Emerging Regulatory and Market Trends for Accountable Care Organizations
In this article for the American Health Law Association's Health Law Weekly column, Anthony Del Rio, Ruan Meintjes and Marie Macaulay discuss the evolving landscape of Accountable Care Organizations (ACO) from a legal and regulatory perspective, focusing on the uncertainties that the year 2025 brings to these entities and their sponsoring organizations.
On March 12, 2025, the Center for Medicare and Medicaid Innovation (CMMI) announced it is terminating four Accountable Care Organization (ACO) models early, with a plan to wind down these models by year end.[1] The Centers for Medicare & Medicaid Services (CMS) estimates that early termination of these programs will amount to $750 million in savings. Concurrently, major health care organizations have wound down or sold their ACOs. The combination of CMMI’s announcement and market participants’ notable movements raise questions for ACOs and value-based care programs more broadly. This article explores the evolving landscape of ACOs from a legal and regulatory perspective, focusing on the uncertainties that the year 2025 brings to these entities and their sponsoring organizations.
ACO Overview
In the late 1990s and early 2000s, health care costs were increasing rapidly in the United States. Some critics argued that the system rewarded health care providers who increased the number of patient encounters and treatments (due to a fee-for-service model) instead of rewarding providers for patient outcomes. Commercial payers began experimenting with models where health care providers would be reimbursed based on the quality of care and ultimate outcome of a patient. Models of reimbursement varied—in some cases, providers could share in the savings; and in other, riskier models, providers shared in savings to a greater degree but were liable to the payer for cost overages.
In 2009 the Affordable Care Act introduced ACOs, by statute, into federal law. This change enabled CMS to open ACO models to providers participating in Medicare. Generally, the mechanics of most CMS ACO models include the following: (a) CMS contracts with a provider entity that assumes responsibility for a defined patient population; (b) CMS calculates the expected costs of care for the population; and (c) if the provider is able to achieve savings relative to the expected cost of care and meet certain quality metrics, it receives a percentage of such savings. Just as in the private market, CMS developed both one- and two-sided ACO models. One-sided ACOs permit the ACO to share in the savings, but the ACO does not undertake any risk if it misses the financial benchmark. In two-sided ACOs, the ACO can enjoy a greater portion of the savings but is liable to CMS in the event of a cost overrun.
Regulatory Environment
Current signals from Congress, CMS, and executive-branch officials suggest ACOs will continue to enjoy support even though the programs may undergo change. The federal regulatory environment for ACOs participating in CMS is broadly split between the Medicare Shared Savings Program (a program codified into statute) (MSSP) and experimental ACO programs that are periodically designed and tested by CMMI (CMMI ACO programs are discretionary and may change more easily via regulatory action). This dual-program structure will likely dictate two distinct approaches by the executive branch.
In April 2024, the Congressional Budget Office (CBO) reported that the MSSP and CMMI ACO programs have done little to reduce federal spending.[2] In fact, according to the CBO, CMMI’s programs moderately increased federal spending on health care.[3] While the underlying drivers for these financial results are subject to debate among researchers, the CBO identified a number of ACO characteristics that achieved savings. For example, ACOs led by independent physician groups achieved materially greater savings as compared to ACOs operated by large hospital groups, and ACOs with a large proportion of primary care providers achieved above-average savings.
Given its statutory basis, significant regulatory shifts in the MSSP are less likely. Future modifications will probably focus on refining reporting metrics and other factors aimed at program improvement. For example, the 2025 Medicare Physician Fee Schedule Final Rule (2025 MPF Rule) would require all participating MSSP ACOs to report their metrics through CMS’ Electronic Clinical Quality Measures (eCQM) system or risk failing their quality scores (which would have a material financial impact on ACOs). Setting aside the intricacies of the 2025 MPF Rule and the eCQM system for the purposes of this discussion, the requirement for ACOs to report their results through the eCQM system will place significant data aggregation and reporting requirements on MSSP ACOs, which will come at a material cost to many ACOs. In response to the 2025 MPF Rule, a bipartisan group of legislators introduced the Healthcare Efficiency Through Flexibility Act (HETFA), which would delay the eCQM requirement until 2030.[4] The future of HETFA is uncertain.
