§425.640. Option to receive prepaid shared savings. — Inbound Citations

(3) An ACO that will participate under a two-sided model of the Shared Savings Program must submit for CMS approval documentation that it is capable of repaying shared losses that it may incur during its agreement period, including details supporting the adequacy of the repayment mechanism. If the ACO will receive prepaid shared savings, the repayment mechanism must also support repayment of prepaid shared savings in accordance with § 425.640.

(i) An ACO participating in Track 2 must demonstrate the adequacy of its repayment mechanism prior to any change in the terms and type of the repayment mechanism, and at such other times as requested by CMS.

(ii) An ACO entering an agreement period in Levels C, D, or E of the BASIC track or the ENHANCED track must demonstrate the adequacy of its repayment mechanism prior to the start of its agreement period, prior to any change in the terms and type of the repayment mechanism, and at such other times as requested by CMS.

(iii) An ACO entering an agreement period in Level A or Level B of the BASIC track must demonstrate the adequacy of its repayment mechanism prior to the start of any performance year in which it either elects to participate in, or is automatically transitioned to, a two-sided model, Level C, Level D, or Level E of the BASIC track, prior to any change in the terms and type of the repayment mechanism, and at such other times as requested by CMS.

(iv) An ACO that has submitted a request to renew its participation agreement must submit as part of the renewal request documentation demonstrating the adequacy of the repayment mechanism that could be used to repay any shared losses incurred and prepaid shared savings determined to be owed for performance years in the next agreement period. The repayment mechanism applicable to the new agreement period may be the same repayment mechanism currently used by the ACO, provided that the ACO submits documentation establishing that the duration of the existing repayment mechanism has been revised to comply with paragraph (f)(6)(ii) of this section, and the amount of the repayment mechanism complies with paragraph (f)(4) of this section.

(v) As part of its application, a re-entering ACO must submit documentation demonstrating the adequacy of the repayment mechanism that could be used to repay any shared losses incurred for performance years in the next agreement period. The repayment mechanism applicable to the new agreement period may be the same repayment mechanism currently used by the re-entering ACO, provided that the ACO is the same legal entity as an ACO that previously participated in the program, and the ACO submits documentation establishing that the duration of the existing repayment mechanism has been revised to comply with paragraph (f)(6)(ii) of this section and the amount of the repayment mechanism complies with paragraph (f)(4) of this section.

(10) Information updated annually about the ACO's use of prepaid shared savings under § 425.640, for each performance year, including the following:

(iii) An itemization of how prepaid shared savings were spent during the year, including expenditure categories, the dollar amounts spent on the various categories, information about which groups of beneficiaries received direct beneficiary services that were purchased with prepaid shared savings and investments that were made in the ACO with prepaid shared savings, how these direct beneficiary services were provided to beneficiaries and how the direct beneficiary services and investments supported the care of beneficiaries, any changes to the spend plan as submitted under § 425.640(d)(2) (if applicable), and such other information as may be specified by CMS.

(1) CMS monitors an ACO that receives prepaid shared savings pursuant to § 425.640 to ensure ACO compliance with § 425.640(e) and to determine whether it would be appropriate to withhold or terminate an ACO's prepaid shared savings under § 425.640(h).

(e) An ACO is eligible to receive prepaid shared savings if it meets the criteria under § 425.640(b).

(iii) An itemization of how prepaid shared savings were spent during the year, including expenditure categories, the dollar amounts spent on the various categories, information about which groups of beneficiaries received direct beneficiary services that were purchased with prepaid shared savings and investments that were made in the ACO with prepaid shared savings, how these direct beneficiary services were provided to beneficiaries and how the direct beneficiary services and investments supported the care of beneficiaries, any changes to the spend plan as submitted under § 425.640(d)(2) (if applicable), and such other information as may be specified by CMS.

