VBC Financial Simulation

An interactive model exploring the costs, trade-offs, and funding realities of participating in Value Based Care.

1. Setup
2. Opportunity
3. Costs
4. Funding
5. Outcomes
6. Projection
7. Monte Carlo
How to Use This Simulation

An Accountable Care Organization (ACO) is an entity that participates in Value-Based Care contracts with CMS (Medicare) and/or Medicare Advantage/Commercial health plans.

This simulation models Medicare Advantage and Commercial ACO dynamics where payers operate under market pressures. Medicare MSSP programs may differ—CMS actively adjusts rules to support ACO success.

  1. Start with "Realistic" — Use the Realistic preset for a grounded baseline
  2. Progress through each step — Each reveals a new layer of the financial reality
  3. Change one input at a time — See how each parameter affects the outcome
  4. Watch the money flow — Follow the savings from payer to physician and see where it goes
1 ⚙ Configure the ACO

Set up the regional ACO parameters. Choose a preset scenario or customize individual values.

Worst Case
Harder to succeed
Realistic
Typical conditions
Best Case
Favorable conditions
Network Size
Number of PCPs
100
Patients per PCP
1,000
Attribution % i Percentage of total panel patients attributed to the ACO for value-based care. Attribution depends on payer contracts and patient eligibility criteria.
80%
Financial Parameters
Annual TCOC per Patient i Total Cost of Care (TCOC) — the average annual healthcare spending per patient, including doctor visits, hospitalizations, prescriptions, and all other medical services.
$10,000
Target Savings % i The savings goal as a percentage of total healthcare spending. Higher targets mean larger potential payouts, but are harder to achieve.
5.0%
Minimum Savings Rate (MSR) i The minimum savings threshold required before ACO receives any payout. Save less than MSR, payout = $0.
2.0%
Quality Gate Required % i Minimum quality score required for any shared savings payout. If quality is below this threshold, payer keeps all savings even if TCOC is reduced.
80%
Gain Share % i The percentage of achieved savings shared with the ACO. The payer keeps the remainder.
50%
Quick Summary:
Attributed Patients
80,000
Attributed TCOC
$800M
Advanced: Jump directly to Monte Carlo Simulation →
2 💰 The "Pot of Gold"

The math looks incredible on paper. Here's what the ACO could earn:

Total Panel Patients iTotal patients across all PCPs, before attribution filter.: 100,000
x Attribution % iPercentage of panel patients attributed to the ACO for value-based care.: 80%
= Attributed Patients iPatients included in ACO value-based care calculations.: 80,000
x TCOC per Patient iAverage annual healthcare spending per patient in the ACO population.: $10,000
= Attributed TCOC iTotal Cost of Care — all healthcare spending for attributed patients including visits, hospitalizations, prescriptions, and procedures.: $800,000,000
x Target Savings iThe dollar amount the ACO aims to save below the payer's benchmark. (5%): $50,000,000
x ACO Gain Share iThe portion of savings the ACO receives from the payer (typically 50-60%). The payer keeps the remainder. (50%): $25,000,000
(Payer keeps iThe portion of savings the payer retains. This is the complement of ACO Share. 50%): $25,000,000
= Total ACO Share: $25,000,000
÷ Number of PCPs: 100
= Per PCP: $250,000
$250,000 potential bonus per PCP!
MSR Threshold
$20M
Total ACO Share
$25.0M
Per PCP
$250K
Two Requirements for Payout:
  1. Must save MORE than the Minimum Savings Rate (2%)
  2. Must achieve a Quality Score of at least 80%

If either requirement is missed, the payer keeps all savings.

The Board votes UNANIMOUSLY to proceed!
3 💸 Reality Sets In - The True Cost

To achieve savings, the ACO needs infrastructure. An ACO cannot run with 100 fax machines.