In contrast, CMMI’s discretionary programs are more susceptible to regulatory changes. The CBO’s findings, coupled with CMMI’s internal analyses, likely informed CMMI’s decision on March 12, 2025 to terminate the previously discussed regional, experimental ACO programs.[5] CMMI also previewed a “new strategic vision” without providing additional details. That said, CMMI did not terminate or disclose any plans related to one of its largest experimental models: the ACO Realizing Equity, Access, and Community Health program (REACH) (as discussed in more detail below, the ACO REACH program has achieved meaningful savings). However, the ACO REACH program is set to automatically expire in 2026 unless CMMI expands or rolls the program into a new model. To the extent that there are changes in CMMI’s approach to experimental models, we expect that those changes will seek to leverage CMMI’s and the CBO’s data (and other peer-reviewed literature) to develop programs that incorporate factors associated with savings.
Market Environment
From an ACO program growth perspective, under the Biden administration, CMS set a lofty goal to have 100% participation of traditional Medicare beneficiaries in accountable care relationships with a provider by 2030.[6] In January 2025, CMS announced it is making strides toward that goal, finding that 53.4% of traditional Medicare beneficiaries are in such relationships. This represents a 4.3% annual increase and is the largest annual increase in participation in accountable care relationships since CMS began tracking such metrics.
Financials have not yet been calculated for the 2024 performance; however, in 2023, the MSSP program yielded more than $2.1 billion in net savings.[7] In particular, ACOs participating in the MSSP earned shared saving payments of $3.1 billion and scored better on many quality measures over other types of physician groups. 2023 was also a strong year for the ACO REACH program, generating $1.643 billion in gross savings on health care expenditures, with net savings of $694.6 million to CMS and $948.4 million in savings for ACOs.[8] The savings coincided with a slight increase in quality metrics for ACO REACH participants as well.
Despite all-time high levels of participation in accountable care relationships, several health care entities recently exited value-based care models. These exits, discussed below, raise potential legal considerations related to ACO strategy, contractual obligations, and the implications of bankruptcy on value-based care arrangements.
In one case, a large value-based managed service organization entered bankruptcy after experiencing business headwinds. To generate liquidity, the service organization sold certain assets within its ACO portfolio and wound down its ACO REACH program. In cases where an ACO program terminates, a patient’s eligibility to receive traditional Medicare benefits does not change if an ACO or its participating providers exit the REACH program, but the early termination may reduce patient access to additional support traditionally offered by ACOs (e.g., care navigation services).
In another recent case, a health care organization followed a similar pattern of selling certain of its ACO programs to other value-based care organizations and terminated its REACH program. Generally, ACOs are free to voluntarily withdraw from participation in the ACO REACH program. However, withdrawal mid performance year can trigger liabilities. To avoid such liabilities, an ACO must provide notice of withdrawal either before February 28 of the program year, or before the date as otherwise agreed to in the program participation agreement between the ACO and CMS.[9] Moreover, providers in the ACO may not be able to participate in an ACO or value-based care model more broadly if an ACO winds down participation mid program year. In this instance, the health care organization developed comprehensive plans to support the transition of both beneficiaries and participating providers.
The ACO REACH program has experienced other entities exiting the program, particularly insurers who have cited disappointment in the financial performance of the program and expressed an interest in eliminating the downside risk of program participation.
Strategic Considerations for ACOs and Their Sponsors
In light of the evolving regulatory and market landscape, ACOs and their parent organizations should consider several key factors in their strategic planning for future performance years:
• Analysis of Factors Correlated with Savings and Losses: The CBO’s 2024 analysis and related research offers valuable insights into factors associated with successful ACO performance. A thorough review of these factors can inform decisions about potential adjustments to existing ACO programs. Some exits from the ACO market have also provided lessons around what can drive losses (e.g., lack of coordination, unreliable data, and inaccurate performance projections).