(1) CMS monitors an ACO that receives prepaid shared savings pursuant to § 425.640 to ensure ACO compliance with § 425.640(e) and to determine whether it would be appropriate to withhold or terminate an ACO's prepaid shared savings under § 425.640(h).

(2) If CMS determines that an ACO receiving prepaid shared savings is using the funds for a prohibited use under § 425.640(e)(2), fails to spend the funding in accordance with § 425.640(e)(1)(i) and (ii), or spends more than 50 percent of the estimated annual payment amount on staffing and healthcare infrastructure CMS:

(i) Will require the ACO to reallocate the funding as permitted by § 425.640(e) and submit an updated spend plan demonstrating the reallocation by a deadline specified by CMS.

(ii) May take compliance action as specified in §§ 425.216, 425.218, and 425.640(h)(1).

(2) If CMS determines that an ACO receiving prepaid shared savings is using the funds for a prohibited use under § 425.640(e)(2), fails to spend the funding in accordance with § 425.640(e)(1)(i) and (ii), or spends more than 50 percent of the estimated annual payment amount on staffing and healthcare infrastructure CMS:

(i) Will require the ACO to reallocate the funding as permitted by § 425.640(e) and submit an updated spend plan demonstrating the reallocation by a deadline specified by CMS.

(ii) May take compliance action as specified in §§ 425.216, 425.218, and 425.640(h)(1).

(2) If CMS determines that an ACO receiving prepaid shared savings is using the funds for a prohibited use under § 425.640(e)(2), fails to spend the funding in accordance with § 425.640(e)(1)(i) and (ii), or spends more than 50 percent of the estimated annual payment amount on staffing and healthcare infrastructure CMS:

(i) Will require the ACO to reallocate the funding as permitted by § 425.640(e) and submit an updated spend plan demonstrating the reallocation by a deadline specified by CMS.

(ii) May take compliance action as specified in §§ 425.216, 425.218, and 425.640(h)(1).

(f) An ACO determined eligible pursuant to paragraph (b) of this section receives quarterly prepaid shared savings payments equal to the maximum quarterly payment amount calculated pursuant to the methodology specified in paragraphs (f)(2) through (4) of this section unless the ACO elects to receive a lesser amount pursuant to paragraph (f)(6) of this section. CMS notifies in writing each ACO of its determination of the amount of prepaid shared savings and the notice will inform the ACO of its right to request reconsideration review in accordance with the procedures specified in subpart I of this part. If CMS does not make any prepaid shared savings payment, the notice will specify the reason(s) why and inform the ACO of its right to request reconsideration review in accordance with the procedures specified in subpart I.

(i) An eligible ACO entering an agreement period beginning on January 1, 2026, or in subsequent years will receive quarterly prepaid shared savings payments for the entirety of the ACO's agreement period unless the payment is withheld or terminated pursuant to paragraph (h) of this section.

(ii) An eligible ACO participating in an agreement period beginning on January 1, 2025, will receive quarterly prepaid shared savings payments starting with the performance year beginning on January 1, 2026, and for the remainder of its agreement period, unless the payment is withheld or terminated pursuant to paragraph (h) of this section. The ACO will not receive additional or catch-up payments for performance year 2025.

(iii) If an ACO's quarterly payment is withheld or terminated pursuant to paragraph (h) of this section, the ACO will not receive additional or catch-up payments if quarterly prepaid shared savings payments are later resumed.

(i) Calculate total per capita savings or losses for each performance year that constitutes BY1 and BY2 of the agreement period in which the ACO receives prepaid shared savings. Per capita savings or losses will be set to zero for a performance year if the ACO was not reconciled for the performance year.

(ii) Take the simple average of the per capita savings or losses calculated in paragraph (f)(2)(i) of this section, including values of zero, if applicable.

(iii) Apply a proration factor to account for any upward growth in the ACO's assigned population in BY1 and BY2 of the agreement period in which the ACO receives prepaid shared savings as compared to the size of the assigned population when the ACO was reconciled for the corresponding performance years in its prior agreement period.