ACO Infrastructure Costs (Year 1)
Data & Analytics Platform
$450K
Care Manager Ratio (1 per X high-risk)
1:5,000
Care Manager Salary (+ benefits)
$80K
Administration (CEO, Med Dir, Staff)
$1.0M
IT / EHR Integration
$150K
Legal / Compliance
$100K
Quality Reporting
$150K
Per PCP Burden
Lost Clinic Hours/Week per PCP i Time spent on ACO activities instead of seeing patients: care coordination meetings, reviewing dashboards, quality documentation, and huddles with care managers.
3.0 hrs
FFS Revenue per Visit
$100
Visits per Hour
3.0
Practice Staff FTE per PCP i Additional practice staff time needed per PCP for ACO tasks: pre-visit planning, care gap outreach, referral tracking, and quality documentation.
0.25 FTE
Practice Staff Salary
$50K
ACO Infrastructure (Requires Funding):

If unfunded → ACO cannot operate → dissolution

Data & Analytics: $450,000
Care Managers (3 needed): $240,000
Administration: $1,000,000
IT / EHR Integration: $150,000
Legal / Compliance: $100,000
Quality Reporting: $150,000
ACO Infrastructure Total: $2,090,000
Per PCP Burden:

If unsustainable → practice sells to hospital or PE

Lost FFS Revenue (3 hrs/wk × 50 wks × 3 visits/hr × $100): $15,000/year
Practice Staff (0.25 FTE × $50K): $12,500/year
Total Burden per PCP: $27,500/year

The figures above show annual costs. Since the ACO's first reconciliation check won't arrive for 18 months, the actual burden over this waiting period is calculated below.

Critical Timing Issue:
The ACO "savings check" won't arrive for 18 months (performance year + 6 month claims lag). The ACO needs upfront capital.
18-Month ACO Funding
$3.1M
Monthly ACO Burn
$174K
Per PCP Burden (18 mo)
$86K
4 💵 The Funding Decision

The ACO needs $3.1M in infrastructure funding.

Select a funding partner:

Each funding option involves different trade-offs between financial risk, operational control, and clinical autonomy.

💳 Option A: Bank Loan (Self-Fund)
Terms: PCPs control everything, but carry the debt
Catch: Every PCP must sign a Personal Guarantee. If the ACO fails, they risk losing their homes.
💳 Bank Loan Parameters
Interest Rate (APR)
8.0%
Loan Term (months)
36 mo
Origination Fee
1.0%
📅 Why Deferred Payments?
  • Performance Year 1: Months 0-12
  • Claims runout period: Months 12-18 (6 months)
  • Year 1 ACO share payment arrives: Month 18

Since no revenue arrives until Month 18, this loan defers all payments until then. Interest capitalizes during the deferral period, and repayments start at Month 19.

PHASE 1: Loan Setup (Months 0-18)
ACO Funding Needed: $3,135,000
+ Origination Fee iOne-time fee charged by the lender at loan origination, typically 1-3% of loan amount. (1%): $31,350
= Loan Principal: $3,135,000
+ Capitalized Interest iInterest that accrues during the 18-month deferral period and is added to the principal balance before repayment begins. (18 mo): $398,000
Balance at Month 19: $3,533,000
PHASE 2: Repayment (Starting Month 19)
Monthly Payment: $110,700
× Loan Term: 36 months
Total Repayment: $3,985,000
Total Interest Cost: $881,000
Personal Guarantee Warning: Each of the 100 PCPs is personally liable for $39,850 if the ACO fails.
🏥 Option B: Hospital Partner (PHO)
Terms: Hospital fronts the money, no personal risk
Catch: The ACO must keep referrals within the hospital system (which is more expensive), eating into ACO savings. Plus the hospital takes a gain share.
🏥 Hospital Partner Parameters
Why a PHO?

Hospitals require formation of a Physician-Hospital Organization (PHO) to structure the partnership. This allows shared savings arrangements and referral coordination that would otherwise face Stark Law restrictions on physician self-referrals.

Hospital Gain Share % ? The percentage of ACO shared savings that goes to the hospital as their return on investment. This is THE key negotiation point - hospitals typically ask for 40-60%.
50%
Referral Lock-in % ? The percentage of referrals the ACO must send to hospital facilities. Higher lock-in means less flexibility to use lower-cost independent providers. Typical PHO agreements range from 50-70%.
60%
Referral % of TCOC ? Industry assumption: What percentage of total healthcare spending goes to specialist referrals, imaging, and procedures. Typically 25-35% of TCOC. This is not negotiable - it's driven by patient needs.
30%
Hospital Cost Premium ? How much more hospital-based facilities charge compared to independent providers for the same service. Hospital outpatient facilities typically charge 15-30% more due to facility fees.
22%
Total Referral Volume iDollar value of specialist referrals, imaging, and procedures — typically 25-35% of total cost of care.: $300M
Locked to Hospital iThe portion of referral spending that must go to hospital facilities under the PHO agreement. (60%): $180M
Hospital Premium Cost iAdditional cost charged by hospital-based facilities compared to independent providers for the same service, reducing realized savings. (22%): $39.6M
Hidden Cost Eating ACO Savings: $39.6M/yr
The Hospital Premium Problem: The ACO is trying to save $50M, but the hospital premium alone costs $39.6M. The ACO starts in a hole!
💵 Option C: Payer Advance (Prospective PMPM)
Terms: Payer provides monthly PMPM during operations, deducted from future ACO share
Catch: If targets are missed, the payer claws back a percentage of the advance. PMPM may ratchet down in future years.
💵 Payer Advance Parameters
How Payer Advance Works

