ACO Healthcare 101: A Guide for Providers
Deciding whether to join an Accountable Care Organization is one of the most critical financial decisions a modern practice can make. On one hand, the aco healthcare model offers the promise of shared savings, allowing you to earn more by delivering efficient, high-quality care. On the other hand, it comes with shared financial risk and potentially high startup costs for technology and new workflows. Is it the right move for your organization? To make an informed choice, you need a clear view of the potential return on investment and the operational hurdles. Here, we’ll weigh the financial benefits against the challenges.
Our healthcare system is undergoing constant change and there are always new technologies being introduced to increase efficiency for physicians and to improve medical care for patients. This innovation and creativity is a good thing. New software and hardware, as well as diagnostic, screening, and billing technologies promote healthy competition and make the medical field better. These technologies also increase efficiency and cost control while providing value for both patients and health care practices. After all, no industry ever improved by remaining stagnant. Thanks to America’s transition away from traditional fee-for-service (FFS) models, an increasing number of clinics and hospitals are implementing an accountable care organization or ACO model. The purpose of an accountable care organization is to provide value to patients. Instead of doctors trying to see as many patients as possible, ACOs encourage high-quality care, reduced waste, and better health outcomes for patients.
How an ACO Differs from a Health Plan
It’s easy to confuse an Accountable Care Organization with a traditional health insurance plan, but they operate on fundamentally different principles. While both structures involve networks of providers, their core objectives and the way they function set them apart. An ACO is a healthcare model focused on collaboration, where providers work together to deliver high-quality, coordinated care to a specific patient population. The goal is to improve health outcomes and reduce costs by being more efficient, not by restricting access. This collaborative approach directly impacts a practice’s financial health and operational workflow, making a streamlined revenue cycle management process essential for success within the model.
Unlike some restrictive insurance plans, ACOs, particularly within the Medicare system, are designed to preserve patient freedom. The emphasis is on enhancing the quality of care through better communication and teamwork among doctors, hospitals, and other healthcare providers. This model incentivizes providers for keeping patients healthy and managing chronic conditions effectively, shifting the focus from the volume of services provided to the value delivered. Understanding this distinction is the first step for any practice considering joining an ACO or for those who need to explain its benefits to their patients.
ACOs vs. HMOs
One of the most common points of confusion is the difference between an ACO and a Health Maintenance Organization (HMO). While both involve networks, their structures are distinct. According to UCSF Health, “An ACO is a partnership between physicians, hospitals, and insurance companies, created with the goal of improving quality and cost efficiency.” In contrast, “An HMO is a type of health plan structure that directs care to a network of physicians, hospitals, and other medical providers.” The key difference lies in the framework: an ACO is a collaborative partnership focused on outcomes, while an HMO is a plan type that primarily manages care by requiring patients to stay within a specific network, often needing referrals to see specialists.
Patient Choice and Medicare Rights
A major concern for patients when they hear their provider is joining an ACO is whether they will lose the freedom to choose their doctors. It’s crucial to communicate that this isn’t the case, especially for Medicare beneficiaries. The official Medicare website clarifies that even if a doctor is part of an ACO, patients retain the right to “visit any doctor, hospital, or other provider that accepts Medicare at any time.” Patients can also switch providers whenever they want and keep all their existing Medicare benefits. An ACO enhances care coordination for patients who choose to stay within the network, but it does not build walls that prevent them from seeking care elsewhere.
The Patient Experience in an ACO
For patients, being part of an ACO should feel like an upgrade to their healthcare experience. The primary change they might notice is a higher level of coordination among their various doctors and specialists. For example, a primary care physician can more easily share test results and treatment plans with a cardiologist in the same ACO, preventing duplicate tests and ensuring everyone is on the same page. This seamless communication is designed to lead to better, more proactive care. It also means that the administrative burden on the patient—like carrying records from one office to another—is significantly reduced, creating a smoother and more supportive healthcare journey.
From a provider’s standpoint, delivering this enhanced patient experience is a core objective of the ACO model. Success is measured not just by cost savings but also by patient satisfaction and improved health metrics. This requires robust internal processes for sharing information securely and efficiently, supported by strong revenue cycle administration. It also means front-office staff must be prepared to answer patient questions about what it means to be treated within an ACO, from how their data is protected to whether they will face any new costs. Clear communication builds the trust necessary for this collaborative care model to work effectively for everyone involved.
Patient Notification and Costs
When a provider joins an ACO, their patients are typically notified. This communication is an opportunity to explain the benefits of coordinated care. A common question that arises is whether this improved service comes with a higher price tag. The answer is no. As UCSF Health notes, “Being part of an ACO does not cost you any extra money for the services and support you can get.” The financial incentives of an ACO are structured to reward providers for efficiency and quality, which often translates into cost savings for the entire healthcare system, not additional expenses for the patient. This is a powerful and reassuring message for patients.
