Accountable Care Organizations 101

All About ACOs

Accountable Care Organizations 101
November 2, 2016

Accountable Care Organizations (ACOs) were born out of the Affordable Care Act (or Obamacare, if you prefer) as an attempt to lower costs and improve the quality of care to Medicare patients. The principle is to provide coordinated care instead of the potentially fractured care that sends patients back-and-forth among disparate doctors and specialists.

By forming ACOs, or coordinated networks of physicians that work together, it is expected that patient care will improve through fewer communication errors, and by eliminating treatment plans at cross-purposes. At the same time, organizations will save money through improving overall efficiency and eliminating repetitive or unnecessary care steps.

ACOs are not health maintenance organizations (HMOs) and are not part of the Medicare Advantage plan. They are affiliated networks of providers still working under the fee-for-service model. The linchpin of the ACO is the primary care physician, and it can contain whatever mixture of auxiliary services is necessary to serve patients (hospitals, specialists, and even drugstores).

The cost motivator for providers is the Shared Savings Program established in conjunction with the creation of ACOs. Savings are literally shared with providers assuming certain standards are met on savings benchmarks and patient care. To qualify for the program, an ACO must serve at least 5,000 Medicare beneficiaries. If accepted, the ACO must agree to participate in the Shared Savings Program for at least three years.

Joining an ACO is voluntary, but the program is intended to steer providers toward being part of one through incentives. However, along with the carrot of savings there is a potential stick of losses. ACOs that perform poorly end up sending Medicare a check to make up for the shortfall from expectations.



While doctors are likely to refer within the ACO, the patient is still in the driver's seat. Doctors must disclose the ACO arrangement, and patients are free to seek medical care outside the ACO with any provider that accepts Medicare. Patients can also decline to allow their information to be shared within the ACO — making it difficult, if not impossible, to meet the goals of coordinated care. In essence, if you want to make this work and achieve savings, keep your patients happy.

The ACO approach has potential weak spots on either side of the economic scale. ACOs could lead to further consolidation among health care providers, which could limit choice and drive up prices. (Certainly, the health insurance side is undergoing large-scale mergers.) It is also possible that too many providers could opt out and stick with the traditional fee-for-service approach, leaving too few ACOs intact to make a tangible difference.

According to a recent New York Times article, 13 ACOs left the Pioneer ACO program after the first year. (The Pioneer program participants accepted greater savings rewards in exchange for greater risks.) However, the program seems to have turned the corner with over 420 ACOs currently handling the care of over 7.8 million Medicare beneficiaries.

Both the Times article and a recent Forbes article suggest that ACOs are achieving their goals for the most part. According to the Center for Medicare and Medicaid Services (CMS), in 2014, over 350 ACOs provided a net savings of $411 million. That's an improvement over the $380 million saved in the first year.

In the end, whether ACOs succeed or not depend on how well they balance the incentives of saving money with positive patient care — and also whether government and regulatory policy can stay consistent long enough to determine whether ACOs are part of a viable long term solution to Medicare cost control.


Photo ©iStock.com/Ridofranz

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Irene | 11.02.16 @ 15:38
I am not sure if this is a step in the right direction or not, but I do think "obamacare" needs to go. Though it has been helpful to some people it has not been at all cost effective for others.
Jane | 11.02.16 @ 16:25
It seems that ACOs are a viable alternative for both patients and doctors (and affiliated networks). I think it's a matter of creating ACO networks which give excellent service on all levels, thereby keeping patients happy. That will reduce costs and give savings back to the ACOs.
Zanna | 11.02.16 @ 16:54
This sounds like a useful way to provide better quality care. The problem is how to balance so there are enough options within the ACO but if it's taken too far it would result in a care monopoly. Then you're looking at what essentially would become socialized coverage and people are very wary of that model.
Daniel Dohlstrom | 11.02.16 @ 17:48
Could be good for some to use these, we all know healthcare reform is still in a terrible state and really needs help
Christina | 11.02.16 @ 17:55
Glad to see that there is an attempt to provide more integrated care. I still worry about a smaller selection of caregivers and a higher price tag.
Nancy | 11.02.16 @ 18:28
I think the premise behind ACOS is a good one. Time will tell if they are worth the investment. We have a way of marking up good ideas with bureaucracy.
$commenter.renderDisplayableName() | 12.03.16 @ 14:07
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