The payer provides a monthly Per-Member-Per-Month (PMPM) payment during the 18-month operations period. If the ACO hits its targets, this advance is deducted from the ACO share before distribution. If targets are missed, the payer can claw back a percentage of the advance from future FFS revenue.

Note: Clawback is split evenly among participating PCPs.

PMPM Advance ($) ? Monthly per-member-per-month payment from payer during operations. Higher PMPM means more upfront cash but larger deduction from ACO share.
$10
Clawback % (if missed) ? Percentage of advance the payer reclaims if ACO misses targets. 100% means full clawback; lower percentages mean the payer absorbs some loss.
75%
Annual PMPM Ratchet % ? Percentage by which PMPM is reduced each year during contract renewals. 100% ratchet means PMPM drops to $0 (discontinued) after Year 1.
75%
PMPM Rate iPer-Member-Per-Month rate — the dollar amount paid by the payer for each attributed patient each month.: $10/member/month
Attributed Patients: 80,000
Monthly PMPM Income: $1M
Total Advance iMonthly PMPM payments from the payer during the 18-month operations period, providing upfront cash flow before reconciliation. (18 mo): $18M
Clawback Risk: If ACO misses targets, PCPs face a clawback of $13.5M (75% of advance). That's $135K per PCP.
💼 Option D: Private Equity Partner
Terms: PE fronts the money, professional management
Catch: They take equity in the ACO and control the board. PCPs are no longer "independent."
💼 Private Equity Parameters
PE Gain Share %
50%
PE Board Control %
51%
Expected Exit Timeline (years)
5 yrs
  • PE absorbs all financial risk
  • In exchange: ACO board control as leverage over the practices
  • PE incentives favor outcomes regardless of ACO success:
    • ACO succeeds → they get gain-share
    • ACO fails → they buy weakened practices at discount
5 📈 The Outcomes
Funding Path: Bank Loan

After 18 months of ACO operations, it's time for reckoning...

Explore Year 1 Outcomes

These tabs represent "what-if" scenarios: TCOC Miss assumes the ACO achieved only 1% savings (below the MSR threshold), Quality Miss assumes quality targets were not met, and Hit Target shows successful performance.

ACO Missed the Target - Saved only 1% (below 2% MSR)
TL;DR: The ACO achieved only 1% savings—below the MSR threshold. The payer keeps 100% of the savings. The ACO receives $0 and must still cover 18 months of infrastructure and practice burden costs from other sources.
Actual Savings (1%): $10M
MSR Threshold iMinimum Savings Rate threshold — the ACO must exceed this dollar amount before receiving any payout. (2%): $20M
ACO Share iThe portion of savings the ACO receives from the payer. Zero when savings fall below MSR threshold.: $0
ACO Share
$0
Debt Owed
$3.5M
Per PCP Liability
$35K
Per PCP Loss
−$41K

The Reality for Each PCP

Year 1 ACO Gain Share: $0
Practice Burden (18 mo): −$41,250
Loan Liability Share: $35K
Net Position Per PCP: −$76K behind

Each PCP invested 18 months of effort worth $41K in lost revenue—and got nothing back. The loan remains: $3.5M owed, with $35K per PCP in personal guarantee liability.

Loan Called Due
$3.5M
Per PCP Liability
$35K
💭 Discussion Questions
  1. With $0 payout and loan payments due, where does the money come from?
  2. If PCPs signed personal guarantees, what assets are at risk?
  3. With financial distress visible to the market, what leverage do practices have when hospitals or PE come knocking?
ACO Share
$0
Hospital's Loss
$3.1M
Per PCP Loss
−$41K

The Reality for Each PCP

Year 1 ACO Check: $0
Practice Burden (18 mo): −$41,250
Net Loss Per PCP: −$41,250

PCPs lost $41K each. 18 months of sacrificed revenue, gone. But the ACO is still locked into the referral agreement—and its weakened position is exactly what the hospital wanted.

