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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 history of ACOs

To contain spiraling health care costs, in 2011 the U.S. Department of Health and Human Services (HHS) released new rules under the Affordable Care Act (ACA), aimed at helping doctors, hospitals and other providers better coordinate care by way of Accountable Care Organizations, or ACOs.

ACOs provide a framework for rewarding providers financially—in both the public and private sectors—for ensuring that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.

Since the HHS’ introduction of this reimbursement model, the number of ACOs has grown dramatically. As of February 2013, there were an estimated 428 ACOs in 49 states, more than double the number from the start of 2011.1


ACOs in the public sector

Under the Centers for Medicare & Medicaid Services (CMS), ACOs agree to manage all of the health care needs for a minimum of 5,000 Medicare beneficiaries, for at least three years. For ACO guidelines, CMS established 33 quality measures focused on care coordination and patient safety, the appropriate use of preventive health services, strengthening care management for at-risk populations, and improving the experience of care for patients and caregivers. Federal savings from this initiative could be up to $940 million over four years.2

In 2011, the first 32 Medicare ACOs, called “Pioneer ACOs,” were announced. Those selected for the program were health care organizations already operating with coordinated care principles. For the first year, Pioneer ACOs received payments for reporting data on the 33 CMS metrics, including data on items like the number of patients who received mammograms or those who were readmitted 30 days after discharge. In 2012, payments were not linked to clinical outcomes, just the ability to properly report on the quality metrics.

In 2013, providers were scheduled to transition from pay-for-reporting to pay-for-performance, but requested extra time to reexamine the terms under which they would be evaluated.

The Medicare Shared Savings Program (MSSP), designed for organizations new to risk-based reimbursement, rewards ACOs that lower growth in health care costs while meeting performance standards on clinical quality and patient-centered care. To date, the federal government has approved nearly 260 ACOs to participate the MSSP.

Commercial risk opportunities

Alongside the CMS-backed plans, commercial health care insurers also began offering risk-based contracts to providers. One such program, established long before the CMS initiatives, was the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract (AQC), which ultimately served as a model for payment reform.

Most commercial risk contracts include similar combinations of quality incentives, shared savings, full capitation and small budget adjustments for medical inflation, but variety in the contracts and frameworks has surfaced. Some contracts have moved to partial capitation (also known as bundled payments), retainer agreements, in-kind services and subsidies provided by payers, or have limited themselves to upside-only pay-for-performance incentives.3

Because there are no exclusivity requirements to operate as an MSSP or work with private payers, many ACOs simultaneously contract with both private payers and the CMS. Additionally, many state Medicaid programs, offered directly through a state Medicaid office or Medicaid managed care plan, are also negotiating accountable care agreements with providers.

1Leavitt Partners. (2013, February 20). Accountable Care Organizations have more than doubled since 2011.

2Centers for Medicare & Medicaid Services. (2013, January 10). More doctors, hospitals partner to coordinate care for people with Medicare. Available at:

3Muhlestein, D. (2013, February 19). Continued growth of public and private accountable care organizations. Health Affairs Blog. Available at:

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