(iv) Adjust the pro-rated average per capita amount computed in paragraph (f)(2)(iii) of this section by multiplying by 50 percent.

(A) Two-thirds of the pro-rated, adjusted average per capita amount computed in paragraph (f)(2)(iv) of this section.

(B) 5 percent of national per capita expenditures for Parts A and B services under the original Medicare fee-for-service program in BY2 for assignable beneficiaries identified for the 12-month calendar year corresponding to BY2 using data from the CMS Office of the Actuary and expressed as a single value by taking a person-year weighted average of the Medicare enrollment type-specific values.

(3) For the first performance year during the term of the agreement period in which the ACO receives prepaid shared savings, the ACO's prepaid shared savings multiplier is recalculated for changes in per capita shared savings or losses for the performance years used in the calculation of the prepaid shared savings multiplier as a result of issuance of a revised initial determination under § 425.315. For the second and each subsequent performance year during the term of the agreement period in which the ACO receives prepaid shared savings, the ACO's prepaid shared savings multiplier is recalculated for the following, as applicable: For the addition and removal of ACO participants or ACO providers/suppliers in accordance with § 425.118(b), for a change to the ACO's beneficiary assignment methodology selection under § 425.226(a)(1), for a change to the beneficiary assignment methodology specified in subpart E of this part, and for changes in per capita shared savings or losses for the performance years used in the calculation of the prepaid shared savings multiplier as a result of issuance of a revised initial determination under § 425.315. To recalculate the prepaid shared savings multiplier, CMS does the following:

(i) Takes into account changes to the ACO's savings or losses for a performance year for either of the 2 years that constitute BY1 and BY2 of the agreement period for which the ACO receives prepaid shared savings under paragraph (f)(2)(i) of this section, including values of zero, if applicable, as a result of issuance of a revised initial determination under § 425.315, when calculating the simple average of the per capita savings or losses calculated in paragraph (f)(2)(ii) of this section.

(ii) Redetermines the proration factor used in calculating the prepaid shared savings multiplier under paragraph (f)(2)(iii) of this section to account for changes in the ACO's assigned beneficiary population in the benchmark years of the ACO's agreement period in which the ACO receives prepaid shared savings due to the addition and removal of ACO participants or ACO providers/suppliers in accordance with § 425.118(b), a change to the ACO's beneficiary assignment methodology selection under § 425.226(a)(1), or changes to the beneficiary assignment methodology under subpart E of this part.

(4) For each quarter for each performance year, the maximum quarterly prepaid shared savings amount is equal to the product of one-fourth of the prepaid shared savings multiplier calculated in paragraph (f)(2)(v) of this section or recalculated according to paragraph (f)(3) of this section and the ACO's performance year assigned beneficiary person years calculated from the ACO's most recent assignment list.

(5) For the purposes of determining the amount of prepaid shared savings permitted to be allocated to the uses specified in paragraph (e) of this section during each performance year, the estimated annual prepaid shared savings amount can be calculated by multiplying the first quarterly payment amount the ACO receives in each performance year by four. If an ACO's maximum quarterly payments decrease over the performance year, the ACO will not be subject to compliance action solely because it spent more than 50 percent of the actual annual amount of prepaid shared savings it received during that PY on staffing and healthcare infrastructure, as long as it did not spend more than 50 percent of the originally estimated annual maximum prepaid shared savings amount on staffing and healthcare infrastructure.

(6) An ACO may request a smaller quarterly payment amount from CMS in a form and manner and by a deadline specified by CMS.

(iv) Determining national per capita expenditures for Parts A and B services under the original Medicare fee-for-service program for assignable beneficiaries for purposes of capping the regional adjustment to the ACO's historical benchmark according to §§ 425.601(a)(8)(ii)(C) and 425.656(c)(3), capping the prior savings adjustment according to § 425.658(c)(1)(ii), capping the prepaid shared savings multiplier according to § 425.640(f)(2)(v), and calculating the scaler according to § 425.662(b)(2).

