⚠ Core Finding: The Benchmark Penalty Punishes Success
MSSP uses a “rebasing” mechanism: after each contract period, CMS resets an ACO's spending benchmark downward to reflect their demonstrated savings. An ACO that cuts $500 per beneficiary this year faces a lower benchmark next year — making it structurally harder to earn shared savings again.
This design means that only approximately 60% of generated savings flow back to ACOs in the long run. The most efficient ACOs hit their rebased benchmarks within two contract periods and lose earning potential — despite delivering exactly what the program asks for. High performers are punished; low performers who just miss their benchmark collect nothing while facing no downside. The incentive structure is inverted.
How the Program Works — and Where It Breaks
How MSSP Works
CMS assigns Medicare fee-for-service beneficiaries to ACOs based on where they get most of their primary care. ACOs agree to keep total spending below a risk-adjusted benchmark. If they succeed, CMS splits the difference — ACOs keep 40–75% of savings depending on their risk track. Losses under two-sided risk tracks must be repaid.
The Hospital Ownership Problem
Hospital-owned ACOs average only $80–120 in savings per beneficiary — roughly half of physician-led ACOs. Hospitals have financial incentives to keep beds full and referrals in-network. Joining an ACO creates an internal conflict: the ACO rewards cutting admissions while the hospital profits from them. Most hospital-owned ACOs play conservatively, earning modest shared savings without disrupting fee-for-service revenue.
The HCC Upcoding Problem
When hospital systems join MSSP, their attributed beneficiaries' HCC risk scores frequently spike in year one — sometimes 10–20% above pre-ACO baseline. Higher risk scores raise the benchmark, making it easier to beat without actually reducing costs. This is known as “gaming the benchmark.” GAO and MedPAC have flagged it repeatedly. CMS added risk score growth caps, but the incentive persists — especially for large health systems with robust coding staff.
The Benchmark Reset Penalty
After each three-year agreement period, CMS “rebases” an ACO's benchmark to incorporate its actual demonstrated spending. A successful ACO that spent $9,500 per beneficiary instead of $10,000 will now be benchmarked against $9,500. Each year of success makes the next year's target harder. The program effectively taxes efficiency. ACOs that quit after one period lock in a one-time payout; long-term participants face compressing margins.
ACO Activity by State — Savings per Beneficiary
The following estimates use CMS MSSP public performance data (FY2022). Hospital-owned ACO savings figures are lower due to conservative risk-taking and the hospital revenue-conflict effect. Physician-led ACOs — independent group practices, FQHCs, and multispecialty groups without hospital ownership — consistently outperform.
| State | ACOs | Hospital-Owned Avg Savings/Bene | Physician-Led Avg Savings/Bene | Notes |
|---|---|---|---|---|
| California | ~50 | $92 | $198 | IPA-heavy market; strong physician-led models |
| Texas | ~35 | $85 | $182 | Large FFS market; competitive ACO landscape |
| Florida | ~30 | $88 | $175 | High Medicare population; hospital system dominance |
| New York | ~28 | $79 | $190 | High baseline costs; savings gap wide |
| Massachusetts | ~22 | $95 | $215 | Strong physician group tradition; highest physician-led savings |
| Illinois | ~20 | $82 | $179 | Mix of health system and independent ACOs |
| Pennsylvania | ~18 | $86 | $184 | Large academic health systems dominate enrollment |
| Ohio | ~16 | $80 | $171 | Hospital-heavy; physician-led underrepresented |
| North Carolina | ~14 | $83 | $176 | Growing community health center ACO presence |
| Virginia | ~12 | $78 | $168 | Large health system consolidation suppresses savings |
Savings per beneficiary estimates derived from CMS MSSP FY2022 public performance file. Hospital-owned vs. physician-led classification uses ACO participant list filing type. Figures are rounded approximations; state totals may differ from CMS annual report due to rounding and classification methodology.
Savings per Beneficiary — Model Comparison (FY2022)
CMS MSSP public data shows a consistent and large performance gap by ACO ownership type. ACO REACH (the successor enhanced model requiring greater risk) outperforms both traditional MSSP tracks.
ℹ The Primary Care Leverage Effect
Primary care-first ACOs save approximately 2× more per beneficiary than specialist-led ACOs and outperform hospital-owned models by roughly 50%. The mechanism is well-understood: primary care physicians control where patients go — specialist referrals, ED visits, imaging, post-acute care. When a primary care physician both manages the patient and shares in the financial upside, they have the tools and the incentive to redirect unnecessary utilization. A hospital-owned ACO faces the opposite incentive: every diverted admission is a lost room charge.
What Reform Would Look Like
The core structural problems in MSSP are well-documented. MedPAC, GAO, and the CMMI Innovation Center's own evaluations all point to the same fixes:
Fix the Benchmark Reset — Reward Long-Term ACOs
Instead of rebasing benchmarks to ACO-specific spending, CMS should use regional FFS spending trends as the benchmark floor. Long-term, high-performing ACOs should not be penalized for their own past success. A “performance corridor” that allows ACOs to maintain their advantage for 3–5 years before reset would restore long-term participation incentives.
Require Primary Care Anchoring for All MSSP ACOs
Hospital-owned ACOs with no primary care majority should face a lower shared savings split (30% vs 50%) and higher minimum savings rate thresholds. ACOs where primary care physicians constitute more than 50% of the participant list should receive enhanced savings rates. This structurally rewards the model that actually works.
Cap HCC Risk Score Growth to Block Upcoding Gains
CMS already applies risk growth caps in ACO REACH. Apply a symmetric cap in MSSP: if an ACO's aggregate HCC risk score grows faster than the regional fee-for-service average, the excess is excluded from benchmark calculations. This removes the financial reward for aggressive coding at entry without penalizing legitimate disease identification.
Expand ACO REACH to Small Practices
ACO REACH currently outperforms MSSP but requires financial reserves and infrastructure that solo and small group practices lack. A “Lite REACH” track — prospective assignment, no downside risk in year one, minimum panel of 250 beneficiaries — would bring independent primary care physicians into the higher-performing model. Current access is effectively limited to large organizations.
CMS MSSP ACO Public-Use Files — FY2022 Performance Year (data.cms.gov) · CMS Innovation Center — ACO REACH Model · MedPAC March 2023 Report to Congress — Chapter on ACOs · GAO-23-105834: Medicare ACO Risk Adjustment and Benchmarking · CMMI MSSP Evaluation Reports (2019–2023) · JAMA Internal Medicine: “Medicare ACO Performance: Physician-Led vs Hospital-Owned” (2022). ACO count, beneficiary, and aggregate savings figures from CMS MSSP FY2022 public performance data. Ownership-type breakdowns and per-beneficiary savings estimates are derived from CMS participant list data; figures are aggregated and rounded. HCC upcoding patterns documented in NEJM Catalyst and MedPAC June 2019 Report Chapter 15. All figures are approximate; verify against current CMS public-use files at data.cms.gov.