Capitation and Payment Mechanisms

Under LEAD, capitated payments replace a portion of Medicare fee-for-service payments for services provided by LEAD Participant Providers and enrolled Preferred Providers. Providers continue to submit claims for all services, including those covered by capitation, but CMS reduces the claim payment amounts and instead makes prospective monthly payments to the ACO. (RFA §X.A)

The goal of capitation is to give healthcare providers additional flexibility in care delivery, reducing volume-based FFS incentives and providing steady, predictable cash flow. This enables providers to invest in innovative care models (non-face-to-face care management, telehealth, electronic messaging) without worrying about foregone FFS revenue. (RFA §X.A)

Lookback period for all capitation calculations: The first 9 months of the calendar year preceding the performance year. For PY 2027, this is January–September 2026. (RFA §X.A, footnote 21)

Total Care Capitation (TCC) (RFA §X.A.1)

TCC is the broadest capitation option, covering all Medicare Part A and Part B services furnished to aligned beneficiaries by all Participant TINs and opted-in Preferred Providers. TCC is only available to Global Risk ACOs.

How TCC Is Calculated:

The TCC Withhold accounts for the portion of total cost of care delivered by providers NOT participating in TCC (non-ACO providers, plus any Preferred Provider claims not fully reduced). CMS estimates this using historical claims from the 9-month lookback period.

TCC Withhold Percentage Calculation: CMS identifies all Part A and B claims for beneficiaries who would have been claims-aligned during the lookback period. The share of spending attributable to non-TCC providers (including the non-reduced portion of Preferred Provider claims that elected less than 100% reduction) becomes the TCC Withhold Percentage. This is applied to the PBPM benchmark. (RFA §X.A.1)

Fee Reduction Rules:

Provider Type	Participation	Claims Reduction
Participant TINs	Required	100%
Preferred Providers	Optional (ACO decides)	1–100% (ACO selects)

Providers added mid-year cannot elect TCC fee reductions, except for existing Participant Providers impacted by a TIN change. (RFA §X.A.1)

Quarterly Updates: CMS updates TCC payments quarterly to reflect changes in beneficiary alignment, benchmark and risk score updates, and the share of spending by participating providers. (RFA §X.A.1)

Settlement Treatment: TCC payments are included in PY expenditures. At Final Settlement, the actual TCC Withhold (based on PY claims) replaces the estimated withhold. Any over/under-payments are reconciled as part of Total Monies Owed.

ACO REACH TCC Differences:

• ACO REACH adds a 20% accelerated first-month payment (subtracted from December). LEAD does not specify this acceleration.
• ACO REACH requires minimum claims-aligned beneficiaries in the lookback period to establish a reliable withhold (3,000 for Standard, 1,000 for New Entrant, 250 for High Needs ACOs). ACOs below this threshold have TCC delayed 6 months while Q1 experience builds. (REACH PY2025 Capitation §2.1.3–2.1.4)

Primary Care Capitation (PCC) (RFA §X.A.2)

PCC covers only primary care services (defined in RFA Appendix D) furnished by primary care specialists within Participant TINs and opted-in Preferred Providers. PCC is mandatory for all ACOs that do not elect TCC. Non-primary care specialists within Participant TINs are NOT subject to PCC fee reductions. (RFA §X.A.2)

PCC has two components: Base PCC and Enhanced PCC.

Base PCC Calculation

CMS identifies all primary care services (Appendix D codes) furnished by PCC-participating providers during the lookback period. The total, adjusted for the fee reduction percentage elected, is expressed as a percentage of total expenditures and applied to the benchmark. (RFA §X.A.2)

FQHC/RHC True-Up: CMS compares Base PCC payments to actual FFS fee reductions for beneficiaries aligned through FQHCs/RHCs on a quarterly YTD basis. If PCC payments are lower than fee reductions, CMS makes an additional payment. This can only increase payments, not reduce them. Adjustments count toward PY expenditures. (RFA §X.A.2)

Enhanced PCC (RFA §X.A.2)

Enhanced PCC provides additional prospective funding beyond Base PCC. The formula:

*Base PCC Amount in this formula assumes 100% claims reduction for all Participant Providers, regardless of actual elected percentage.

PCC Claims Reduction Ramp Schedule

Year	LEAD (Former REACH Participants)	LEAD (New/Former MSSP)	ACO REACH
PY 2023	N/A	N/A	10–100%
PY 2024	N/A	N/A	20–100%
PY 2025–2026	N/A	N/A	100%
PY 2027 (Year 1)	100%	1–100%	N/A
PY 2028 (Year 2)	100%	5–100%	N/A
PY 2029 (Year 3)	100%	10–100%	N/A
PY 2030 (Year 4)	100%	20–100%	N/A
PY 2031+ (Year 5+)	100%	100%	N/A

(RFA Table 15) Preferred Providers may elect 1–100% in all years under both programs.

Non-Primary Care Capitation (NPCC) New in LEAD (RFA §X.A.3)

NPCC is true prospective capitation for non-primary care services. Available only to ACOs that elect PCC (not TCC). CMS calculates NPCC using the same methodology as PCC: historical non-PC claims by NPCC-participating providers are expressed as a percentage of benchmark and applied monthly.

Key property: NPCC is included in PY expenditures at the payment amount, not actual claims. If actual claims exceed the NPCC payment, the ACO absorbs the difference (lower expenditures = more savings but the ACO has already paid providers). If actual claims are lower, the ACO retains the savings. This is real capitation risk.

