WHAT IS 'Accountable Care Organizations'

Accountable Care Organizations are networks of healthcare providers who collaborate to provide improved and more cost-effective treatment to patients. These organizations were established under Medicare Shared Savings Program, a portion of the Affordable Care Act of 2010. These organizations were originally designed to support Medicare participants but have grown to include private payer networks as well.

BREAKING DOWN 'Accountable Care Organizations'

Accountable care organizations (ACOs) were designed to share information, provide more cost-effective treatments services, and eliminate redundancies for patients in the Medicare system. ACOs are structured around a patient’s primary care physician (PCP), but should also include hospitals, pharmacies, specialists, and other service providers to achieve optimal efficiency. The ACO model was introduced through the Medicare Shared Savings Program, a component of the 2010 Affordable Care Act (ACA). The ACA mandates that an approved ACO manage the healthcare of a minimum 5,000 patients over a three-year period. ACOs are overseen by the Centers for Medicare and Medicare Services (CMS).

The ACO system has grown beyond the Medicare environment to include private payer networks, and has retained the fee-for-service payment model of Medicare. The major adjustment to this model under the ACO system is a set of incentives designed to reward providers for more efficient care.

How Affordable Care Organizations are Incentivized

The ACA incentive matrix is designed to counteract the tendency of costs to rise unnecessarily under the traditional Medicare fee-for-service model. ACO providers are graded against a series of quantitative benchmarks that are adjusted to account for regional cost differences. These benchmarks are spread across four categories: Patient/Caregiver Experience, Care Coordination/Patient Safety, Preventative Health, and At-Risk Population. The Electronic Health Record (EHR) system collects data on a group of criteria in each category, and providers are ranked against their peers on each criterion. Hospital readmission rate is one example of a grading criterion. Points are awarded to those providers based on their percentile ranking as well as an ACO’s improvement over the performance in previous years. Rewards for high performance come in the form of increased reimbursement rates.

CMS introduced a new tier of ACOs in 2016, known as the Next-Generation ACO (NGACO). This program is available to established ACOs willing to accept greater financial risk but rewards those organizations with stronger financial rewards. It is also a useful testing mechanism for CMS to experiment with more sophisticated grading criteria.

Risks of the Affordable Care Organization System

Critics of the ACO system have expressed concerns that it will lead to consolidation of among providers which could lead to higher costs as a smaller number of health systems hold greater negotiating power over insurers. Early research suggests that this has taken place to some extent, and that the cost of resources needed to comply with the reporting system is a major factor driving providers toward mergers.

For consumers, the potential downside of the ACO model is the feeling of being stuck in an undesirable network. ACOs are designed to minimize this risk by eliminating the structural obstacles of the HMO system, but some healthcare economists worry that consolidation could limit options open to a consumer.

  1. Medicare Part A, Hospital Insurance

    One of the four components of the federal government’s health ...
  2. Centers for Medicare and Medicaid ...

    The Centers for Medicare and Medicaid Services (CMS) administers ...
  3. Medicare Part B Premiums

    Medicare Part B premiums are a monthly fee for medical insurance ...
  4. State Health Insurance Assistance ...

    State Health Insurance Assistance Programs (SHIP) offer free ...
  5. Medicare Star-Rating System

    The Medicare Star-Rating System is a method for comparing Medicare ...
  6. Custodial Care

    Custodial care is non-medical care recommended by a medical professional ...
Related Articles
  1. Insurance

    HMOs: They're Back Under a New Name

    New style HMOs (aka ACOs) are cheaper and have shed some of the drawbacks of older versions. They're worth another look.
  2. Insurance

    Which Medicare Advantage Plan Is Best for You?

    It's important to know the differences between Medicare Advantage plans before selecting one.
  3. Retirement

    Medicare’s New Payment Rules: Should You Worry?

    Medicare is moving from a fee-per-service model for hip and knee replacements to one that involves bundled payments. How to protect your rights.
  4. Managing Wealth

    What Does Medicare Cover?

    Don't assume you're insured. Find out what you can expect from this healthcare program.
  5. Retirement

    How Much Will Healthcare Cost After You Retire?

    The price tag may shock you, which is why you should do some pre-retirement calculations.
  6. Insights

    A Real Solution for the Health Insurance Market

    It's time for our representatives to come together and find a healthcare solution for everyone.
  7. Retirement

    Navigating the Maze of Medicare: Know the Costs

    Navigating the maze of Medicare is complex. Here's what you need to know about the financial and tax aspects.
  8. Retirement

    Medicare 101: Do You Need All 4 Parts?

    At age 65, most people have to sign up for Medicare. Learn which of its four programs are mandatory – and which you can skip.
  9. Retirement

    Is Your Health Insurance Enough For Retirement?

    Learn what to expect to pay for health insurance in retirement, what is covered through Medicare and what the Affordable Care Act means for retirees.
  1. Operation management in healthcare

    Discover how operations management theory is applied across a broad spectrum of operational and management issues in the ... Read Answer >>
Trading Center