2025, the cash flow exposure is substantial. Capitation payments constituted approximately 2.71% of benchmark in PY 2025 — roughly $963 million annualized across 100 ACOs. The 90%-of-capitation-spent-on-Medicare-covered-services historical ratio means ACOs typically retain approximately $96 million collectively for infrastructure and care innovation. For individual ACOs, that margin funds care management staffing, technology, and analytics. Organizations underestimating the working capital required to bridge settlement timing should model a 12-to-18 month cash flow deficit before final reconciliation payments arrive.
Skin substitute billing created a material distortion in PY 2025. CMS estimates skin substitutes comprised 2.8% of total ACO REACH PY 2025 expenditures — but 12.6% of High Needs ACO expenditures. At a total PY 2025 benchmark of approximately $35.5 billion, 2.8% represents roughly $994 million in skin substitute billing. Final settlement adjustments for SAHS billing will recalibrate these figures, but High Needs ACO leaders should not interpret preliminary PY 2025 savings estimates as final.
MSO-led ACOs have a structural operating advantage that is now entrenched. In PY 2023, MSOs led more than one-third of participating ACOs and supported approximately 75% in some capacity. Their competitive advantage: distribution of fixed infrastructure costs (analytics, actuarial, care management technology) across multiple ACO entities. A single MSO managing four High Needs ACOs — as evidenced by the four Empassion/Complete Care entities and the four HarmonyCares-affiliated organizations — can amortize contracting, compliance, and population health platform costs at a scale individual health systems cannot match. This creates a capital efficiency gap that disadvantages standalone hospital systems entering the model for the first time.
Medicare Advantage plans are playing both sides. Humana, CVS/Aetna, and Alignment Health all maintained ACO REACH participation through PY 2023–2024. This is not altruism — it is market intelligence. MA plans in ACO REACH markets gain granular data on Original Medicare utilization patterns, provider network performance, and beneficiary health trajectories. That intelligence informs their MA bid construction, network tiering, and risk adjustment strategy. Standalone ACOs competing in the same markets against MA-affiliated ACO REACH participants are operating with a structural information disadvantage.
The MSSP interaction is fundamentally competitive, not complementary. The evaluation's comparison group explicitly includes MSSP participants. Standard ACOs in ACO REACH that previously participated in MSSP are benchmarked against MSSP-caliber comparators. This compresses apparent savings. Organizations that previously succeeded in MSSP Track 1 and migrated to ACO REACH's Global track face tighter benchmark construction precisely because their historical efficiency improvements are already embedded in their baseline — the classic "efficient provider penalty."
New Entrant ACOs generated an 8.6% net savings rate in PY 2024 — substantially outperforming Standard ACOs at 4.2%. This counterintuitive result likely reflects selection effects: New Entrant ACOs with MA or Managed Medicaid infrastructure (94% of applicants reported such experience) brought existing population health management capabilities to a new beneficiary population. Their outperformance validates CMS's design intent of importing managed care competencies into Original Medicare but simultaneously confirms that organizations without that infrastructure cannot replicate those results quickly.
Physician groups (independent and MSO-partnered): The model's highest performers. Individual and medical group practice ACOs that elected Global risk and TCC generated the most consistent gross spending reductions in the evaluation, consistent with the hypothesis that they lack incentives to increase hospital-based care volume. Under PY 2025 rules requiring 100% PCC claims reduction for Participant Providers, participating physicians have no fee-for-service safety net — their income depends entirely on ACO capitation payments and shared savings distributions. Groups without multi-year ACO infrastructure and actuarial sophistication face genuine insolvency risk in a down performance year.
Integrated delivery systems and hospital-system ACOs: Structurally disadvantaged. The evaluation explicitly identified IDS/hospital system ACOs as increasing ED and post-acute care utilization in some cases — the opposite of model intent. Their internal economics reward inpatient and outpatient volume. Participation in ACO REACH creates a direct conflict between their ACO governance obligations and their operating revenue model. Health systems considering ACO REACH entry in hypothetical future iterations should model the cannibalization impact before committing to Global-track risk.
Safety net providers: The doubling of safety net facility participation — from 420 FQHCs, RHCs, and CAHs in PY 2022 to 871 in PY 2023, reaching 1,042 in PY 2024 — is the model's most underreported success. Dually eligible beneficiaries showed the largest spending reductions among Standard ACO beneficiary subgroups in PY 2023. The model's SNF 3-Day Rule Waiver, home health homebound waiver, and care management home visit benefit enhancements disproportionately benefit the complex, high-cost patients that safety net facilities disproportionately serve.
MA plan strategists: The model's imminent conclusion (final performance year PY 2026, no new entrants) creates a market transition opportunity. As REACH ACOs wind down, their aligned beneficiary populations — approximately 2.2 million in PY 2025 — will return to standard Original Medicare or face active outreach from MA plans. ACOs with strong voluntary alignment relationships have cultivated beneficiary trust that MA plans will seek to convert. Plan strategists should map REACH ACO geography against their current MA footprint and begin outreach infrastructure planning for the 2027 transition period.
The bottom line for executives: ACO REACH is proving that advanced capitation-based accountable care can generate meaningful savings at scale — $2.511 billion in gross savings on $36.5 billion in benchmarked spending in PY 2024 — but the savings accrue overwhelmingly to experienced, infrastructure-rich organizations with multi-year participation. The model ends in 2026. The strategic question is not whether to enter ACO REACH. It is which successor model will absorb its participant base, and whether your organization will be positioned to follow.