Financial Settlement

Financial Settlement is the process by which CMS determines an ACO’s Shared Savings or Shared Losses by comparing the Performance Year Benchmark to actual Medicare expenditures for aligned beneficiaries. (RFA §IX.D)

Settlement Order of Operations

1. Calculate benchmark before adjustments: historical baseline + ACO-specific adjustments + trend + risk adjustment
2. Apply benchmark discount (Global Risk only): 1.75%–3.0% depending on spending level and year
3. Apply Retention Incentive: 2% benchmark reduction for first-year ACOs that terminate (earned back if ACO stays 2+ years) (RFA §IX.F)
4. Apply Quality Withhold and earn-back: 3% withhold, earned back based on Total Quality Score × CI/SEP multiplier
5. = Adjusted Benchmark, compared to PY expenditures
6. Calculate gross savings/losses, subject to graduated risk corridors
7. = Shared Savings/Losses (net amount owed)

Performance Year Expenditures include (RFA §IX.D):

• Capitation payments (TCC, Base PCC, Enhanced PCC, NPCC, APO) paid by CMS to the ACO
• FFS claims paid by CMS directly to providers and suppliers
• Stop-loss payouts and charges (if elected)
• The 1.5% Administrative Add-On is NOT included in PY expenditures

Risk Corridors (RFA §IX.B)

Professional Risk Option (sharing rate applies symmetrically to savings and losses):

Corridor	% of Benchmark	Sharing rate
1	0–10%	50%
2	10–15%	35%
3	15–20%	15%
4	>20%	5%

Global Risk Option:

Corridor	% of Benchmark	Sharing rate
1	0–15%	100%
2	15–35%	50%
3	35–50%	25%
4	>50%	10%

Unlike MSSP, LEAD settlement does not use a Minimum Savings Rate (MSR) or Minimum Loss Rate (MLR). The ACO realizes first-dollar savings and first-dollar losses (before corridors), subject to the graduated sharing rates above.

LEAD vs. ACO REACH: Global Risk Corridor Comparison

CMS narrowed ACO REACH’s Global 1st risk corridor from 25% to 10% in PY 2026, meaning REACH ACOs now share savings and losses with CMS above 10% of the benchmark. LEAD sets its 1st corridor at 15%, giving ACOs a wider band of full retention. The table below compares the Global corridors side by side:

Corridor	LEAD (% of Benchmark)	LEAD Sharing Rate	ACO REACH PY 2026 (% of Benchmark)	REACH Sharing Rate
1	0-15%	100% (ACO retains all)	0-10%	100% (ACO retains all)
2	15-35%	50%	10-25%	50%
3	35-50%	25%	25-50%	25%
4	>50%	10%	>50%	10%

LEAD vs. ACO REACH: Professional Risk Corridor Comparison

The Professional corridor divergence is equally significant. LEAD doubles the width of the 1st corridor compared to REACH, and widens every subsequent band by 5 percentage points:

Corridor	LEAD (% of Benchmark)	LEAD Sharing Rate	ACO REACH (% of Benchmark)	REACH Sharing Rate
1	0-10%	50%	0-5%	50%
2	10-15%	35%	5-10%	35%
3	15-20%	15%	10-15%	15%
4	>20%	5%	>15%	5%

Stop-Loss Reinsurance (RFA §IX.C)

• Type: Optional residual-based reinsurance at the beneficiary level
• Charge: PBPM applied to benchmark
• Payout: Expenditure residual above risk-adjusted, beneficiary-level attachment point
• Budget neutrality: Uniform multiplier may be applied at settlement

Settlement Timing (RFA §IX.D)

Element	Provisional (Optional)	Final
Target date	Q1 of CY following PY	Q3 of CY following PY
Claims period	PY expenditures through June 30	PY expenditures through December 31
Runout	Through December 31 of PY	Through March 31 of CY+1
Risk scores	Preliminary	Final
Quality score	Default (e.g., prior year average)	Actual PY performance

Provisional vs. final: Provisional settlement is optional. If an ACO elects it, CMS pays or the ACO repays a provisional shared savings/loss amount based on partial-year data and preliminary inputs; at Final Settlement that amount is trued up to reflect complete claims runout, final risk scores, and actual quality performance.

Extended Repayment Option (RFA §IX.F)

LEAD ACOs that owe Shared Losses at Final Settlement may request an extended repayment schedule. Details of the extended repayment option will be specified in the PY Participation Agreement. This provides a cash flow safety valve for ACOs that experience unexpected losses, allowing them to spread repayment over multiple periods rather than making a lump-sum payment.

SAHS Billing Policies (RFA §IX.G)

CMS will monitor for Significant, Anomalous, and Highly Suspect (SAHS) billing activity. CMS may remove specific billing codes from PY expenditure and benchmark calculations when SAHS activity is identified. This is a model-wide protection that has already been applied in ACO REACH (e.g., removal of urinary catheter, alginate dressing, and orthotics codes in PY 2025, and 90% skin substitute spending removal in PY 2025). CMS may also reopen prior settlement determinations based on SAHS findings.