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Accountable Care Organizations knowledge hub

Get everything you need to know about Accountable Care Organizations,
including how to determine if you’re ACO-ready.

The expansion of accountable care organizations and risk

In Medicare’s traditional fee-for-service payment system, doctors and hospitals generally are paid more when they deliver patients “more care,” a volume of services, procedures and lab tests. This method of payment can drive up costs and doesn’t assure quality outcomes. Accountable care organizations (ACOs), an example of what’s referred to as risk-based payment, don’t eliminate the fee-for-service model, but create savings incentives by offering bonuses to providers who can keep costs down.

In accountable care organizations, doctors and hospitals are required to meet specific quality benchmarks, focusing on disease prevention for healthier patients and carefully managing patients who have chronic diseases. In other words, providers in accountable care organizations are rewarded for value, not volume.

When properly designed, accountable care organizations (ACOs) shift appropriate clinical and financial risk from insurance payers to providers. These risk-based models can incentivize payers to improve collaboration with providers, meet government mandates, and provide quality, patient-centered care.

The results of this experience made it clear that placing all risk entirely on providers is neither a desirable nor sustainable approach.

Health care organizations must prepare for increasing amounts of financial risk

In the 1990s, some health insurance plans transferred all risk (i.e., keeping a patient from getting ill) to the provider, rather than just “performance risk” (i.e., successfully treating illness in a cost-effective way). These past experiences made it clear that placing all the risk on providers is neither a desirable nor sustainable approach. As another approach to taking on risk, providers who participate in accountable care organizations are not required to support performance risk, but are rewarded for boosting quality and affordability of care with good patient outcomes.1

The following chart illustrates a variety of risk-based reimbursement structures, with those toward the upper right combining the greatest structural change and the greatest level of risk. The shared savings model, closest to an ACO setting, falls in the middle of the range here, reflecting a moderate adjustment to current payment structures and a moderate level of risk.

Compared to payment models (e.g., HMOs) of the past, accountable care organizations have key differences that could support their ultimate success:

  • A focus on improved management of chronic conditions and appropriate utilization, instead of disease prevention and lower utilization
  • Flexible structure and governance
  • ACO professionals who are accountable for the outcomes and expenditures of their assigned population, and are tasked with collaboratively improving care to reach agreed-upon cost and quality targets; other risk models have used measures of service utilization to drive management and pricing decisions
  • The ability to distribute bonuses when targets are met—and levy penalties when they are missed
  • Rewards for achieving gains against its own key performance indicators, helping to control national spending by taking into account the wide variation in regional populations and practices

1Miller, H.D. (September 7, 2009). How to Create Accountable Care Organizations. Center for Quality and Healthcare Reform. Available at:

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