Accountable Care Organizations — Transforming Healthcare Delivery

Pritchard, John I.
The Journal of Healthcare Contracting
ACO Insights
Also by this Author 

The emergence of Accountable Care Organizations (ACOs) represents a significant shift in the way healthcare is delivered in the United States. John Pritchard, Publisher, ACO Insights, discusses the emergence of ACOs and the promise they hold for reducing cost, increasing quality and enhancing the patient experience. 

Coordinated  Care

 “An ACO is a group of providers that agree to be jointly responsible for the quality, cost and overall care of patients within a defined geographical area,” explains Mr. Pritchard. “The composition of each ACO is different based on local needs and the types of providers it comprises but one common characteristic will be its ability to coordinate care across the patient continuum.”

Through better coordination of care, ACOs can help move healthcare delivery away from a fragmented system, based on episodes of care, to a more cohesive approach focused on improving overall cost and quality outcomes. For this reason, the establishment of ACOs is a key component of healthcare reform. They are identified in the Affordable Care Act as one of the new models of care delivery to provide better care for individuals, better health for populations and lower growth in Medicare expenditure. This approach is referred to as “the three- part aim” in the final rule of the Affordable Care Act.1

There are certain minimum requirements organizations need to meet to qualify as an ACO. These include establishing a legal structure, having the capability to receive and re-distribute shared savings, and covering a minimum of 5,000 lives. There also needs to be a management structure in place, together with the appropriate clinical and administrative systems, to support an evidence-based approach to medicine: the capability to gather and report data to enable the Department of Health & Human Services (HHS) to evaluate their performance against quality and cost measures.1

Shared Savings

Providing financial incentives for ACO constituents to reduce cost and improve quality is an important aspect of healthcare reform. The basis for these incentives is outlined in the Shared Savings Program, a component of the Affordable Care Act, which states that if ACOs meet quality and savings requirements, the Medicare Program can share a percentage of the achieved savings with the ACO. ACOs will only share in savings if they meet both the quality performance standards and generate shareable savings.2

“The basic premise of the Shared Savings Program is really to take a first step away from strict fee-for-service reimbursement to what has been termed ‘value-based purchasing’,” says Mr. Pritchard. “It’s really designed to improve beneficiary outcomes and increase the value of care.” This can be achieved by fulfilling three requirements: accountability for the care of Medicare beneficiaries; coordinated care for all services provided under Medicare fee-for-service; investment in infrastructure and redesign of care processes.3

“The shared savings will incentivize organizations to truly own the health and well-being of their covered population instead of treating each episode of care in isolation,” continues Mr. Pritchard. “We’re fundamentally changing the way we’re reimbursing our hospitals to provide care, changing the equation whereby increasing volume automatically translates to increased revenue.”  As Don Berwick former administrator of the Centers for Medicare & Medicaid Services(CMS) said when announcing the introduction of ACOs,”It’s not how much you do but how well you do, that determines the rewards you get form CMS.”4

ACO Models

Since ACOs are designed to handle the whole continuum of care, they need to include providers of primary and acute care, as well as post-acute and long-term care. Pritchard indicates that the most common type is hospital-driven, where a large hospital or health system in a particular area takes the lead in its formation. In these cases the hospital system needs to supplement its range of acute care services by partnering with, or purchasing, primary care and specialist physician practices to fill any gaps in care delivery. In fact, many hospitals have been partnering with or buying physicians practices in recent years in anticipation of this need. Other types of ACOs will be physician-led, based on either a large physician group practice or a hospital, that is owned and run by physicians.

Some ACOs may include payers or employers as other stakeholders. There are already several examples of ACOs where providers are partnering with insurers. In Kentucky, Norton Healthcare has partnered with Humana for care delivery in the Louisville area5, while in Atlanta, Piedmont Physicians Group has partnered with Cigna to form an ACO, which covers approximately 10,000 people in Cigna health plans.6 The inclusion of major employers in ACOs is a development Pritchard expects to see. Partnerships in recent years between large employers and large providers such as those between Lowe’s Companies Inc. and the Cleveland Clinic7 or PepsiCo and Johns Hopkins8 are an indicator that employers are seeking non-traditional approaches to improve quality and control the cost of healthcare.

