What is an Accountable Care Organization (ACO)?

Q: What is an Accountable Care Organization (ACO)?

An Accountable Care Organization (ACO) is a group of healthcare providers who coordinate care to improve quality and reduce costs. They are rewarded for meeting performance benchmarks, not for delivering more services.

Q: Who participates in an ACO?

ACOs typically include primary care providers, hospitals, specialists, behavioral health providers, post-acute care organizations, and data infrastructure partners.

Q: How do ACOs save money?

ACOs reduce costs by improving care coordination, minimizing redundant services, avoiding hospital readmissions, and identifying at-risk patients through data analytics.

Q: What is the Medicare Shared Savings Program (MSSP)?

The MSSP is Medicare’s main ACO program. It allows participating organizations to share in cost savings or losses depending on how they perform relative to spending and quality benchmarks.

Q: Do patients know they are in an ACO?

Yes, patients are notified if they are attributed to an ACO, but they can still see any Medicare provider. ACOs do not restrict provider choice.

An Accountable Care Organization (ACO) is a group of doctors, hospitals, and other healthcare providers who voluntarily come together to deliver coordinated, high-quality care to patients. ACOs aim to ensure that patients—especially those with chronic or complex conditions—get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.

When an ACO succeeds in improving quality and reducing healthcare costs, it may share in the savings it generates for the payer, such as Medicare or a commercial insurer. This approach shifts the focus from volume-based care to value-based care, aligning financial incentives with patient outcomes.

Key Components of an Accountable Care Organization

Accountable Care Organizations are built around several foundational elements that enable collaborative, value-based care:

Participating Providers: ACOs are made up of doctors, hospitals, and other healthcare professionals who voluntarily join together to coordinate care.
Care Coordination Infrastructure: ACOs use shared data systems and team-based workflows to reduce duplication of services and improve care transitions.
Performance Measurement: ACOs track quality metrics such as hospital readmissions, preventive screenings, and patient experience to assess performance.
Shared Financial Risk: Many ACOs operate under payment models where they can share in cost savings or take on risk for overspending—aligning incentives with outcomes.
Accountability to a Payer: Most ACOs have formal agreements with Medicare or commercial insurers that define benchmarks, quality targets, and reporting requirements.

Together, these components aim to reduce unnecessary spending while improving patient health outcomes—especially in populations with chronic conditions or high complexity.

How Accountable Care Organizations Work in Practice

In a typical ACO, participating providers agree to take collective responsibility for the cost and quality of care for a defined patient population. Here’s how the model works in practice:

Patient Attribution
Patients are assigned to an ACO based on where they receive the majority of their primary care—usually through claims data or EHR integration.
Care Coordination
ACOs emphasize communication between providers, including shared care plans, referral tracking, and discharge follow-up to reduce fragmentation.
Data Sharing and Analytics
ACOs rely on real-time access to clinical and claims data to identify care gaps, manage risk, and support population health strategies.
Quality Reporting
Performance is measured using standardized metrics such as hospital readmissions, diabetes control, and preventive screening rates.
Financial Incentives
If the ACO succeeds in improving outcomes and lowering costs compared to benchmark spending, it may receive a portion of the savings—shared among participants.

Diagram showing the structure of an Accountable Care Organization (ACO). A central ACO block is connected by arrows to six components: Primary Care Providers, Specialist Groups, Hospitals/Health Systems, Behavioral Health Providers, Post-Acute/SNFs, and Data & Analytics Infrastructures.

Benefits and Challenges of Accountable Care Organizations

Benefits of ACO Participation

Improved Care Coordination: Shared infrastructure and incentives reduce fragmentation and encourage aligned treatment plans.
Cost Savings Opportunities: ACOs can share in payer savings when they lower total cost of care while meeting quality benchmarks.
Population Health Management: Access to claims and clinical data supports risk stratification and proactive outreach.
Quality Performance Transparency: Standardized metrics allow providers to benchmark outcomes and improve over time.
Regulatory Alignment: ACOs support Medicare quality initiatives and commercial value-based care contracts.

Challenges of ACO Participation

Data Integration Complexity: Aggregating EHR, claims, and social data across entities requires significant infrastructure.
Shared Risk Models: Downside risk contracts require strong financial and clinical oversight to avoid penalties.
Care Standardization: Aligning workflows and practice patterns across independent providers can be difficult.
Patient Attribution Gaps: Patients are not always aware they’re part of an ACO, which can affect engagement and outcomes.

How Accountable Care Organizations Are Reimbursed

Accountable Care Organizations participate in alternative payment models that reward performance rather than volume. Most ACOs operate under shared savings and shared risk agreements with payers like Medicare or commercial insurers.

Under this model:

The ACO is assigned a population of patients
A spending benchmark is established based on historical costs and risk adjustment
If the ACO delivers care for less than the benchmark while meeting quality standards, it may keep a portion of the savings
In risk-bearing arrangements, the ACO may owe money back if it overspends or underperforms

Common ACO Payment Models:

One-sided risk (upside only): Eligible for shared savings, but not liable for losses
Two-sided risk (upside + downside): Greater potential rewards, but also financial penalties for exceeding targets
Capitation / global budgets: Some advanced models provide fixed per-member-per-month payments tied to performance

These reimbursement approaches are core to value-based care and encourage providers to manage total cost of care across a full patient journey—not just within isolated encounters.

Frequently Asked Questions about ACOs

1. What is an Accountable Care Organization (ACO)?

An ACO is a group of healthcare providers who agree to work together to coordinate care and improve quality while reducing costs. They are rewarded based on performance, not volume.

2. Who participates in an ACO?

ACOs typically include primary care providers, specialists, hospitals, behavioral health providers, post-acute care organizations, and data infrastructure partners.

3. How do ACOs save money?

By reducing unnecessary tests and procedures, improving care coordination, and avoiding hospital readmissions, ACOs can lower total cost of care. If they meet quality standards, they may keep a portion of those savings.

4. What is the Medicare Shared Savings Program (MSSP)?

The MSSP is Medicare’s flagship ACO program. It allows ACOs to share in savings (and sometimes losses) based on their performance compared to a defined spending benchmark.

5. Do patients know they are in an ACO?

Patients are attributed to ACOs based on where they get most of their primary care. They are notified but can continue seeing any Medicare provider—they are not locked into a network.