(f) An ACO determined eligible pursuant to paragraph (b) of this section receives quarterly prepaid shared savings payments equal to the maximum quarterly payment amount calculated pursuant to the methodology specified in paragraphs (f)(2) through (4) of this section unless the ACO elects to receive a lesser amount pursuant to paragraph (f)(6) of this section. CMS notifies in writing each ACO of its determination of the amount of prepaid shared savings and the notice will inform the ACO of its right to request reconsideration review in accordance with the procedures specified in subpart I of this part. If CMS does not make any prepaid shared savings payment, the notice will specify the reason(s) why and inform the ACO of its right to request reconsideration review in accordance with the procedures specified in subpart I.

(i) An eligible ACO entering an agreement period beginning on January 1, 2026, or in subsequent years will receive quarterly prepaid shared savings payments for the entirety of the ACO's agreement period unless the payment is withheld or terminated pursuant to paragraph (h) of this section.

(ii) An eligible ACO participating in an agreement period beginning on January 1, 2025, will receive quarterly prepaid shared savings payments starting with the performance year beginning on January 1, 2026, and for the remainder of its agreement period, unless the payment is withheld or terminated pursuant to paragraph (h) of this section. The ACO will not receive additional or catch-up payments for performance year 2025.

(iii) If an ACO's quarterly payment is withheld or terminated pursuant to paragraph (h) of this section, the ACO will not receive additional or catch-up payments if quarterly prepaid shared savings payments are later resumed.

(i) Calculate total per capita savings or losses for each performance year that constitutes BY1 and BY2 of the agreement period in which the ACO receives prepaid shared savings. Per capita savings or losses will be set to zero for a performance year if the ACO was not reconciled for the performance year.

(ii) Take the simple average of the per capita savings or losses calculated in paragraph (f)(2)(i) of this section, including values of zero, if applicable.

(iii) Apply a proration factor to account for any upward growth in the ACO's assigned population in BY1 and BY2 of the agreement period in which the ACO receives prepaid shared savings as compared to the size of the assigned population when the ACO was reconciled for the corresponding performance years in its prior agreement period.

(iv) Adjust the pro-rated average per capita amount computed in paragraph (f)(2)(iii) of this section by multiplying by 50 percent.

(A) Two-thirds of the pro-rated, adjusted average per capita amount computed in paragraph (f)(2)(iv) of this section.

(B) 5 percent of national per capita expenditures for Parts A and B services under the original Medicare fee-for-service program in BY2 for assignable beneficiaries identified for the 12-month calendar year corresponding to BY2 using data from the CMS Office of the Actuary and expressed as a single value by taking a person-year weighted average of the Medicare enrollment type-specific values.

(3) For the first performance year during the term of the agreement period in which the ACO receives prepaid shared savings, the ACO's prepaid shared savings multiplier is recalculated for changes in per capita shared savings or losses for the performance years used in the calculation of the prepaid shared savings multiplier as a result of issuance of a revised initial determination under § 425.315. For the second and each subsequent performance year during the term of the agreement period in which the ACO receives prepaid shared savings, the ACO's prepaid shared savings multiplier is recalculated for the following, as applicable: For the addition and removal of ACO participants or ACO providers/suppliers in accordance with § 425.118(b), for a change to the ACO's beneficiary assignment methodology selection under § 425.226(a)(1), for a change to the beneficiary assignment methodology specified in subpart E of this part, and for changes in per capita shared savings or losses for the performance years used in the calculation of the prepaid shared savings multiplier as a result of issuance of a revised initial determination under § 425.315. To recalculate the prepaid shared savings multiplier, CMS does the following:

(i) Takes into account changes to the ACO's savings or losses for a performance year for either of the 2 years that constitute BY1 and BY2 of the agreement period for which the ACO receives prepaid shared savings under paragraph (f)(2)(i) of this section, including values of zero, if applicable, as a result of issuance of a revised initial determination under § 425.315, when calculating the simple average of the per capita savings or losses calculated in paragraph (f)(2)(ii) of this section.