"But the hospital lost $3.1M too, right?"
Hospital's ACO "Loss": −$3.1M (one-time)
Value per PCP in Referrals: $1-2M/year
If they acquire 10 PCPs: $10-20M/year

Their "loss" pays for itself in 3-6 months of referral revenue. The ACO was never about savings—it was about access to the patients.

💭 Discussion Questions
  1. Will the hospital continue funding the PHO after a miss? What will the hospital demand in return?
  2. If physicians want to exit, are independent FFS rates still where they were—or have payors ratcheted them down?
  3. What's stopping the hospital from requiring expanded referral lock-in or board control as the price of continued support?
ACO Share
$0
PE's Loss
$3.1M
Per PCP Loss
−$41K

The Reality for Each PCP

Year 1 ACO Check: $0
Practice Burden (18 mo): −$41,250
Net Loss Per PCP: −$41,250

PE writes off their investment—it was a calculated risk. But they retain board control and operational relationships. PCPs absorbed $41K each in losses with nothing to show for it.

💭 Discussion Questions
  1. PE absorbed the loss. What operational changes can PE mandate through board control—staffing, hours, practice consolidation?
  2. To continue funding, will PE demand additional board seats or governance rights?
  3. PE may push aggressive HCC/RAF coding to inflate future benchmarks. Who signs the attestations, and who faces regulatory liability?
ACO Share
$0
Clawback Owed
$13.5M
Per PCP Clawback
$135K
Per PCP Loss
-$176K

The Reality for Each PCP

PMPM Received (18 mo): $180K per PCP
Year 1 ACO Gain Share: $0
Clawback Owed (75%): -$135K
Practice Burden (18 mo): -$41,250
Net Position Per PCP: -$176K

The PMPM advance felt like "free money" during operations—but the clawback wipes it out and more. Each PCP owes $135K to the payer (from future FFS revenue), plus absorbed $41K in practice burden.

Discussion Questions
  1. The payer fronted the advance knowing clawback was possible. What does this suggest about the payer's risk assessment of ACO success?
  2. With PCPs owing clawback from future FFS revenue, what leverage does the payer have in contract renewal negotiations?
  3. Would the payer offer the same PMPM rate next year—or is a reduced rate (or discontinuation) more likely?
Quality Gate Failed - Payout = $0
TL;DR: The ACO hit savings targets but failed the quality gate. The payer keeps 100% of the savings as a "windfall." The ACO receives $0—despite doing the work to reduce costs.
Quality Score: 70%
Required Gate: 80%
Result: FAILED → ACO Share $0
💔 What the ACO Could Have Received (If Quality Had Passed):
Total Savings (5%): $50M
ACO Share iThe portion of savings the ACO receives from the payer (typically 50-60%). The payer keeps the remainder. (50%): $25M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses (care managers, IT, administrative staff).: -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund for unexpected costs or future shortfalls. (10%): -$2.5M
- Loan Budget iFunds set aside from ACO share to cover 12 months of loan payments, ensuring debt service even if Year 2 performance drops. (12 mo): -$1.3M
Net to PCPs iFinal amount distributed to participating physicians after all deductions and partner shares.: $19.1M
÷ 100 PCPs = $191K each
🎰 But Quality Failed — Payer Keeps EVERYTHING:
Payer's Normal Share (50%): $25M
+ ACO Share Retained by Payer (50%): +$25M
Payer Total Windfall iWhen quality threshold is missed, the payer keeps 100% of savings instead of their usual share — a significant financial incentive.: $50M (100%)

The Uncomfortable Truth: Payers profit from quality failures—high gates, rejected supplemental data, narrow measures. They keep 100% of the ACO's savings.

ACO Share
$0
Debt Owed
$3.5M
Per PCP Liability
$35K
Per PCP Loss
−$41K

The Reality for Each PCP

Year 1 ACO Gain Share: $0
Practice Burden (18 mo): −$41,250
Loan Liability Share: $35,000
Net Position Per PCP: −$76,250 behind

Each PCP invested 18 months of effort worth $41K in lost revenue—and got nothing back. The loan remains: $3.5M owed, with $35K per PCP in personal guarantee liability.

