October 10, 2016

Accountable Care Organizations

Accountable Care Organizations

General Overview

Now that we are well entrenched in the Affordable Care Act, we felt it important to take a step back and ponder what changes have occurred and how these changes have been instrumental in the development of Accountable Care Organizations.


The Medicare Shared Savings Program, which was established under Section 3022 of the Affordable Care Act, is intended to reward service providers and suppliers for high quality care while reducing healthcare costs. One voluntary avenue to participating in the Shared Savings Program is to create a new type of healthcare entity called an Accountable Care Organization (ACO). ACOs are groups of healthcare providers who work together to provide efficient, high quality care to Medicare beneficiaries.

Most ACOs consist of any combination of doctors, hospitals, nursing homes, and other Medicare providers and suppliers. Working together as a unit, the ACO can better coordinate care for Medicare fee-for-service beneficiaries by treating an individual patient across all care settings. One goal of this coordinated care is to provide higher quality care and increase positive outcomes for individual patients. Another goal is to ensure that the right care is provided at the right time, and that duplicate serves are not being provided, thus saving money. If both of these goals are met, the ACO is rewarded by sharing in some of the savings it has generated for the Medicare program.

How the Program Works

Each service provider and supplier continues to get paid under the standard Medicare Fee-For-Service payment system. In order to identify whether an ACO is eligible to receive a portion of savings, or responsible to pay back losses (under the two-sided models), CMS will compare current expenses to benchmarks that are based on historical expenditures for the types of beneficiaries the ACO cares for. In addition to identifying whether or not the ACO saved the Medicare program money and provided high quality care, each organization is also measured on its quality performance.

Quality performance is measured based on three main criteria: (1) better care for individuals; (2) better overall health for populations; (3) lower growth in healthcare expenses. ACOs are required to report quality measures to CMS and provide feedback to as to how they are continually improving care for their beneficiaries. Additionally, to ensure transparency, reports on organizations’ quality and financial performance can be accessed by the public on the CMS website.

If an ACO meets the established quality performance standards and saves the Medicare program money, then it is entitled to share in the savings for the assigned beneficiaries served. The percentage of savings it is entitled to depends on the particular ACO model in place.


The percent of savings an ACO may be eligible to share in is directly tied to the amount of risk it is willing to take. Under the Pioneer ACO Model, there are three tracks that the organization can choose from:

  • Track 1 is a one-sided model where an ACO is only eligible for shared savings, and not liable for any losses. This is the least risky model and has the lowest percentage of shared savings, with a maximum of 50%. Track 1 can only be utilized during an ACO’s initial 3-year agreement period.
  • Track 2 is a two-sided model, meaning the ACO will share in any savings or losses. This model is more risky than Track 1, so the maximum percentage of shared savings increases to 60%. Additionally, the organization will be liable for not less than 40% but no more than 60% of any shared losses.
  • Track 3 is also a two-sided model, adding a little more risk and reward than Track 2. In this model, the maximum share for both savings and losses increases to 75%.

Beginning in 2016, CMS introduced the Next Generation ACO Model for those who are very experienced in coordinating care for patients. There are two options of risk under this new model, both are more risky than any of the Pioneer models. Risk Arrangement A offers shared savings or losses up to 80%, and Risk Arrangement B offers shared savings and losses up to 100%, all subject to benchmarking and quality performance.

With healthcare expenditures skyrocketing year to year, CMS is looking into innovative ways to pair with service providers in order to contain increases in expense while providing higher quality care. By offering a chance to share in potential savings, CMS believes that ACOs are an attractive initiative where providers and government can work together to achieve a common goal.

The development of the ACO market place will continue to shape the future of the care delivery system throughout the country. One thing is for certain, participation is not an option but instead a necessity for survival.

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