• Development of a Robust Digital Reporting Strategy: Regardless of the fate of HETFA, increased reporting requirements necessitating significant data aggregation are likely in the future. ACOs must proactively develop strategies to effectively manage these requirements. This includes assessing the costs associated with implementing and maintaining the necessary technological infrastructure and ensuring compliance with CMS’ eCQM system.
• Planning for Variability in CMMI Programs: Despite their discretionary nature, CMMI programs will likely remain a significant source of innovation and new ACO models. ACOs participating in these programs should anticipate potential program changes driven by shifting federal priorities and policy objectives as CMMI has the ability (both by law and by its participation agreements with ACOs) to terminate a model before its planned end date. This requires careful monitoring of CMMI announcements and a flexible approach to program participation.
• Planning for ACO REACH Discontinuation: When CMMI announced the REACH program, CMMI noted that it was scheduled to run through 2026. On the one hand, it is possible that CMMI will expand the program or roll it into a new program. On the other hand, CMMI could allow the program to naturally expire at the end of 2026. In either case, ACOs that participate in the REACH program should begin planning for both contingencies and outline plans that account for participating providers and the patient population assigned to each such ACO. The same consideration applies to ACOs participating in other time limited CMMI models.
The uncertainties in both regulatory and market environments necessitate a proactive and legally informed approach for ACOs and their sponsor organizations to navigate the complexities of value-based care in 2025 and beyond.
[1] Centers for Medicare & Medicaid Services, Fact Sheet: CMS Innovation Center Announces Model Portfolio Changes to Better Protect Taxpayers and Help Americans Live Healthier Lives (Mar. 12, 2025), https://www.cms.gov/newsroom/fact-sheets/cms-innovation-center-announces-model-portfolio-changes-better-protect-taxpayers-and-help-americans
[2] Congressional Budget Office, Medicare Accountable Care Organizations: Past Performance and Future Directions (Apr. 2024), https://www.cbo.gov/publication/60213.
[3] Congressional Budget Office, Federal Budgetary Effects of the Activities of the Center for Medicare & Medicaid Innovation (Sept. 2023), https://www.cbo.gov/publication/59612.
[4] Representative Vern Buchanan, Press Release, Buchanan Leads Bill to Improve Healthcare Reporting (Jan. 21, 2025), https://buchanan.house.gov/2025/1/buchanan-leads-bill-to-improve-healthcare-reporting.
[5] CMS, supra note 1.
[6] Centers for Medicare & Medicaid Services, Fact Sheet: CMS Moves Closer to Accountable Care Goals with 2025 ACO Initiatives (Jan. 15, 2025), https://www.cms.gov/newsroom/fact-sheets/cms-moves-closer-accountable-care-goals-2025-aco-initiatives.
[7] Centers for Medicare & Medicaid Services, Press Release, Medicare Shared Savings Program Continues to Deliver Meaningful Savings and High-Quality Health Care (Oct. 29, 2024), https://www.cms.gov/newsroom/press-releases/medicare-shared-savings-program-continues-deliver-meaningful-savings-and-high-quality-health-care.
[8] Centers for Medicare & Medicaid Services, ACO Realizing Equity, Access and Community Health (ACO REACH) Model: Performance Year 2023 Financial and Quality Performance Results’ Highlights (Nov. 8, 2024), https://www.cms.gov/priorities/innovation/aco-reach-py2023-financial-and-quality-performance-results-fact-sheet.
[9] Centers for Medicare & Medicaid Services, ACO REACH Frequently Asked Questions, https://app1.innovation.cms.gov/s/model-faq/a9Bt00000004CAgEAM/generalapplication-process (last visited Apr. 9, 2025).
