Accountable Care Organizations: Definitions and Expectations

ACOs are continuing to evolve. This week, we take a look at the latest information available.

The Accountable Care Organization (ACO) model ties provider reimbursements to the delivery of high-quality care at reduced costs for a specific patient population.

This may sound pretty straightforward, but ACOs are not all that simple, according to a recent survey by Beacon Partners. They found that a mere 15% of healthcare executives were “very familiar” with the ACO concept. However, 92% of executives participating in the survey said they were developing an ACO or beginning to plan for one. If this sounds a bit risky, it is, particularly as Section 3022 of the Patient Protection and Affordable Care Act (PPACA) incentivized the use of ACOs in Medicare with its shared savings program, starting as early as January 2012.

Who can form an ACO? The most commonly cited scenario is a medical group joining with a hospital or hospital system, to care for their patients under a contract for fixed payments, which can be in the form of capitation, global payments, or even fee-for-service payments. The one common element is that the ACO shares any financial savings achieved with its partners. One of Medicare’s few requirements of ACOs is that they cover at least 5,000 beneficiaries and include “sufficient” numbers of primary care providers in the ACO.

To get a peek at an actual ACO, look no farther than Kaiser Permanente (a medical group integrated with a hospital system) or HealthCare Partners Medical Group (a medical group integrated with its independent practice association). In other words, the ACO organizational structure is not new. Furthermore, the payment methods associated with them are not new. Their tying of payment method to quality outcomes reporting is the story here—the government’s major attempt to reform its own reimbursement.

In the 1990s, medical groups and hospitals rushed to form provider-sponsored organizations (PSOs), only to learn too late that the physician group’s incentives were completely unaligned with those of the hospital. Few remain in existence today. Medicare’s shared savings model for ACOs, however, may make it possible for them to be on the same page and actually achieve some savings.

An article in the New England Journal of Medicine ( questioned whether the financial risk in putting the structure together will be worth the savings gained by the ACO, even as they may meet the quality measurement goals.

How will payers, including health plans, view ACOs and incorporate them into their provider networks? The ACO Learning Network ( is attempting to find out. This organization, with approximately 125 members and jointly run by the Brookings Institution and Dartmouth University, is engaged in a pilot with UnitedHealthcare, Anthem Blue Cross Blue Shield, and Humana, to prepare shared savings contracts with 5 ACOs based on quality measures.

These initial private and public forays into ACO development and outcomes will be worth watching.

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