(ii) Redetermines the proration factor used in calculating the prepaid shared savings multiplier under paragraph (f)(2)(iii) of this section to account for changes in the ACO's assigned beneficiary population in the benchmark years of the ACO's agreement period in which the ACO receives prepaid shared savings due to the addition and removal of ACO participants or ACO providers/suppliers in accordance with § 425.118(b), a change to the ACO's beneficiary assignment methodology selection under § 425.226(a)(1), or changes to the beneficiary assignment methodology under subpart E of this part.

(4) For each quarter for each performance year, the maximum quarterly prepaid shared savings amount is equal to the product of one-fourth of the prepaid shared savings multiplier calculated in paragraph (f)(2)(v) of this section or recalculated according to paragraph (f)(3) of this section and the ACO's performance year assigned beneficiary person years calculated from the ACO's most recent assignment list.

(5) For the purposes of determining the amount of prepaid shared savings permitted to be allocated to the uses specified in paragraph (e) of this section during each performance year, the estimated annual prepaid shared savings amount can be calculated by multiplying the first quarterly payment amount the ACO receives in each performance year by four. If an ACO's maximum quarterly payments decrease over the performance year, the ACO will not be subject to compliance action solely because it spent more than 50 percent of the actual annual amount of prepaid shared savings it received during that PY on staffing and healthcare infrastructure, as long as it did not spend more than 50 percent of the originally estimated annual maximum prepaid shared savings amount on staffing and healthcare infrastructure.

(6) An ACO may request a smaller quarterly payment amount from CMS in a form and manner and by a deadline specified by CMS.

(f) An ACO determined eligible pursuant to paragraph (b) of this section receives quarterly prepaid shared savings payments equal to the maximum quarterly payment amount calculated pursuant to the methodology specified in paragraphs (f)(2) through (4) of this section unless the ACO elects to receive a lesser amount pursuant to paragraph (f)(6) of this section. CMS notifies in writing each ACO of its determination of the amount of prepaid shared savings and the notice will inform the ACO of its right to request reconsideration review in accordance with the procedures specified in subpart I of this part. If CMS does not make any prepaid shared savings payment, the notice will specify the reason(s) why and inform the ACO of its right to request reconsideration review in accordance with the procedures specified in subpart I.

(i) An eligible ACO entering an agreement period beginning on January 1, 2026, or in subsequent years will receive quarterly prepaid shared savings payments for the entirety of the ACO's agreement period unless the payment is withheld or terminated pursuant to paragraph (h) of this section.

(ii) An eligible ACO participating in an agreement period beginning on January 1, 2025, will receive quarterly prepaid shared savings payments starting with the performance year beginning on January 1, 2026, and for the remainder of its agreement period, unless the payment is withheld or terminated pursuant to paragraph (h) of this section. The ACO will not receive additional or catch-up payments for performance year 2025.

(iii) If an ACO's quarterly payment is withheld or terminated pursuant to paragraph (h) of this section, the ACO will not receive additional or catch-up payments if quarterly prepaid shared savings payments are later resumed.

(i) Calculate total per capita savings or losses for each performance year that constitutes BY1 and BY2 of the agreement period in which the ACO receives prepaid shared savings. Per capita savings or losses will be set to zero for a performance year if the ACO was not reconciled for the performance year.

(ii) Take the simple average of the per capita savings or losses calculated in paragraph (f)(2)(i) of this section, including values of zero, if applicable.

(iii) Apply a proration factor to account for any upward growth in the ACO's assigned population in BY1 and BY2 of the agreement period in which the ACO receives prepaid shared savings as compared to the size of the assigned population when the ACO was reconciled for the corresponding performance years in its prior agreement period.

