What is an Accountable Care Organization (ACO)?

Accountable Care Organization (ACO)

Change is inevitable. This is especially true for the provision of healthcare. The desire to improve the delivery of quality care and provide the most accessible and affordable care that meets the needs of the patient and the provider, lead to the introduction of The Affordable Care Act (ACA). The implementation of the ACA resulted in changes in patient population demographics as an influx of previously uninsured individuals in the United States (U.S.) acquired healthcare coverage. This surge in healthcare utilization and expense continued to rise once the baby boomer generation entered retirement age.

The challenges that have arisen with coordinating complex healthcare needs and providing value-based care have resulted in a shift from the fee-for-service models to decrease spending and improve care. The quest for a more efficient American healthcare system to reward better care, instead of more care, lead the Centers for Medicaid and Medicare Services (CMS) to develop a new type of healthcare entity, the accountable care organization (ACO).  

What Is an Accountable Care Organization?

An accountable care organization (ACO) is a network of physicians, hospitals and other healthcare providers and suppliers that coordinate efficient, high-quality lower-cost patient care while sharing financial and medical responsibilities. Regardless of the type or size of organizations comprising the ACO, a primary care physician must be included as the essential element. The original intention for the ACO was to act as an extension of the ACA for Medicare patients, but commercial payers now lead the volume of ACOs and private entities are also participating.

The ACO alternative payment model has the goal of decreasing spending and improving care. Eliminating the process of billing per procedure and instead of providing incentives for care coordination aims to reduce unnecessary or redundant services. An ACO can choose to participate in various risk-based contracts. beginning with zero risks, to coordinate the most appropriate care and best manage chronic diseases. Predetermined levels of financial risk and reward are designed to inspire providers to meet the goal of ensuring the patient receives appropriate care to keep them healthy and out of the hospital. Depending upon the type of risk contract(s) the ACO is under, members of the ACO can be rewarded with a financial bonus if they’re under the budgeted amount and might have to pay the difference if they exceed this amount. There are also expectations for reporting data on performance, quality and savings benchmarks.

What an ACO Means for Providers

Provider participation in an ACO is voluntary, and many providers have opted to join with a network of providers to share in the savings by delivering high-quality care while reducing overall healthcare costs. Coordinating with other healthcare providers as an ACO can assist in improving communication across the continuum of care, provide a more complete perspective of patient treatment through access to additional data and allow for opportunities to be more financially successful from the quantity of patients served.

Although a financial risk must be assumed for joining an ACO. The ACO is assuming the unknown future healthcare costs of that patient and although the financial gains are shared by the network, so are the losses. If value-based care isn’t delivered and reported, Medicare may have to be repaid. Inadequate information on demographics chosen for patient review, additional administrative requirements and referral restrictions, are also an added source of frustration.

ACO models include:

  • Medicare Shared Savings Program (MSSP) – This was the starting point for Medicare fee-for-service providers to begin rewarding quality care and reducing cost as an ACO.
  • Advance Payment ACO Model – This model is designed for physician-based and rural providers to receive upfront and monthly payments to invest in building their care coordinating structure. Concessions were made to assist in building the infrastructure necessary to provide coordinated care with the ability to apply to receive payments in advance.
  • Pioneer ACO Model – Designed for healthcare organizations already experienced in coordinating care for patients. This model has higher risk and shared savings than the MSSSP model.

Provider’s Responsibilities to Patients

If a provider is participating in an ACO, they have certain responsibilities to their patient. A few of those include:

  • Alerting their patient regarding their participation in an ACO: Despite the significant number of increasing accountable care organizations, the patient may not be aware that their physician is now participating in one since their care and treatment should not appear much different.
  • Informing the patient that referrals are generally within the ACO network of providers and specialists: The physician must instruct the patient that they maintain the ability to choose a different specialist. Unlike a Health Maintenance Organization (HMO), the patient isn’t required to stay in-network.
  • Adhering to requirements outlined in the Health Insurance Portability and Accountability Act (HIPAA): The patient should be made aware that claims data, and other information, could be shared to coordinate their treatment, but that their confidentiality will be maintained according to HIPAA.

Incorporating Value-Based Care

Value-based care focuses on continuous improvement of necessary care and a reduction in excessive emergency room (ER) visits, specialist and other testing services that previously offered financial gain for providers in the fee-for-service program. Collecting, analyzing and reporting the required data, or individual patient conditions and chronic diseases can be especially challenging for a small or rural provider if they haven’t incorporated electronic health records (EHR). EHRs are a vital part of bridging multiple organizations in an ACO and collecting the necessary data to report, and achieve, desired outcomes.

