Catalyst for Payment Reform

Accountable care organizations (ACOs)


Accountable care organizations (ACOs)

What is an Accountable Care Organization (ACO)?

Accountable care organizations (ACOs) are groups of providers that share financial and medical responsibility for providing coordinated care to patients, with financial incentives to provide high-quality care and limit avoidable, unnecessary spending. Most ACOs are still paid with traditional means (fee-for-service, DRGs, and in some cases, capitation) but are also under a shared savings and/or shared risk payment arrangement. These arrangements come with quality standards which, if met, entitle the ACO to share in any savings it achieves below a spending target.  Increasingly these arrangements also involve shared risk, meaning that the ACO must absorb any amount it spends on patient care over the target.

An ACO typically focuses on:

  • A high performance network of providers, based on cost and quality performance
  • Patient-centered care, including better coordination and continuity of care
  • Data sharing and IT integration
  • Outcomes-oriented measurement
  • Measurement of costs and spending against targets


Why Should Employers and Other Health Care Purchasers Care About ACOs?

ACOs are a delivery model that were promoted by the Patient Protection and Affordable Care Act.  Since its passage, the Centers for Medicare and Medicaid Services has implemented and experimented with multiple ACO models for the Medicare population. Commercial health plans have followed suit, and some employers and public purchasers have direct contracts with ACOs. Some purchasers believe ACOs hold a lot of promise as a way to improve health care delivery; others are skeptical and concerned about how the ACO movement has led to consolidation among health care providers, which in turn gives them greater market power and the ability to command higher than competitive prices.  Regardless, ACOs are now so widespread that the populations for whom many employers and other purchasers buy health care will be impacted one way or another.


What Are the Latest Trends Related to ACOs?

  • The latest data available estimate that there are a total of 840 ACO contracts (477 of which are CMS’s Medicare ACOs),[1] and 28.3 million people are now cared for under an ACO arrangement.[2]
  • In 2014, 260 ACOs were physician-led and 238 ACOs were hospital-led.[3]
  • Of the 210 commercial ACOs that launched in 2015, only 5 were risk-bearing.[4]
  • Multispecialty group practices and integrated delivery systems are able to obtain some of the highest rates from commercial payers, often exceeding 250% of what Medicare pays health care providers.[5]


What Are the Latest ACO Results?

There is little public data available on the results of commercial ACOs, and few rigorous or comparable evaluation efforts underway. Although Medicare’s Shared Savings Program (MSSP) is reported to have generated savings,[6] the total costs to Medicare were more than the program’s savings.[7] However, improvements in the quality of care seem to be promising, as the ACOs that reported in both 2014 and 2015 improved on 84 percent of the quality measures that were reported in both years.[8] 


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