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What Is An Accountable Care Organization (ACO)?

The era of traditional, fragmented healthcare is coming to an end, and Accountable Care Organizations (ACOs) are positioned to become the new normal. The fee-for-service (FFS) reimbursement model is yielding to newer value-based payment models that focus on paying providers for quality and value, not volume. Specifically, since the passing of the Affordable Care Act (ACA) in 2010, ACOs have proliferated the healthcare landscape. Although stimulating an emphasis on care innovation and collaboration, ACOs have also generated some concerns around the uncertainties of financial risks and the ability to achieve significant savings in this new payment and delivery paradigm.

The Definition of ACOs

Accountable Care Organizations (ACOs) are networks of physicians, specialists, surgeons, doctors, hospitals, pharmacies, and home healthcare facilities who collectively agree to coordinate care for a patient population, with the goal of improving care quality, while eliminating unnecessary spending. Streamlined, cost-efficient and value-oriented, ACOs focus on provider collaboration, coordinated care, performance quality, systems interoperability, and overall patient care experiences and population health outcomes. In addition, ACOs encourage the restructuring of traditional payment and delivery systems by incentivizing providers to assume financial accountability for defined populations while sharing in the responsibility of high quality, low-cost care across the healthcare continuum. 

ACOs are designed to change the traditional FFS healthcare model in the following ways:

  • ‍They align the different component parts of patient care--primary care, specialists, hospitals, home health care providers, etc.--into an organized collective.
  • They supply that network with the technology to efficiently communicate and coordinate patient care.
  • They oversee the quality of care of their patients by making sure that their network is meeting performance standards set by the Centers for Medicare and Medicaid Services (CMS), or other commercial or private payers.
  • They look for ways to eliminate unnecessary spending in order to lower the overall cost of care for their patients.

source: Summers, et al

For a deeper look at why ACOs were established, how they work, and what’s in it for the ACO and patient population, see the TXCIN article, “Why Accountable Care Organizations Succeed” (http://www.insight-txcin.org/post/why-accountable-care-organizations-succeed).

The types of ACOs

In part one of the Leavitt Partners and Brookings Institution collaborative report, The Impact of Accountable Care, Tianna Tu, et al., explains that in accountable care “providers enter into a contractual obligation or other risk-based agreement with an insurer to take on financial risk associated with the care and outcomes of a defined patient population. While the amount of risk can range from mere incentive payments to upside-only bonus agreements and to even more comprehensive bundling and full capitation contracts, ultimately, an ACO’s financial structure encourages the provision of lower cost, higher quality care.”

In today’s healthcare market, ACOs serve millions of Medicare, Medicaid, and commercially sponsored beneficiaries; however, ACOs can vary considerably in organizational structure, leadership, provider participation, and patient or episode-care focus. Many ACOs are led by Independent Physician Associations (IPAs), or physician group alliances, while others are led by independent hospitals or an alliance of multiple provider organizations that deliver all services in the continuum of care.

The Centers for Medicare and Medicaid Services (CMS) has been the forerunner of the value-based movement with the development of the Pioneer ACO Model and Medicare Shared Savings Program (MSSP) starting in 2012; the Advance Payment ACO Model starting in 2013; and the ACO Investment Model, the Next Generation ACO Model, and the Comprehensive ESRD Care Model starting in 2016. Medicare ACOs are incentivized to assume the financial and medical responsibility of a patient population through shared savings and bonuses when meeting quality and cost performance requirements. The Medicare Shared Savings Program (MSSP), CMS’s largest Medicare program, will serve over 10.5 million assigned beneficiaries for performance year 2018. In total, there are currently 656 Medicare ACOs serving approximately 12.3 million beneficiaries. Comparatively, in 2012, the original 32 Pioneer ACOs served approximately 2 million beneficiaries. For an in-depth look at the comprehensive Medicare ACO strategy see the TXCIN article, “ACOs and the Medicare Shared Saving Program (MSSP): The Strategy Toward Value-based Care” (http://www.insight-txcin.org/post/acos-and-the-medicare-shared-savings-program).

Medicaid ACOs adhere to the same payment and performance structures outlined by CMS, but they are implemented by each state, varying in structure and emphasis based on states’ needs. Commercial ACOs are the most diverse types of ACO contracts and are generally not held to the same financial requirements, quality metrics or reporting timeline as Medicare ACOs (Tu, et al.). Commercial contracts include insurer health plans like Cigna, Aetna, Humana, Blue Cross Blue Shield, and United Healthcare, to name a few.