Loan Called Due
$3.5M
Per PCP Liability
$35K
💭 Discussion Questions
  1. With $0 payout and loan payments due, where does the money come from?
  2. The payer kept 100% of the savings the ACO generated. What incentive does the payer have to make quality gates achievable?
  3. If the ACO wants to renegotiate quality terms, what leverage does it have?
💔 What the ACO Could Have Received (If Quality Had Passed):
Target Savings (5%): $50M
− Hospital Premium Effect iAdditional cost charged by hospital-based facilities compared to independent providers, reducing realized savings.: -$39.6M
Net Realized Savings: $10.4M
ACO Share (50%): $5.2M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses.: -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund. (10%): -$520K
- Hospital Gain Share iPercentage of ACO net distributable savings paid to the hospital partner as their return on investment. (50%): -$1.3M
Net to PCPs iFinal amount distributed to participating physicians after all deductions.: $1.3M
÷ 100 PCPs = $13K each
🎰 But Quality Failed — Payer Keeps EVERYTHING:
Realized Savings After Premium: $10.4M
Payer Windfall iWhen quality threshold is missed, the payer keeps 100% of savings instead of their usual share. (100%): $10.4M

Double Loss: The ACO paid the hospital premium AND lost its share to the payer. Quality failure means payers keep 100% of realized savings.

ACO Share
$0
Hospital's Loss
$3.1M
Per PCP Loss
−$41K

The Reality for Each PCP

Year 1 ACO Check: $0
Practice Burden (18 mo): −$41,250
Net Loss Per PCP: −$41,250

PCPs lost $41K each. 18 months of sacrificed revenue, gone. But the ACO is still locked into the referral agreement—and its weakened position is exactly what the hospital wanted.

"But the hospital lost $3.1M too, right?"
Hospital's ACO "Loss": −$3.1M (one-time)
Value per PCP in Referrals: $1-2M/year
If they acquire 10 PCPs: $10-20M/year

Their "loss" pays for itself in 3-6 months of referral revenue. The ACO was never about savings—it was about access to the patients.

💭 Discussion Questions
  1. Will the hospital continue funding the PHO after a miss? What will the hospital demand in return?
  2. If hospital referral patterns or EMR systems contributed to quality failures, who is accountable?
  3. The payer captured 100% of the savings generated. What incentive does the payer have to accept supplemental quality data from the ACO?
💔 What the ACO Could Have Received (If Quality Had Passed):
Total Savings (5%): $50M
ACO Share (50%): $25M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses.: -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund. (10%): -$2.5M
- PE Gain Share iPercentage of ACO net distributable savings paid to the PE firm based on their equity ownership. (50%): -$10.2M
Net to PCPs iFinal amount distributed to participating physicians after all deductions.: $10.2M
÷ 100 PCPs = $102K each
🎰 But Quality Failed — Payer Keeps EVERYTHING:
Payer's Normal Share (50%): $25M
+ ACO Share Retained by Payer (50%): +$25M
Payer Total Windfall iWhen quality threshold is missed, the payer keeps 100% of savings instead of their usual share.: $50M (100%)

The Uncomfortable Truth: PE absorbs the loss, but payers keep 100% of savings. Quality gates are profit centers for payers.

ACO Share
$0
PE's Loss
$3.1M
Per PCP Loss
−$41K

The Reality for Each PCP

Year 1 ACO Check: $0
Practice Burden (18 mo): −$41,250
Net Loss Per PCP: −$41,250

PE writes off their investment—it was a calculated risk. But they retain board control and operational relationships. PCPs absorbed $41K each in losses with nothing to show for it.

💭 Discussion Questions
  1. PE absorbed the loss. Will PE fund quality improvement infrastructure, or push those costs onto individual practices?
  2. What happens to physician clinical autonomy when PE's board majority needs specific quality scores?
  3. Does PE have leverage to renegotiate quality terms with payors that independent physicians lack?
What the ACO Could Have Received (If Quality Had Passed):
Total Savings (5%): $50M
ACO Share (50%): $25M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses.: -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund. (10%): -$2.5M
- Advance Deduction iAmount subtracted from ACO share at reconciliation to repay the advance received during operations.: -$12M
Net to PCPs iFinal amount distributed to participating physicians after all deductions.: $8.4M
÷ 100 PCPs = $84K each
But Quality Failed - Payer Keeps EVERYTHING + Clawback:
Payer's Normal Share (50%): $25M
+ ACO Share Retained: +$25M
+ Clawback Recovery iAmount the ACO must repay to the payer after receiving advance payments and missing targets.: +$13.5M
Payer Total Windfall iWhen quality threshold is missed, the payer keeps 100% of savings plus claws back the advance.: $63.5M

The Uncomfortable Truth: Not only does the payer keep ALL savings, they ALSO claw back the advance.