The ACO defines claims reduction (1–100%) for each participating provider. CMS pays the non-reduced portion of FFS claims directly. (RFA §X.A.3)

Example from the RFA: An ACO could elect NPCC and enter a sub-capitation arrangement with a cardiology group. CMS converts the benchmark portion attributable to that group’s services into a monthly NPCC payment, which the ACO uses to make fixed downstream payments. The cardiology group accepts cost and quality accountability, aligning incentives away from FFS. This mirrors sub-capitated arrangements common in Medicare Advantage. (RFA §X.A.3)

Advanced Payment Option (APO) (RFA §X.A.4)

APO is a cash flow advance for non-primary care services, not true capitation. Calculated identically to NPCC, but reconciled against actual claims at settlement:

• If actual FFS reductions > APO payment: CMS pays the ACO the difference
• If actual FFS reductions < APO payment: CMS recoups the difference

Key property: APO expenditures at settlement = APO payments + actual excess FFS claims. No savings opportunity from the advance itself.

NPCC vs. APO: The Critical Distinction

NPCC vs. APO (LEAD RFA §X.A.4)

Setup: Two ACOs, each with $1,200 PBPM benchmark. Both elect 100% claims reduction for non-PC providers. Prospective payment = $20 PBPM. Actual non-PC claims = $30 PBPM.

ACO A (NPCC):

• PY expenditures include: $20 PBPM (payment only)
• The $10 PBPM gap is NOT added to expenditures
• Effect: $10 PBPM lower expenditures → more shared savings

ACO B (APO):

• PY expenditures include: $20 PBPM (payment) + $10 PBPM (excess reconciliation) = $30 PBPM
• CMS pays the ACO the additional $10 PBPM
• Effect: No impact on savings/losses (a wash)

Payment Mechanism Participation Rules (RFA Table 16)

Mechanism	PC Spec. Participant (Global)	Non-PC Participant (Global)	Preferred (Global)	PC Spec. Participant (Prof.)	Non-PC Participant (Prof.)	Preferred (Prof.)
PCC	Required	N/A	Optional	Required	N/A	Optional
NPCC	Eligible	Eligible	Eligible	N/A	Eligible	Eligible
APO	Eligible	Eligible	Eligible	N/A	Eligible	Eligible
PCC+NPCC	Eligible	N/A	Eligible	N/A	N/A	N/A
PCC+APO	Eligible	N/A	Eligible	Eligible	N/A	Eligible
TCC	Req. if selected	Req. if selected	Eligible	N/A	N/A	N/A

Important: Providers that elect NPCC or APO cannot simultaneously participate in CARA. (RFA §X.A.3)

Administrative Add-On (1.5%) New in LEAD (RFA §X.A.5)

Higher-spending ACOs receive an additional monthly capitated payment equal to 1.5% of their benchmark. This addresses the “cold start” problem: higher-spending organizations need to invest before they can reduce costs, but those investments increase short-term spending.

• Eligibility: Higher-spending ACOs (baseline exceeds regional FFS averages)
• Amount: 1.5% × PY Benchmark, paid monthly
• Settlement: NOT included in PY expenditures. NOT subject to repayment.

Administrative Add-On

• Benchmark: $1,200 PBPM
• Aligned beneficiaries: 8,000
• Monthly payment: $1,200 × 1.5% = $18 PBPM
• Annual total: $18 × 8,000 × 12 = $1,728,000

For a higher-spending Global ACO in PY 2027:

• Discount: 1.75% = $21 PBPM
• Add-On: 1.5% = $18 PBPM
• Net CMS retention: $3 PBPM (0.25% of benchmark)
• Compare to ACO REACH PY 2026: 4.0% discount, no add-on = $48 PBPM net retention

Claims Excluded from Fee Reductions (RFA §X.A)

Certain services are excluded from capitation fee reductions under all mechanisms:

• Claims where Medicare is not the primary payer
• Claims for providers in the Periodic Interim Payments (PiP) program
• HPSA bonus payments (HPSA amount based on pre-reduction claim)
• Home health agency claims with a Request for Anticipated Payment (RAP)
• Claims for beneficiaries who decline data sharing
• Claims for substance use disorder (SUD) diagnosis and treatment services

Settlement Treatment Summary

Mechanism	In PY expenditures?	Reconciled?	Recouped at settlement?	Repayable?	Savings opportunity?
TCC	Yes	Withhold trued up	No	Over-payments	Yes (TCOC)
Base PCC	Yes	% trued up	No	Over-payments	Yes (TCOC)
Enhanced PCC	Yes	N/A	Yes (full)	Yes	No (advance)
NPCC	Yes (pmt)	No	No	Over-payments	Yes
APO	Yes (pmt + excess)	vs. actual	No	Yes	No (advance)
Admin Add-On	No	N/A	No	No	Yes

Cash Flow Timeline

Period	ACO Cash Inflows	ACO Cash Outflows / Adjustments
Sep–Dec 2026	None (implementation period)	Financial guarantee posted by Dec 31
Jan 2027 (Month 1)	Monthly Base PCC + Enhanced PCC + NPCC + Admin Add-On. FFS claims reduced.	ACO distributes capitation to downstream providers
Feb–Mar 2027	Monthly capitation continues. Providers still submit FFS claims (reduced).	Cash management: capitation in vs. downstream obligations
Apr 2027 (Q2)	Quarterly update: alignment changes, benchmark/risk score adjustments	Alignment changes may add/remove beneficiary-months
Jul, Oct 2027	Subsequent quarterly updates	Same mechanics
Q1 2028	Provisional Settlement (optional): Jan–Jun 2027, 6 months runout, preliminary risk scores	Provisional shared savings/losses. Capitation true-up.
Q3 2028	Final Settlement: full PY 2027, runout through Mar 31, 2028, final risk scores, actual quality	Enhanced PCC recouped in full. APO reconciled. Final shared savings/losses. Net Total Monies Owed.