The Future of ACOs

Although optimistic about the potential of ACOs to reduce costs while improving care quality, CMS and financial experts agree that the road to significant savings has been slow, falling short of initial expectations. For example, in 2017, the Department of Health and Human Services (HHS) acknowledged that MSSP ACOs had reduced spending by about $1 billion in a three-year timespan, and although this total sounds noteworthy, the savings are minimized when one considers that Medicare spends more than $500 billion every year (Dickson). In fact, the MSSP cost CMS $384 million from 2013 to 2016 despite projections the program would produce $1.7 billion in savings for the government over the same period (Castelluci).

In a recent speech at the Federation of American Hospitals conference in Washington, D.C., HHS Secretary, Alex Azar stated:

Providers have been understandably reluctant to charge into a completely new payment paradigm. Massive new processes and data-gathering requirements have been instituted, without any fundamental changes to our delivery system. Results for the early stages of federal efforts to encourage accountable care organizations have been, to be honest, underwhelming. But there is no turning back to an unsustainable system that pays for procedures rather than value. (Porter)

2019 is an important year in the MSSP, with many MSSP ACOs having their backs against the wall. ACOs that started in the MSSP Track 1 in either 2012 or 2013 will be required to move into two-sided risk arrangements that require more financial risk and sharing of any losses. The National Association of ACOs surveyed 82 ACOs that began in those years and 71% of them said that they are likely to leave the MSSP if they must assume risk (Dickson). As ACOs reach their contract limit agreements, they must choose to “graduate” to a Track 1+, 2, or 3 risk-based model, or be forced to leave the MSSP altogether. 

Although this contract-cycle scenario may seem problematic for the future of ACOs in the MSSP, still there were 124 new MSSP participating ACOs this year, bringing the total to 561 MSSP ACOs, with 82% (462) in the Track 1, one-sided risk agreement. In addition, there was a significant increase (140%) in the number of ACOs pursuing downside risk, and many jumping into risk arrangements without prior experience (Sinclair).

In spite of the financial shortcomings of the MSSP ACOs, Ted Schwab, Managing Director of Huron Healthcare points out the underlying significance of ACO implementation over the last seven years:

I think that there has been some question to date because of the failure of Pioneer ACOs and the regular MSSP ACOs to show much cost savings but what folks have overlooked is that the ACO movement has been an organizing force throughout the healthcare industry and it’s got hospitals and doctors for once under the same umbrella talking about efficiencies, clinical protocols, and ways to save costs. (Gruessner)

Accountable Care Organizations (ACOs) are changing the way healthcare providers approach care payment and delivery. While ACOs have contributed to a new sense of purpose in delivering quality, collaborative care, it remains to be seen if they can produce enough significant savings to make an impact in overall healthcare costs and spending. One thing is certain: healthcare reform is happening, and all bets are on Accountable Care Organizations for the future.


North Texas Clinically Integrated Network, Inc. (dba TXCIN) is a non-profit ACO that began in late 2014. A small group of health care, independent physicians aligned to initiate clinical integration and value-based contracting. Partnering with RevelationMD and its state-of-the art information platform, TXCIN has become one of the largest, independent networks of physicians in North Texas.


Castellucci, Maria. “Medicare ACOs increased federal spending by $384 million.” ModernHealthcare.com. March 29, 2018. http://www.modernhealthcare.com/article/20180329/NEWS/180329894

Dickson, Virgil. “Many Medicare ACOs would quit rather than face risk next year.” ModernHealthcare.com. May 2, 2018. http://www.modernhealthcare.com/article/20180502/NEWS/180509971

Gruessner, Vera. “What are the Benefits of Accountable Care Organizations?” HealthPayerIntelligence.com. Accessed May 1, 2018. https://healthpayerintelligence.com/features/benefits-of-accountable-care-organizations

Porter, Steve. “’No Turning Back’: Azar Outlines 4 Focal Points in Value-Based Push.” Healthleadersmedia.com. March 6, 2018. http://www.healthleadersmedia.com/quality/no-turning-back-azar-outlines-4-focal-points-value-based-push#

Sinclair, Hunter. “The 2018 MSSP ACO Participants are Out. Here are 6 Key Takeaways.” Advisory Board. January 9, 2018. https://www.advisory.com/research/care-transformation-center/care-transformation-center-blog/2018/01/mssp

Summers, Laura. “Part 6: How Accountable Care Impacts the Way Consumers Receive Care.” The Impact of Accountable Care. Leavitt Partners and National Partnership for Women and Families. May 2015. http://www.nationalpartnership.org/research-library/health-care/impact-accountable-care.pdf

Tu, Tianna, et al. “Part 1: Origins and Future of Accountable Care Organizations.” The Impact of Accountable Care. Leavitt Partners and Brookings Institution. May 2015. https://www.brookings.edu/wp-content/uploads/2016/06/Impact-of-Accountable-CareOrigins-052015.pdf

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