Accountable Care Organizations – An Overview – What Every Physician Needs to Know

One of the biggest healthcare buzz phrases in recent memory is ACO, or accountable care organization. Since the Affordable Care Act was passed in 2010, hospitals and doctors throughout the United States have wondered about and debated the merits of a concept that, in theory, could save Medicare as much as $940 million over the first four years of the program. It is in every physician’s best interest to know how it will affect his or her practice in particular, and health care in America in general.

What, exactly, is an ACO? In short, it is a network of doctors and hospitals working together to coordinate diagnostic and treatment services for patients. According to the rules laid out in the Affordable Care Act, an ACO must agree to provide health care for no fewer than 5,000 fee-for-service (not Medicare Advantage) Medicare beneficiaries for three years at a minimum. Since the revised regulations were unveiled by the Department of Health and Human Services in October 2011, physician groups and hospitals around the country have scrambled to piece together networks of specialists, diagnosticians, primary care physicians, and other healthcare providers in order to have new ACOs in place by the time the program launches in April 2012.

The ACO concept means different things to different groups.

For patients, it means rather than receiving “piecemeal” health care – a primary care physician under one umbrella, specialists and diagnostic services under different umbrellas entirely – they receive the full span of health services from one integrated group. It is similar to the concept of coordinated care groups, only on a much larger scale. The theoretical upshot for patients is a potential reduction in duplicative or irrelevant testing – testing that might be carried out under the prior Medicare system without a second thought.

For doctors and hospitals, it means several important things. First, each physician or specialist is “accountable” to other members of the ACO for keeping costs down and quality of service at an acceptable level.  The goal of an ACO is to coordinate patient care and to shift the historical financial incentives for healthcare away from ordering tests and performing numerous procedures to more preventive care and careful management of chronic diseases.

Second, financial incentives reward those who meet specified benchmarks for quality of care.  The financial rewards that can be received by ACOs are based on two components: 1) Savings that the ACO achieves over what Medicare projected that it would have paid with respect to the ACO’s patient population under the fee-for-service system; and 2) Quality and coordination of care provided.  During the initial three year contract period, the fee-for-service payment system will continue along with the financial rewards.  ACOs that continue after the first three year contract period will also be required to share risk (i.e. to pay back a portion of the fee-for-service income received if the amount exceeds the benchmarks).

One advantage ACO supporters have trumpeted is that doctors and hospitals – rather than insurance carriers – would be in control of the program. This is the essential difference between an ACO and an HMO, but it does not mean insurance companies are relegated entirely to the sideline when it comes to administering this new style of healthcare coordination. In fact, many insurance carriers around the country have announced plans to form their own ACOs for the private market. Insurers tout their ability to collect and track patient data and provide reliable reports as valuable assets to any effort to create a new ACO.

The bottom line for physicians is that ACOs will undoubtedly change the landscape of health care in the United States. It remains to be seen exactly how sweeping these changes will be, and how quickly change will take effect on a grand scale. The one certainty is that healthcare providers must pay close attention and decide how best to position themselves in relation to ACOs over the coming months.

Amol Nirgudkar, CPA, is the managing partner of Reliance Consulting LLC (  He can be reached at (813) 931-7258 or via email at

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