An Accountable Care Organization (ACO) is a type of health care organization characterized by a payment and care delivery model that aligns financial interests of health care providers with the goal of decreasing spending while increasing the quality of care for patients. ACOs are accountable to patients and the third-party payers for the quality, appropriateness and efficiency of the provided health care. An ACO is designed to lower health care costs by integrating patient care among providers, while ensuring that performance standards on quality of care are met. Below are four facts about ACOs:

1. Providers/Payers/Patients.

  • Providers. ACOs are typically composed of hospitals, physicians, clinics and other health care professionals. Any provider that is enrolled in Medicare and bills Medicare directly for services may join a Medicare ACO; however, the ACO must include providers that bill Medicare directly for primary care services. Centers for Medicare & Medicaid Services (CMS) does not provide specific rules regarding how income is distributed internally among the individual members of an ACO; therefore providers who are considering joining an ACO must review all contracting provisions.
  • Payers. Medicare is one example of a payer that contracts with ACOs through the Medicare Shared Savings Program. Other payers may include private insurance or employer-purchased insurance. To help an ACO achieve higher quality of care and lower costs, payers typically collaborate and align financial incentives for ACOs to improve health care quality.
  • Patients. ACOs can include many different types of patient populations, including Medicare, indigent and uninsured patients, as well as, patients with private insurance coverage.


2. Cost Savings. The financial success of an ACO is dependent on providing clinical excellence while controlling health care costs. ACOs place a great degree of responsibility on providers to improve care management and limit unnecessary expenditures while allowing patients the ability to retain freedom of choice in selecting a provider. Providers are financially incentivized to cooperate and save money by avoiding unnecessary tests and procedures while meeting specific quality benchmarks focused on prevention. To accomplish these goals, providers emphasize interconnectivity to exchange data across the outpatient and inpatient arenas and to motivate patients to take responsibility for their own health care, through patient engagement and care coordination tools.

3. ACO Models. CMS offers three ACO programs: (i) the Medicare Shared Savings Program (MSSP); (ii) the Advance Payment Model; and (iii) the Pioneer ACO Model. The private sector also uses a range of payment models, including capitation and fee-for-service with asymmetric or symmetric shared savings.

4. Legal Concerns. Depending upon the structure and relationships of parties involved, ACOs could run afoul of Stark Law, the federal Anti-kickback Statute, tax-exempt status, and antitrust laws. ACOs must carefully consider how these laws apply and structure their organizations and operations in a compliant manner to avoid legal and regulatory challenges.