Proactive Providers

Pritchard believes these changes will translate to a far more proactive approach to patient care. “I think patients are going to see a far more complete view of their care, such as the way providers interact with them to ensure compliance to treatment or therapy. Providers will need to gather comprehensive data to share with disease management specialists who can can analyze outcomes and adjust care for a defined population.”

For providers, participation in an ACO means that delivering excellent care isn’t just an option, it’s a requirement. The federal government and private payers are forcing hospitals and physicians to develop and implement quality measures. To ensure that savings are achieved through improving and providing care that is appropriate, safe, and timely, an ACO must meet strict quality standards.  For 2012, CMS has established 33 quality measures relating to care coordination and patient safety, appropriate use of preventive health services, improved care for at-risk populations, and the patient and caregiver experience of care.9

Beyond The Point Of No-Return

In December 2011 the U.S. Department of Health & Human Services (HHS) announced that 32 health care organizations, already experienced in coordinating care across different settings, will participate in a new Pioneer ACO Initiative.10 This initiative will allow provider groups to move from a shared savings payment model to a population-based payment model with higher levels of shared savings and risk than those proposed in the Shared Savings Program. In year three of the program, participating ACOs that have shown a specified level of savings over the first two years will be eligible to move a substantial portion of their payments to a population-based model.

In April 2012 it was announced that an additional 27 ACOs have entered into agreements with CMS, to take on responsibility for Medicare beneficiaries as part of the Shared Savings Program.11 They will serve an estimated 375,000 beneficiaries in 18 States in return for the opportunity to share in savings realized through improved care. Combined with the 32 Pioneer Model ACOs, and six Physician Group Practice Transition Demonstration organizations that started in January 2011, this brings the total number of organizations participating in Medicare shared savings initiatives up to 65, with responsibility for more than 1.1 million beneficiaries. Applications have been received for formation of an additional 150 ACOs.

Given this momentum, it’s no surprise that Mr. Pritchard believes we have passed the point of no return. “We’ve now found a way to bring rational economic drivers into the way we buy healthcare. We’ve seen we can bend the cost curve, while improving care for the patient, the genie is out of the bottle. No matter what the Supreme Court rules about healthcare reform, patients, employers and commercial payers are going to be demanding this kind of value-based purchasing.”


  1. Department Of Health And Human Services, Centers for Medicare & Medicaid Services. Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations. Federal Register. 76 [212];2011. 67802-67990
  2. Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations and Medicare Program: Waiver Designs in Connection With the Medicare Shared Savings Program and the Innovation Center; Proposed Rule and Notice. Department of Health and Human ServicesCenters for Medicare & Medicaid Services. Federal Register. 2011 76 [67] 2011. 19528-19654
  3. Centers For Medicare & Medicaid Services. Shared Savings Program
  4. Center For Medicare & Medicaid Innovation. Accountable Care Organizations.
  5. Norton Healthcare and Humana Launch Accountable Care Organization in Louisville, Ky. Program intended to increase quality and efficiency of health care
  6. Cigna and Piedmont Physicians Group Launch Accountable Care Organization Pilot Program in Atlanta for Better Care Coordination
  7. Lowe’s Expands Heart Healthcare Benefits with Cleveland Clinic.
  8. Johns Hopkins Medicine to Offer PepsiCo Employees New Travel Surgery Benefit.
  9. Centers For Medicare & Medicaid Services. Fact Sheets.
  10. Center For Medicare & Medicaid Innovation.Selected Participants in the Pioneer ACO Model. December 19, 2011
  11. Centers For Medicare & Medicaid Services. Press Releases.April 10, 2012

Released on Tuesday, May 29, 2012