  • e-Prescribing can help reduce redundancies in prescriptions and identify fraud and abuse
  • Incorporating automated software support can help increase efficiency by compiling required data and reports to track quality metrics
  • Preventative care can be improved with a global perspective on patient history and potential drug interactions

Larger healthcare systems generally have more capital and can more easily provide the initial financial investment to track patient data. It can be financially challenging for smaller private practices to initially built the necessary infrastructure. This may increase their incentive to join an ACO. Joining a larger network could enable smaller providers to quickly adapt to the technology required for value-based care while keeping their autonomy.

What an ACO Means to the Patient

One of the goals of the ACO is to coordinate and provide seamless care by encouraging providers to work together to share information and improve patient outcomes. It’s in the provider’s best interest to maximize patient health to be financially rewarded for acting as true partners in providing quality patient care and sharing healthcare decisions.

Until now, the patient has been responsible for coordinating their care. This might have involved visiting various physicians, and receiving repetitive, expensive, or conflicting, medications and treatments since one provider might be unaware of what the other provider is prescribing. Each was only aware of their part of the treatment and not realizing how everything might work together which can result in fragmented care.

The focus on the patient as a whole and streamlining care can provide potential patient benefits and improve outcomes by:

  • Reducing medical errors and redundant, or conflicting, treatment
  • Coordinating to close gaps in care and reduce hospitalizations
  • Increasing patient satisfaction
  • Lowering costs
  • Striving to keep patients healthy instead of just treating when they are sick to gain financial incentives

Tentative Acceptance of the ACO

Despite how an ACO is graded on providing quality care, an article by Kaiser Health News reported that some health care economists feared that an ACO would try to save money by cutting corners on patient care. Others worried about hospital mergers and that the additional expense to meet requirements would prompt independent practices to become employed by the hospital, which could limit patient choice and potentially increase healthcare prices. Although the prevalence of EHR adoption by independent practices has enabled easy tracking and reporting of the required data.

Some have accused an ACO of being a medical insurance group that provides health services for a fixed annual fee, otherwise known as a health maintenance organization (HMO). The way an HMO controlled patient options was not received favorably in the 1990s. Although these similarities were noted since the goal of the ACO is to replicate the cost-controlling measures of the HMO, efforts were made to eliminate the issues that made HMOs unfavorable. Differences between an ACO and an HMO include:

  • A patient in an HMO is only covered if they see physicians within the HMO network while an ACO permits patients to see physicians outside of the ACO network.
  • An ACO must meet many quality measures to ensure they aren’t neglecting necessary care to save money.

ACOs Today

Since the inception of ACOs in 2012, many are reaching the limit of their no-risk contracts and are considering whether they want to continue with the Medicare and Medicaid Services (CMS) Shared Savings Program. The pressure to now take on more financial risk is more than many ACOs are prepared to accept. Especially with inadequate information and uncertainty how patient demographics are chosen to enable organizations to be successful in meeting their goals. This concern is shared by 71% of the ACOs according to a survey released by the National Association of Accountable Care Organizations which indicated that additional financial risks would prompt them to leave the program.

Despite these challenges, some early adaptors plan to continue to stay on for fear of losing the progress they’ve made in the provision of patient care and continue to hope that CMS will consider making changes regarding forced financial risks that many ACOs are not prepared to accept.  

Preparing for the Future

No matter how the healthcare system evolves and changes in the future, most likely goals of increasing quality, decreasing cost and incorporating technology will remain. Providers will need to keep abreast of the developments in technology and required regulations. This may help healthcare providers to survive, but incorporating automated software systems might increase efficiency and allow them to continue to offer what helps them thrive, and that’s quality time with their patients.



  • https://khn.org/news/aco-accountable-care-organization-faq/
  • http://www.healthcareitnews.com/news/more-80-percent-docs-use-ehrs
  • https://innovation.cms.gov/initiatives/Pioneer-aco-model/
  • https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/news.html
  • https://innovation.cms.gov/initiatives/Advance-Payment-ACO-Model/
  • https://www.healthaffairs.org/do/10.1377/hblog20150331.045829/full/
  • http://www.modernhealthcare.com/article/20180203/NEWS/180209972
  • https://kaiserhealthnews.files.wordpress.com/2014/04/aco_summary_factsheet_icn907404.pdf
  • https://revcycleintelligence.com/features/what-is-value-based-care-what-it-means-for-providers
  • https://www.naacos.com/press-release-may-2-2018
  • http://www.modernhealthcare.com/article/20180512/NEWS/180519966?AID=/20180512/NEWS/180519966

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