(a) Purpose. Prepaid shared savings provide an additional cash flow option to ACOs with a history of earning shared savings that will encourage their investment in activities that reduce costs for the Medicare program and beneficiaries and improve the quality of care provided to their assigned beneficiaries.

(b) Eligibility. An ACO is eligible to receive prepaid shared savings in an agreement period as specified in this section if CMS determines that all of the following criteria are met:

(1) The ACO meets either of the following conditions:

(i) The ACO is a renewing ACO as defined under § 425.20 entering an agreement period beginning on January 1, 2026, or in subsequent years.

(ii) The ACO was a renewing ACO as defined under § 425.20 entering an agreement period beginning on January 1, 2025, and applied to receive prepaid shared savings in accordance with paragraph (c)(2) of this section starting with the performance year beginning on January 1, 2026.

(2) The ACO must have received a shared savings payment for the most recent performance year that:

(i) Occurred prior to the agreement period for which the ACO has applied to receive prepaid shared savings; and

(ii) CMS has conducted financial reconciliation.

(3) The ACO must have a positive prior savings adjustment for the agreement period for which the ACO has applied to receive prepaid shared savings as calculated pursuant to § 425.658.

(4) The ACO does not have any outstanding shared losses or advance investment payments that have not yet been repaid to CMS after reconciliation for the most recent performance year for which CMS completed financial reconciliation.

(5) If the ACO received prepaid shared savings in the current agreement period or a prior agreement period, the ACO must have fully repaid the amount of prepaid shared savings received through the most recent performance year for which CMS has completed financial reconciliation.

(6) The ACO is participating in Levels C through E of the BASIC track or the ENHANCED track during the agreement period in which it would receive prepaid shared savings.

(7) The ACO has in place an adequate repayment mechanism in accordance with § 425.204(f) that can be used to recoup outstanding prepaid shared savings.

(8) During the agreement period immediately preceding the agreement period in which the ACO would receive prepaid shared savings, the ACO:

(i) Met the quality performance standard as specified under § 425.512; and

(ii) Has not been determined by CMS to have avoided at-risk beneficiaries as specified under § 425.316(b)(2).

(c) Application procedure. (1) For an ACO renewing to enter an agreement period beginning on January 1, 2026, or in subsequent years, to obtain a determination regarding whether the ACO may receive prepaid shared savings, the ACO must submit to CMS a complete supplemental application with its application to renew for a new agreement period in the Shared Savings Program (submitted pursuant to § 425.224) in the form and manner and by a deadline specified by CMS.

(2) For an ACO that renewed to enter an agreement period beginning on January 1, 2025, to obtain a determination regarding whether the ACO may receive prepaid shared savings, the ACO must submit to CMS a complete supplemental application for prepaid shared savings prior to the start of the performance year beginning on January 1, 2026, in the form and manner and by a deadline specified by CMS.

(d) Application contents and review—(1) General. An ACO must submit to CMS supplemental application information sufficient for CMS to determine whether the ACO is eligible to receive prepaid shared savings. In addition, the ACO must submit a proposed spend plan as part of the supplemental application information.

(2) Spend plan. The ACO's spend plan must:

(i) Describe how an ACO receiving prepaid shared savings will spend the payments during the first performance year in which it will receive prepaid shared savings. The spend plan must be updated annually for each performance year of the agreement period during which the ACO receives prepaid shared savings.

(ii) Identify the categories of items and services that will be purchased and investments that will be made in the ACO with prepaid shared savings (consistent with the allowable uses under paragraph (e) of this section), the dollar amounts to be spent on such categories, information about which groups of beneficiaries the ACO expects to receive direct beneficiary services that will be purchased with prepaid shared savings, how direct beneficiary services will be distributed to beneficiaries and how such services support the care of beneficiaries, descriptions of the investments that will be made in the ACO with prepaid shared savings, and such other information as may be specified by CMS.

(iii) Include an attestation that the ACO will not discriminate on the basis of race, color, religion, sex, national origin, disability, or age with respect to their use of prepaid shared savings.

