Why risk adjustment is critical for the success of ACOs 

The Centers for Medicare & Medicaid Services (CMS) has set an ambitious goal: by 2030, every traditional Medicare beneficiary will be aligned with an Accountable Care Organization (ACO). Already, 14.8 million lives, over half of traditional Medicare, are attributed to ACOs through the Medicare Shared Savings Program (MSSP) and other Innovation Center models.¹

In 2024, 75% of the MSSP ACOs delivered $4.1 billion in shared savings, with $2.5 billion net to Medicare.² More than 70% are now in a two-sided risk model,³ generating nearly 3 times⁴ the savings of upside-only models.⁵ Thus, higher financial accountability drives better outcomes. Under the CY 2026 Physician Fee Schedule,⁶ CMS proposes cutting the maximum time in upside-only tracks from 7 performance years to 5 — meaning MSSP ACOs will face downside exposure sooner, with greater pressure to sustain performance. 

CMS is also testing models like ACO REACH⁷ and Primary Care Flex,⁸ which introduce equity adjustments and prospective payments to broaden participation and reduce disparities. These innovations highlight CMS’s intent to balance financial accountability with equity, providing ongoing support for high-needs populations amid the shift to value-based care. 

In value-based care, an ACO’s benchmark determines whether it earns shared savings or incurs losses.⁹ These benchmarks are designed to reflect the expected cost of care for a defined population. ACOs can improve performance by raising quality and lowering costs. But without accounting for patient risk, benchmarks may understate the resources required for high-acuity populations, distorting performance results. 

To address this, CMS applies prospective Hierarchical Condition Category (HCC) risk scores to recalibrate benchmarks annually. Upward adjustments in prospective HCC risk scores are subject to a cap equal to demographic risk score change from the base year to the performance year (positive or negative), plus 3%.  Accurate risk adjustment helps verify that ACOs are evaluated fairly, protects their savings and supports ongoing participation as organizations take on greater financial responsibility.

1. Fair and accurate reimbursement  

Accurate risk capture is important to financial fairness. Benchmarks that fail to account for patient acuity penalize ACOs serving high-risk patients and advantage those with healthier ones. Missed or incomplete coding also leaves CMS-allowed risk score growth untapped. As ACOs transition into two-sided risk under CMS’s Pathways to Success framework,¹⁰ such gaps directly threaten financial stability. Strong risk adjustment practices help protect reimbursements, so organizations can confidently take on higher levels of accountability. 

2. Provider engagement and compliance 

Risk adjustment shapes the day-to-day workflows of provider networks. ACOs often span independent and employed practices using different electronic medical records (EMRs), leading to variability in documentation and coding practices. CMS requires that diagnoses be submitted within 365 days of the date of service.¹¹ If conditions are missed, they are excluded from risk scoring, reducing benchmark accuracy. By embedding risk insights into point-of-care workflows, ACOs can help ease provider burden, improve documentation consistency and stay aligned with CMS requirements. Most importantly,  accurate risk adjustment also helps mitigate compliance risks by reducing coding errors that could trigger audits and financial penalties. Improving operational efficiency allows clinicians to focus on what matters most: patient care.

3. Patient equity and access 

Risk adjustment is crucial to advancing equity in value-based care. CMS has introduced health equity adjustments¹² under models like ACO REACH, using dual-eligibility and low-income subsidy indicators to provide fair compensation for ACOs serving underserved communities. Accurate capture of patient complexity not only supports equitable funding but also creates a fuller picture of patient needs. This enables ACOs to identify care gaps earlier, target high-risk patients more effectively and design care programs that improve outcomes for populations that need it most.  

Risk adjustment sits at the intersection of clinical accuracy, operational efficiency and payment integrity. The primary challenge for ACOs is not only capturing patient complexity accurately but also doing so consistently across fragmented systems and provider types. 

An end-to end risk adjustment program encompasses AI-powered risk analytics, digital chart retrieval, provider education, phased coding (retrospective, prospective, concurrent) and MAC submission service. These programs help support ACOs to identify, validate and submit diagnoses within CMS’s 365-day window. Such workflows help reduce variability, strengthen documentation consistency, and safeguard organizations from costly audits and financial penalties. It is important that these programs can be tailored to meet the needs of different provider groups, whether large health systems on enterprise EMRs or smaller practices with limited resources, so that every network has a scalable pathway to success.  
  
Although the initial adoption of robust risk adjustment programs may require financial commitment, the long-term benefit includes sustained performance, continued savings in downside-risk models, and strengthened compliance as participation in value-based care grows.