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Accountable Care Organization

Editor: Matthew Varacallo Updated: 7/25/2023 12:47:53 AM


The Affordable Care Act (ACA) has as its primary goal the creation of value for the patients of our healthcare system. One of the main ways it accomplishes value-based outcomes is driven by incentivizing doctors, hospitals, and healthcare providers to coordinate clinically efficient patient care. The healthcare providers become eligible for various (financial and/or other occupationally-based) bonuses when clinical care is delivered effectively with quality outcomes. [1]    Strategies such as the Bundled Payment Care Initiative (BPCI) and Accountable Care Organizations (ACOs) will emphasize reducing expensive and unnecessary services and becoming more cost-effective for patients. [2]  Hospitals and physicians must meet specific quality benchmarks, which focus on disease prevention, carefully managing patients with chronic diseases, and keeping patients healthy. 

The term ACO was originally coined by researchers and policy experts to describe entities that consist of responsibly integrated healthcare providers who all are working toward achieving a common clinical goal and outcome: efficient, high-quality patient care while utilizing a common clinical pathway that incorporates principles of treatment and therapeutic modalities in a multifaceted provider setting. [3]

There are three core Accountable Care Organizations principles: [4]

  1. Provider-led organizations with a strong base of primary care that is accountable for the quality and per capita costs
  2. Payments linked to improvement in quality and reduced costs
  3. Reliable and increasingly sophisticated measurement of performance to support improvement and provide confidence care is improved, and cost savings occur.

Issues of Concern

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Issues of Concern

To achieve these goals, the Affordable Care Act significantly changed the way healthcare is offered and how healthcare providers are reimbursed. While the primary purpose of the Affordable Care Act is to provide all Americans with access to affordable health insurance, various components will potentially have a significant impact on how physicians are compensated for providing care. The traditional fee-for-service system is slowly being replaced by a variety of managed care initiatives. The Affordable Care Act proposes further reform of the health care service-delivery system through the establishment of Accountable Care Organization and the Bundled Care Payment Initiative through the Medicare program. The implementation of both the Accountable Care Organization and Bundled Care Payment Initiative seeks to incentivize and facilitate integrated, coordinated medical care. Accountable Care Organization initiatives try to achieve this through organizational structure reforms, while the bundled payment initiative looks to do so with payment reforms.

Accountable Care Organizations place financial responsibility on providers in hopes of improving patient management and decreasing unnecessary expenditures while providing patients with the freedom to select medical service providers. The Accountable Care Organizations model promotes clinical excellence while simultaneously controlling costs. This cost-control depends on the Accountable Care Organization's ability to incentivize hospitals, physicians, post-acute care facilities, and other providers to form partnerships and promote better coordination of care delivery. By increasing care coordination, Accountable Care Organizations hope to reduce unnecessary medical care and improve health outcomes. According to the Centers for Medicare and Medicaid Services (CMS) estimates, the Accountable Care Organization's implementation is estimated to result in a median savings of $470 million from 2012 through 2015. 

Accountable Care Organizations (ACOs) were a significant component of the Affordable Care Act as they proposed a method for cost containment within the healthcare system.  As the healthcare field shifts from the traditional fee-for-service (FFS) model, alternative payment schemes have focused on ACOS and BPCIs.  

Bundled Payment Care Initiatives (BPCIs)

BPCIs have become increasingly popular in various selective fields of predictable surgeries (i.e., elective procedures) such as total joint replacements.[5][6] Furthermore, in future fields and evolving areas across subspecialties like orthopedic surgery, BPCI models are potentially being implemented and/or becoming experimental in diagnostic related groups such as hip fracture patients, elective cervical spine procedures (ACDFs), and isolated surgical extremity trauma. [7]

Accountable Care Organizations (ACOs)

Instead of bundling all the cost for a single episode of care as in the Bundled Payment Care Initiative, ACOs measure the specific quality outcomes over a 3-year period and requires demonstrated improved outcomes.

For the Accountable Care Organization, “this emphasizes that these cost and quality improvements must achieve overall, per capita improvements in quality and cost, and that [Accountable Care Organizations] should have at least limited accountability for achieving these improvements while caring for a defined population of patients". [8]

Stakeholders in Accountable Care Organizations include:

Healthcare providers

Accountable Care Organizations are composed mostly of hospitals and healthcare professionals. Depending on the Accountable Care Organization level of integration, providers may include health departments, social security departments, safety net clinics, and home care services. The providers within an Accountable Care Organization work to coordinate care, align incentives, and lower costs. Accountable  Care Organizations are different from Health Maintenance Organizations (HMOs) in that providers have more freedom in developing the infrastructure. Any provider or provider organization may assume the leadership role.

Payors (insurance companies, third-party organizations)

Medicare is the Accountable Care Organization's principal payer. Other payers include private insurance and employer-purchased insurance. Payers play several roles in the Accountable Care Organization to help achieve higher quality care and lower expenditures. Payers may collaborate to align incentives for Accountable Care organizations and create financial incentives for providers to improve healthcare quality.


Accountable Care Organization patient populations consist of primarily Medicare beneficiaries. In larger and more integrated Accountable Care Organizations, the patient population includes uninsured patients. Patients may play a role in the healthcare they receive by participating in the decision-making processes.

The Medicare Shared Savings Program allows a variety of providers, including post-acute care provider, who voluntarily agrees to coordinate care for patients. They must, however, meet certain quality metrics to share in any savings they achieve. Those Accountable Care Organizations that elect to share losses have the opportunity to also share in greater savings. The success of each Accountable Care Organization is determined by approximately 30 quality measures organized into four domains. These domains include patient experience, care coordination, safety, and preventive health in at-risk populations. The higher the quality of care providers deliver, the more shared savings their Accountable  Care Organization can earn, as long as they also lower growth in health care expenditures.

Clinical Significance

Although the Centers for Medicare and Medicaid Services (CMS) proposed the Accountable Care Organization model, currently, there are several different varieties of an Accountable  Care Organization available for patients. Typically, Accountable Care Organizations consist of a large payer, like an insurance company, coupled with a large group of healthcare providers. In addition, there are large employers that are taking advantage of the shared savings, partnering with healthcare systems, and removing the insurers altogether. The design of an Accountable Care Organization is based on the principle that each provider will be held accountable for the cost and quality of the care provided, prevention of disease, and avoidance of waste.

There are challenges with Accountable Care Organizations, which include the lack of how Accountable  Care organizations should be implemented. The American Hospital Association estimated that Accountable Care Organization formation incurs high startup costs and enormous annual expenses. Accountable Care Organizations risk violating antitrust laws if they drive up costs by reducing competition. To address the antitrust violation concern, the US Department of Justice offered a voluntary antitrust review process for Accountable Care Organization.

Significant challenges face primary-care physicians who join an Accountable Care Organization via a group practice, hospital-medical practice alignment, or another joint venture such as an independent practice association. Physician groups need a robust Electronic Health Record system with advanced reporting, disease registries, and patient population care management. Organizations that achieve Patient-Centered Medical Home accreditation have mastered these functions and are further along the road to meeting Accountable Care Organization metrics.



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Burke T. Accountable care organizations. Public health reports (Washington, D.C. : 1974). 2011 Nov-Dec:126(6):875-8     [PubMed PMID: 22043105]


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