ACO Share
$0
Clawback Owed
$13.5M
Per PCP Clawback
$135K
Per PCP Loss
-$176K

The Reality for Each PCP

PMPM Received (18 mo): $180K per PCP
Year 1 ACO Check: $0
Clawback Owed (75%): -$135K
Practice Burden (18 mo): -$41,250
Net Position Per PCP: -$176K

The ACO hit savings targets but failed quality. The payer keeps ALL savings AND claws back the advance. This is the worst possible outcome—PCPs lose the advance AND their burden investment.

Discussion Questions
  1. The ACO generated real savings but gets nothing due to a quality technicality. Is this fair compensation for risk?
  2. With clawback owed AND quality failure, what incentive do PCPs have to continue participating?
  3. How might payers use quality gates strategically during contract negotiations?
ACO Hit the Target! - Saved 5%
Quality Gate: PASS (80%)
TL;DR: The ACO met both savings target and quality gate. After retaining funds for operations, reserves, and partner gain share, the remaining amount is distributed to PCPs. But: How much actually reaches physicians after 18 months of burden?
Total Savings (5%): $50M
Payer Share iThe portion of savings the payer retains. This is the complement of ACO Share. (50%): $25M
ACO Share iThe portion of savings the ACO receives from the payer (typically 50-60%). The payer keeps the remainder. (50%): $25M
ACO Share: $25M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses (care managers, IT, administrative staff). (Y2): -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund for unexpected costs or future shortfalls. (10%): -$2.5M
- Loan Budget iFunds set aside from ACO share to cover 12 months of loan payments, ensuring debt service even if Year 2 performance drops. (12 mo): -$1.31M
Net to PCPs iFinal amount distributed to participating physicians after all deductions and partner shares.: $19.1M
÷ 100 PCPs = $191K each

The Reality for Each PCP

Year 1 ACO Check: $191K
Practice Burden (18 mo): −$86K
Final Profit/Loss: $104K

Each PCP gained $104K after accounting for 18 months of lost clinic time and staff costs. But the ACO isn't debt-free yet—$2.2M in loan payments remain.

Outstanding Loan
$2.2M
Months Remaining
24
💭 Discussion Questions
  1. After reserves and loan set-asides, does the net gain justify 18 months of lost FFS revenue and administrative burden?
  2. Physicians still carry outstanding loan debt. If Year 2 misses, what's the exposure?
  3. With benchmark ratcheting, is Year 2 easier or harder to hit?
  4. What assumptions would need to change for this model to be sustainable long-term?
ACO Share: $25M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses. (Y2): -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund. (10%): -$2.5M
Net Distributable iAmount available for distribution after ACO retains operating funds and reserves.: $20.4M
- PE Gain Share iPercentage of ACO net distributable savings paid to the PE firm based on their equity ownership. (50%): -$10.2M
Net to PCPs iFinal amount distributed to participating physicians after all deductions.: $9.9M
÷ 100 PCPs = $99K each

The Reality for Each PCP

Year 1 ACO Check: $102K
Practice Burden (18 mo): −$86K
Final Profit/Loss: $16K

PE's Take
$10.5M
Board Control
PE 51%
💭 Discussion Questions
  1. After PE's gain share, how much value actually reaches physicians compared to PE's return on investment?
  2. When PE exits, who decides the timing and the buyer—and do physicians share in the exit valuation?
  3. PE now has proof the model works. What prevents PE from demanding increased board control, management fees, and higher gain share next year?
  4. What assumptions would need to change for this model to be sustainable long-term?
ACO Share: $25M
- ACO Ops Retention iFunds retained by the ACO entity to cover Year 2 operating expenses. (Y2): -$2.1M
- ACO Reserve i10% safety buffer held back from distributions as a contingency fund. (10%): -$2.5M
- Advance Deduction iAmount subtracted from ACO share at reconciliation to repay the advance received during operations. (Year 1 PMPM): -$12M
Net to PCPs iFinal amount distributed to participating physicians after all deductions.: $8.4M
÷ 100 PCPs = $84K each