(iv) Include the ACO's communication strategy for notifying CMS and any impacted beneficiaries if an ACO will no longer be providing any direct beneficiary services that had previously been provided by the ACO using prepaid shared savings.

(3) CMS review. CMS will review the supplemental application information to determine whether an ACO meets the eligibility criteria and other requirements necessary to receive prepaid shared savings and will approve or deny the ACO's prepaid shared savings application accordingly. CMS may review an ACO's spend plan at any time and require the ACO to modify its spend plan to comply with the requirements of this paragraph (d) and paragraph (e) of this section.

(e) Use and management of prepaid shared savings—(1) Allowable uses. An ACO must use prepaid shared savings to improve the quality and efficiency of items and services furnished to beneficiaries by investing in staffing, healthcare infrastructure, and direct beneficiary services. Expenditures of prepaid shared savings must comply with paragraph (e)(2) of this section, the beneficiary incentive provision at § 425.304(a), (b), and (d), and all other applicable laws and regulations.

(i) An ACO may spend up to 50 percent of its estimated annual prepaid shared savings on staffing and healthcare infrastructure in each performance year.

(ii) An ACO may spend up to 100 percent, but not less than 50 percent, of its estimated annual prepaid shared savings on direct beneficiary services in each performance year.

(2) Prohibited uses. An ACO may not use prepaid shared savings for any expense other than those allowed under paragraph (e)(1) of this section. Prohibited uses include the following—

(i) Management company or parent company profit;

(ii) Performance bonuses;

(iii) Provision of medical services covered by Medicare;

(iv) Cash or cash equivalent payments to patients;

(v) Items or activities unrelated to ACO operations or care of beneficiaries; and

(vi) In the case of an ACO participating in Levels C through E of the BASIC track or the ENHANCED track, the repayment of any shared losses incurred as specified in a written notice in accordance with § 425.605(e)(2) or § 425.610(h)(2), respectively.

(3) Duration for spending payments. An ACO must spend all prepaid shared savings in the agreement period in which they are received. An ACO must repay to CMS any unspent funds remaining at the end of each agreement period. Any unspent funds received for a performance year must be reallocated in the spend plan for the ACO's next performance year. When reallocated in the spend plan for the next performance year, the total unspent funds in each category must be reallocated within their originally indicated category specified in accordance with paragraph (d)(2) of this section. If an ACO fails to spend a majority of the prepaid shared savings they receive in a performance year, CMS may withhold future quarterly payments until the ACO spends the funding they have already received and reports this spending to CMS through an updated spend plan.

(f) Payment & payment methodology. 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.

(1) Frequency of payments. (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.

(2) Calculating the prepaid shared savings multiplier. (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.

(v) The prepaid shared savings multiplier is the lesser of the following:

(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) Recalculation of the prepaid shared savings multiplier during an agreement period. 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) Calculating the maximum quarterly payment amount. 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) Estimated annual payment amount calculation methodology. 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) ACO selection of quarterly payment amount. An ACO may request a smaller quarterly payment amount from CMS in a form and manner and by a deadline specified by CMS.

(g) Recoupment and recovery of prepaid shared savings; notice of bankruptcy. (1) CMS will recoup prepaid shared savings made to an ACO from any shared savings the ACO earns until CMS has recouped in full the amount of prepaid shared savings made to the ACO. CMS will carry forward any remaining balance owed to subsequent performance year(s) in which the ACO achieves shared savings.

(2) If the amount of shared savings earned by the ACO is revised upward by CMS for any reason, CMS will reduce the redetermined amount of shared savings by the amount of prepaid shared savings made to the ACO as of the date of the redetermination. If the amount of shared savings earned by the ACO is revised downward by CMS for any reason, the ACO will not receive a refund of any portion of the prepaid shared savings previously recouped or otherwise repaid, and any prepaid shared savings that are now outstanding due to the revision in earned shared savings must be repaid to CMS upon request.

