Accountable Care Organization – Definition

Cite this article as:"Accountable Care Organization – Definition," in The Business Professor, updated July 30, 2019, last accessed December 4, 2020,


Accountable Care Organizations Definition

Accountable Care Organizations (ACOs) are networks of doctors, hospitals and other healthcare providers that voluntarily collaborate in order to provide coordinated, high-quality and cost-effective care to patients. ACOs came into being as a result of the enactment of the Affordable Care Act (ACA) of 2010, more commonly known as ‚ÄėObamacare‚Äô. This Act led to the creation of the Medicare Shared Savings Program (MSSP) that sought to improve the quality of care for Medicare Fee-For-Service (FFS) beneficiaries, while also reducing unnecessary costs. Although Accountable Care Organizations were first set up to exclusively cater to Medicare participants, these organizations have since expanded their operations to also include private payer networks.

A Little More on Accountable Care Organizations

Accountable Care Organizations (ACOs) were conceived as a well-connected network of healthcare providers that shared information within themselves (thus eliminating duplication of services), offered more accessible and affordable healthcare and prevented medical errors. Although ACOs are designed with a focus on primary care physicians (PCPs), they also incorporate hospitals, specialty clinics, dispensaries and other healthcare providers in order to optimize their capabilities. The basic framework of Accountable Care Organizations was incorporated into the Medicare Shared Savings Program – a constituent of the Affordable Care Act (ACA) of 2010. This Act made it mandatory for each ACO to service a minimum of 5,000 patients over a minimum three-year period. The Centers for Medicare and Medicare Services (CMSs) oversee the functioning of all ACOs.

Although originally envisaged by the Obama administration as a government-maintained social welfare program for low-income groups, the ACO system quickly transcended its Medicare roots to incorporate private payer networks. However, all Accountable Care Organizations have retained the fee-for-service payment model of Medicare, albeit with certain modifications such as offering incentives to healthcare providers for better care of patients.

As of 2014, there were 20 Accountable Care Organizations in the Medicare Pioneer Program and 333 in the Medicare Shared Savings Program (MSSP). These ACOs together generated over $400 million in total savings that year, not counting bonuses paid out.

Accountable Care Organizations in the Present

It is mandatory for ACOs participating in the Shared Savings Program beginning July 1, 2019 and later to agree to an agreement period of no less than five years. This agreement period constitutes performance years that follow similar operational procedures. The Accountable Care Organizations can opt from either of two tracks

  • A Basic track that comprises a glide path for eligible ACOs
  • An Enhanced track that caters to higher risk levels as well as higher potential rewards.

It is possible for ACOs participating in the Basic track’s glide path to graduate to higher risk levels and consequently, higher potential rewards.

Disadvantages of the Affordable Care Organization System

ACOs participating in the Shared Savings Program can lead to consolidation among healthcare providers in the form of mergers. This will invariably lead to a situation where a smaller number of health systems hold greater negotiating power over insurers, thus resulting in higher expenses for the patients. Patients availing healthcare under the ACO system are also prone to being entangled in an unpleasant network of healthcare providers with vastly limited options.

Reference for ‚ÄúAccountable Care Organizations‚ÄĚ

Academics research on ‚ÄúAccountable care organizations‚ÄĚ

Creating accountable care organizations: the extended hospital medical staff, Fisher, E. S., Staiger, D. O., Bynum, J. P., & Gottlieb, D. J. (2007). Creating accountable care organizations: the extended hospital medical staff. Health Affairs, 26(1), w44-w57. Many current policies and approaches to performance measurement and payment reform focus on individual providers; they risk reinforcing the fragmented care and lack of coordination experienced by patients with serious illness. In this paper we show that Medicare beneficiaries receive most of their care from relatively coherent local delivery systems comprising physicians and the hospitals where they work or admit their patients. Efforts to create accountable care organizations at this level‚ÄĒthe extended hospital medical staff‚ÄĒdeserve consideration as a potential means of improving the quality and lowering the cost of care.

Accountable care organizations: accountable for what, to whom, and how, Fisher, E. S., & Shortell, S. M. (2010). Accountable care organizations: accountable for what, to whom, and how. Jama, 304(15), 1715-1716. Interest in accountable care organizations (ACOs) has increased dramatically with the passage of the Affordable Care Act, which establishes ACOs as a new payment model under Medicare and fosters pilot programs to extend the model to private payers and Medicaid. Proponents hope that ACOs will allow physicians, hospitals, and other clinicians and health care organizations to work more effectively together to both improve quality and slow spending growth.1 Skeptics are concerned that ACOs will focus narrowly on their bottom line and either stint on needed care or use the leverage they achieve through local integration to demand unreasonable prices from payers.

Launching accountable care organizations‚ÄĒthe proposed rule for the Medicare Shared Savings Program, Berwick, D. M. (2011). Launching accountable care organizations‚ÄĒthe proposed rule for the Medicare Shared Savings Program. New England Journal of Medicine, 364(16), e32.

Achieving population health in accountable care organizations, Hacker, K., & Walker, D. K. (2013). Achieving population health in accountable care organizations. American journal of public health, 103(7), 1163-1167. Although ‚Äúpopulation health‚ÄĚ is one of the Institute for Healthcare Improvement‚Äôs Triple Aim goals, its relationship to accountable care organizations (ACOs) remains ill-defined and lacks clarity as to how the clinical delivery system intersects with the public health system. Although defining population health as ‚Äúpanel‚ÄĚ management seems to be the default definition, we called for a broader ‚Äúcommunity health‚ÄĚ definition that could improve relationships between clinical delivery and public health systems and health outcomes for communities. We discussed this broader definition and offered recommendations for linking ACOs with the public health system toward improving health for patients and their communities.

Driving population health through accountable care organizations, DeVore, S., & Champion, R. W. (2011). Accountable care organizations, scheduled to become part of the Medicare program under the Affordable Care Act, have been promoted as a way to improve health care quality, reduce growth in costs, and increase patients’ satisfaction. It is unclear how these organizations will develop. Yet in principle they will have to meet quality metrics, adopt improved care processes, assume risk, and provide incentives for population health and wellness. These capabilities represent a radical departure from today’s health delivery system. In May 2010 the Premier healthcare alliance formed the Accountable Care Implementation Collaborative, which consists of health systems that seek to pursue accountability by forming partnerships with private payers to evolve from fee-for-service payment models to new, value-driven models. This article describes how participants in the collaborative are building models and developing best practices that can inform the implementation of accountable care organizations as well as public policies.

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