Reconciliation: Settling Up

A value-based contract does not pay out in real time. Performance happens over a year; the money changes hands later, through reconciliation, the process of comparing actual spending to the benchmark and settling the difference. It is where all the earlier concepts, runout, IBNR, benchmarks, come together into a single check.

Why it waits

Reconciliation cannot happen the day the year ends, because of the claims lag. Actual spending is not known until runout largely completes. So the sequence is:

1. The performance year ends.
2. Claims run out over the following months (often a defined runout window).
3. Actual spending is tallied, incorporating late claims.
4. Actual is compared to the benchmark, and savings or losses are calculated.
5. Money is paid or owed.

This is why an ACO’s results for one year arrive well into the next, and why “how did we do” is genuinely unanswerable until reconciliation.

How the settlement works

The core calculation is simple subtraction, then the sharing rules apply:

Result = benchmark - actual spending, then split by the contract’s shared-savings rate (and, in two-sided deals, the shared-loss rate).

A one-sided ACO that comes in $10 million under a benchmark with a 50 percent savings rate and meets quality receives $5 million. A two-sided ACO $10 million over the benchmark owes its loss share back. Stop-loss and risk corridors (Module 4) can cap the result on either side before the check is written.

Worth remembering: reconciliation is why cash-flow timing matters so much in risk contracts. The organization does the work and spends on care management all year, but the settlement, positive or negative, arrives many months later. An organization has to be able to fund operations through that gap.

The reading for practitioners

Two practical points follow. First, never treat interim results as final; they will move as runout and reconciliation complete. Second, plan the cash flow: even a winning contract pays late, and a losing one demands money you must have reserved. The finance of value-based care is as much about timing as about performance.

Key takeaways

• Reconciliation compares actual spending to the benchmark and settles savings or losses.
• It waits for claims runout, which is why results arrive months after the year ends.
• Settlement equals benchmark minus actual, split by the contract’s rates and capped by any stop-loss or corridors; the timing gap must be funded.