(iv) Adjust the pro-rated average per capita amount computed in paragraph (f)(2)(iii) of this section by multiplying by 50 percent.

(A) Two-thirds of the pro-rated, adjusted average per capita amount computed in paragraph (f)(2)(iv) of this section.

(B) 5 percent of national per capita expenditures for Parts A and B services under the original Medicare fee-for-service program in BY2 for assignable beneficiaries identified for the 12-month calendar year corresponding to BY2 using data from the CMS Office of the Actuary and expressed as a single value by taking a person-year weighted average of the Medicare enrollment type-specific values.

(3) For the first performance year during the term of the agreement period in which the ACO receives prepaid shared savings, the ACO's prepaid shared savings multiplier is recalculated for changes in per capita shared savings or losses for the performance years used in the calculation of the prepaid shared savings multiplier as a result of issuance of a revised initial determination under § 425.315. For the second and each subsequent performance year during the term of the agreement period in which the ACO receives prepaid shared savings, the ACO's prepaid shared savings multiplier is recalculated for the following, as applicable: For the addition and removal of ACO participants or ACO providers/suppliers in accordance with § 425.118(b), for a change to the ACO's beneficiary assignment methodology selection under § 425.226(a)(1), for a change to the beneficiary assignment methodology specified in subpart E of this part, and for changes in per capita shared savings or losses for the performance years used in the calculation of the prepaid shared savings multiplier as a result of issuance of a revised initial determination under § 425.315. To recalculate the prepaid shared savings multiplier, CMS does the following:

(i) Takes into account changes to the ACO's savings or losses for a performance year for either of the 2 years that constitute BY1 and BY2 of the agreement period for which the ACO receives prepaid shared savings under paragraph (f)(2)(i) of this section, including values of zero, if applicable, as a result of issuance of a revised initial determination under § 425.315, when calculating the simple average of the per capita savings or losses calculated in paragraph (f)(2)(ii) of this section.

(ii) Redetermines the proration factor used in calculating the prepaid shared savings multiplier under paragraph (f)(2)(iii) of this section to account for changes in the ACO's assigned beneficiary population in the benchmark years of the ACO's agreement period in which the ACO receives prepaid shared savings due to the addition and removal of ACO participants or ACO providers/suppliers in accordance with § 425.118(b), a change to the ACO's beneficiary assignment methodology selection under § 425.226(a)(1), or changes to the beneficiary assignment methodology under subpart E of this part.

(4) For each quarter for each performance year, the maximum quarterly prepaid shared savings amount is equal to the product of one-fourth of the prepaid shared savings multiplier calculated in paragraph (f)(2)(v) of this section or recalculated according to paragraph (f)(3) of this section and the ACO's performance year assigned beneficiary person years calculated from the ACO's most recent assignment list.

(5) For the purposes of determining the amount of prepaid shared savings permitted to be allocated to the uses specified in paragraph (e) of this section during each performance year, the estimated annual prepaid shared savings amount can be calculated by multiplying the first quarterly payment amount the ACO receives in each performance year by four. If an ACO's maximum quarterly payments decrease over the performance year, the ACO will not be subject to compliance action solely because it spent more than 50 percent of the actual annual amount of prepaid shared savings it received during that PY on staffing and healthcare infrastructure, as long as it did not spend more than 50 percent of the originally estimated annual maximum prepaid shared savings amount on staffing and healthcare infrastructure.

(6) An ACO may request a smaller quarterly payment amount from CMS in a form and manner and by a deadline specified by CMS.

(1) CMS monitors an ACO that receives prepaid shared savings pursuant to § 425.640 to ensure ACO compliance with § 425.640(e) and to determine whether it would be appropriate to withhold or terminate an ACO's prepaid shared savings under § 425.640(h).

(ii) May take compliance action as specified in §§ 425.216, 425.218, and 425.640(h)(1).