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What is an Accountable Care Organization (ACO)?

The Accountable Care Organization concept is one that is evolving, but generally, an ACO can be defined as a set of health care providers—including primary care physicians, specialists, and hospitals—that work together collaboratively and accept collective accountability for the cost and quality of care delivered to a population of patients.

An ACO potentially could be formed around a variety of existing types of provider organizations.  Many multispecialty medical groups, physician-hospital organizations (PHO), and organized or integrated delivery systems already function as ACOs or have the management and/or payment structure required to quickly evolve into an ACO.  Other provider organizations, such as tightly managed independent practice associations (IPAs), are also likely candidates to become ACOs but some may require more time and/or infrastructure support to provide the care and cost benefits of an ACO. 

The Affordable Care Act’s most significant contribution to creating ACOs is in the traditional Medicare fee-for-service system.  The law includes a provision that allows Medicare to reward healthcare organizations with a share of the savings that would result from improving care quality and reducing the cost for their eligible Medicare populations..  To participate in this “shared savings program,” healthcare organizations need to become Accountable Care Organizations (ACOs).

The Centers for Medicare and Medicaid Services (CMS) are currently testing several models of care delivery re-design that aim to improve the efficiency of American healthcare systems, improve quality, and contain costs—in other words, to provide accountable care.  These include such initiatives as the Advanced Payment Incentive, Pioneer ACO demonstrations, in addition to the Medicare Shared Savings ACO program. 

Private commercial payers, such as Cigna, Anthem, and Aetna are also supporting ACO formation, testing the concept either by aligning incentives with more organized provider groups and health systems in their marketplaces or by purchasing physician groups and providers to attempt to improve care delivery. 

These types of insurer-directed payment approaches to care delivery remind many of the HMO movement of the 1990s.  Since that time, however, the term HMO has come to mean different things.  Today, HMOs generally refer to:  1) Fully integrated delivery systems like Kaiser Permanente, where the insurer, physician groups, and hospitals are part of one integrated organization, and care is provided to only those who are insured by that organization; and 2) private health-plan products that call themselves HMOs, but are fundamentally only payment contracts with a network of mostly disaggregated physicians and hospitals.


In the former, care and cost can be managed much more effectively because clinical information and care processes are shared and supported by all providers.  In the latter, care and cost are less easily managed because the providers are bound only by contractual agreements, not by care processes, shared incentives, or a common mission or shared values.  Kaiser Permanente, an HMO, has for many decades delivered strong care coordination and integration of clinical services, care management, and clinical integration systems that many people are looking for in the ACO model.  While some HMOs could meet the test of an ACO, not all of them have currently the capability.

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