The Reality for Each PCP

Year 1 ACO Check: $84K
Practice Burden (18 mo): -$86K
Final Profit/Loss: -$2K

Year 2 PMPM Ratchet: Even with a successful year, the payer may reduce PMPM by 75% next year. Year 2 PMPM could drop from $10 to $2.50/member/month—or be discontinued entirely.
Advance Deducted
$12M
Y2 PMPM (Ratcheted)
$2.50
Discussion Questions
  1. The PMPM advance deduction significantly reduced net-to-PCPs. Is the upfront cash flow worth the reduced payout?
  2. With PMPM ratcheting down, how will the ACO fund Year 2 operations if advance drops to near-zero?
  3. The payer took minimal risk (advance is deducted or clawed back). What incentive does the payer have to continue the program?
  4. If the payer discontinues PMPM in Year 2, what funding source replaces it?
Scenario Bank Loan Hospital Payer Advance Private Equity
TCOC Miss -$122K -$86K -$176K -$86K
Quality Miss -$122K -$86K -$176K -$86K
Hit Target +$104K -$28K -$2K +$16K

Values show per-PCP net gain/loss after 18-month practice burden

6 📈 Multi-Year Projection
Funding Path: Bank Loan

Project ACO outcomes across multiple years to see long-term financial trajectory.

Projection Scope ▼
Years to Project
10 years

How to read this table: Start with Year 1, then follow the Status column to see when benchmark ratcheting or quality gate escalation causes the ACO to miss its targets.

Year Benchmark
(RAF-adjusted)
 Achievable Savings
(% of benchmark)
 ACO Share
(payer payout)
 ACO Ops Retention
(infrastructure)
 ACO Reserve Change
(contribution)
 ACO Total Reserve
(cumulative)
 Loan Payment
(annual)
 Net to PCPs
(after deductions)
 Status

5-Year Summary — adjust projection years in the Financial view.

Total Net to PCPs i Total ACO payout distributed to PCPs across all projected years, after ACO retention and partner shares
$0
Years with Payout i Number of years where ACO received shared savings (passed both TCOC and Quality thresholds)
0/5
Net After Burden i Total Net to PCPs minus Total Practice Burden — the real bottom line after accounting for what practices sacrifice
$0
Avg Per PCP i Net After Burden divided by number of PCPs — what each PCP actually gains (or loses) on average over the projection period
$0
7 🎲 Monte Carlo Analysis

Monte Carlo simulation stress-tests the ACO model by running thousands of iterations with varied parameters.

Base Scenario
Funding Path
Simulation Variables
Check the box to hold a variable constant, then adjust its value with the slider. Contract Terms and Network Size are fixed by default—these are known quantities when an ACO begins operations. Uncheck to randomize for stress testing.
Funder-Specific ▼
Select a funding option in Step 4 to see funder-specific variables.
Contract Terms ▼
Target Savings % i The savings goal as a percentage of total healthcare spending.
Randomized
5%
ACO Share % i The percentage of achieved savings shared with the ACO.
Randomized
60%
MSR Threshold % i Minimum savings threshold required before ACO receives any payout.
Randomized
2%
Benchmark Ratchet % i Annual % reduction in benchmark after a successful year. Payers "bake in" savings, making future targets harder.
Randomized
1.0%
Quality Parameters ▼
Quality Gate % i Minimum quality score required for any shared savings payout.
85%
85%
ACO Starting Quality % i ACO's baseline quality score in Year 1.
80%
80%
Quality Improvement %/yr i Annual improvement rate in ACO quality score.
Randomized
3%
Quality Gate Ratchet %/yr i Annual increase in the quality gate threshold by payers.
Randomized
2%
ACO Max Quality % i Maximum achievable quality score (ceiling).
90%
90%
Inflation ▼
Annual Inflation % i Annual inflation rate applied to selected cost components. Synced with Step 5 inflation settings.
3%
3%
Apply Inflation To:
Simulation Settings
Iterations
1,000
Variation Range (±%)
±50%
Distribution Type i Uniform: Equal probability across entire ±X% range. Use for stress testing worst-case scenarios.

Triangular: Values cluster around the base scenario, with lower probability at extremes. More realistic for typical market conditions.
Uniform spread
Running simulation...
🎲

Run a simulation to see results

Configure the settings above and click "Run Simulation" to explore the distribution of possible outcomes.

Created by Sudeep Bansal, MD, MS

www.PCPLens.com