(3) If an ACO has an outstanding balance of prepaid shared savings after the calculation of shared savings or losses for the final performance year of an agreement period in which an ACO receives prepaid shared savings, the ACO must repay any outstanding amount of prepaid shared savings it received in full upon request from CMS. CMS will provide written notification to the ACO of the amount due and the ACO must pay such amount no later than 90 days after the receipt of notification. If the ACO fails to repay any outstanding amount of prepaid shared savings within 90 days of that written notification, CMS will recoup any outstanding balance of prepaid shared savings from the ACO's repayment mechanism established under § 425.204(f). CMS may also recover any outstanding amount of prepaid shared savings owed by recouping from any future shared savings the ACO may be eligible to receive in a subsequent agreement period.

(4) Except as provided in paragraph (g)(4)(ii) of this section, if an ACO or CMS terminates the ACOs participation agreement during the agreement period in which it received prepaid shared savings, the ACO must repay all outstanding prepaid shared savings it received in full upon request from CMS.

(i) CMS will provide written notification to the ACO of the amount due and the ACO must pay such amount no later than 90 days after the receipt of notification. If the ACO fails to repay within 90 days, CMS will recoup any outstanding balance from the ACO's repayment mechanism established under § 425.204(f).

(ii) If the ACO terminates its current participation agreement under § 425.220 and immediately enters a new agreement period to continue its participation in the program, CMS may recover the amount owed by recouping from any future shared savings the ACO may be eligible to receive in subsequent agreement periods.

(5)(i) If an ACO has filed a bankruptcy petition, whether voluntary or involuntary, the ACO must provide written notice of the bankruptcy to CMS and to the U.S. Attorney's Office in the district where the bankruptcy was filed, unless final payment for the agreement period has been made by either CMS or the ACO and all administrative or judicial review proceedings relating to any payments under the Shared Savings Program have been fully and finally resolved.

(ii) The notice of bankruptcy must be sent by certified mail no later than 5 days after the petition has been filed and must contain a copy of the filed bankruptcy petition (including its docket number). The notice to CMS must be addressed to the CMS Office of Financial Management at 7500 Security Boulevard, Mailstop C3-01-24, Baltimore, MD 21244 or such other address as may be specified on the CMS website for purposes of receiving such notices.

(h) Withholding or termination of prepaid shared savings—(1) General. Except as provided in paragraph (h)(2) of this section, CMS may withhold or terminate an ACO's prepaid shared savings during an agreement period if—

(i) The ACO fails to comply with the requirements of this section;

(ii) The ACO meets any of the grounds for ACO termination set forth in § 425.218(b);

(iii) The ACO fails to earn sufficient shared savings in a performance year to repay the prepaid shared savings they received during that performance year;

(iv) CMS determines that the ACO is not expected to earn shared savings in a performance year during the agreement period in which the ACO received prepaid shared savings based on a rolling 12-month window of beneficiary claims data or year to date beneficiary claims data;

(v) The ACO falls below 5,000 assigned beneficiaries;

(vi) The ACO fails to spend the majority of prepaid shared savings they receive in a performance year; or

(vii) The ACO requests that CMS withhold a future quarterly prepaid shared savings payment.

(2) Eligibility sanction. CMS must terminate an ACO's prepaid shared savings if—

(i) The ACO fails to maintain an adequate repayment mechanism in accordance with § 425.204(f); or

(ii) The ACO fails to meet the quality performance standard as specified under § 425.512 or is subject to a pre-termination action after CMS determined the ACO avoided at-risk beneficiaries as specified under § 425.316(b)(2).

(3) No additional payments. If CMS withholds or terminates a quarterly payment pursuant to this paragraph (h), the ACO will not receive additional or catch-up payments if quarterly payments of prepaid shared savings are later resumed.

(4) No pre-termination actions. CMS may immediately terminate an ACO's prepaid shared savings under paragraphs (h)(1) and (2) of this section without taking any of the pre-termination actions set forth in § 425.216.

(i) Reporting information on prepaid shared savings. The ACO must report information on its receipt of and use of prepaid shared savings, as follows:

(1) The ACO must publicly report information about the ACO's use of prepaid shared savings for each performance year, in accordance with § 425.308(b)(10).

(2) In a form and manner and by a deadline specified by CMS, the ACO must report to CMS the same information it is required to publicly report under § 425.308(b)(10).