Protecting Patient Health Information
Effective care coordination relies on the secure sharing of patient health information among providers within the ACO. Naturally, patients may have concerns about their privacy. It’s important to assure them that all data sharing is done in strict compliance with privacy regulations like HIPAA. Secure electronic systems are used to ensure that only authorized personnel can access patient information for care-related purposes. As UCSF Health explains, “Only people who need to see your information for their job can access it.” This responsible handling of data is fundamental to building the trust required for patients to feel comfortable and confident in the ACO model.
How Does the ACO Value-Based Payment Structure Work?
An ACO is a group of physicians, hospitals, and other care providers who come together voluntarily to provide coordinated high-quality care to their patients. ACOs hold providers jointly accountable for the health of their patients by giving them incentives to cooperate and save money through avoiding unnecessary tests and procedures. There are several models of ACOs, both private and public, but the majority of them are part of the Medicare Shared Savings Program. Primary care practices can band together to form an ACO, or they can join forces with larger hospitals, integrated delivery networks, and in some cases even insurance companies. Accountable care organizations are usually federally backed and encourage voluntary participation. For organizations and practices that can successfully implement and operate an ACO, the potential benefits are huge. In Medicare’s traditional fee-for-service payment system, physicians and hospitals are paid for each test and procedure performed. This can drive up costs by rewarding providers for doing more, rather than rewarding providers for better outcomes that results in fewer procedures. ACOs don’t do away with fee-for-service payments, but they create an incentive for providers to be more focused on outcomes and less concerned with procedures by offering bonuses for keeping costs down. In addition, physicians and hospitals must meet specific benchmarks, with a focus on quality care, prevention, and carefully monitoring patients with chronic diseases. In essence, providers get paid more for keeping their patients healthy and out of the hospital. The preliminary results show an improvement in quality of care, with savings overall for patients, although the models are still evolving.
Key Medicare ACO Programs
Not all ACOs are created equal. Medicare offers a few different programs, so providers can find a model that really fits their practice and patient population. The most well-known is the Medicare Shared Savings Program (MSSP), which is the largest ACO program in the country. Then there’s the ACO Realizing Equity, Access, and Community Health (ACO REACH) Model, which is designed to improve care for underserved communities and tackle health disparities. There’s also a newer option, the ACO Primary Care Flex Model, which aims to give more support to primary care practices through more stable and flexible payments. While each program has a slightly different approach, they all share that core goal: better health outcomes at a lower cost.
How Shared Savings Are Distributed
The financial structure is what really makes an ACO different from the traditional fee-for-service world. Here’s the deal: when an ACO provides high-quality care and spends less than its Medicare budget, it gets to share in the money it saved. This “shared savings” model is a powerful incentive for providers to work together efficiently. But it’s a two-way street. In many ACO models, if a practice delivers care that leads to higher costs, it might have to share in those losses, too. Any savings an ACO earns can be reinvested to offer more patient services or distributed among the participating providers. Succeeding in this model really hinges on having a clear view of your financial and quality performance, which is where robust healthcare analytics become absolutely critical.
What Are the 3 Core Needs of an ACO?
Any successful accountable care organization has three key needs.
- Acceptance among clinical staff including an acknowledgement that the ACO delivery model requires changes and adjustments.
- An understanding of the needs of the population and the interventions required to improve the outcomes needed.
- The ability to track, communicate, and share information across the rest of the accountable care organization through technology.
Whether a practice joins an ACO or not, they should at least be knowledgeable about its existence and its place in the healthcare landscape. There are several pros and cons for providers when it comes to deciding if they want to participate in an ACO. Let’s take a closer look at some of the benefits.
The Pros: Why Join an Accountable Care Organization?
Earn More Through Performance Bonuses
The Center for Medicare and Medicaid Services distributed approximately $2.3 billion in performance payments to accountable care organizations in 2020 thanks to the Medicare Shared Savings Program (MSSP). Participation in the organization does not guarantee a bonus in and of itself, but Cigna did report that from 2008 through 2016, its accountable care program had $424 million in savings and a return on investment of 2-to-1.
Put the Focus Back on Patient-Centered Care
Nearly every accountable care organization is showing continued improvement when it comes to quality of care. And practices that meet Medicare’s ACO benchmarks will likely improve care for patients not previously covered by Medicare. As these practices change how they deliver care, they take on additional contracts that have value toward eventual bonus payments.
Improve How Patient Care is Delivered
One of the most significant benefits of an ACO is the shift toward truly collaborative care. These organizations bring together doctors, hospitals, and other health professionals to work as a unified team. This structure breaks down the communication barriers that can lead to fragmented care and redundant testing. When everyone involved in a patient’s journey is on the same page, the focus moves from simply treating sickness to proactively managing health. This coordinated approach ensures that care is not only higher in quality but also more efficient, helping to manage costs while prioritizing the patient’s overall well-being. The ability to track and share information across the organization is fundamental to making this model work.
Provide Expanded Patient Benefits
For patients, being part of an ACO can feel like having an extra layer of support. The model is designed to provide more than just appointments and prescriptions. Patients often gain access to expanded benefits like better management for chronic illnesses, more preventive health services, and dedicated support after a hospital stay. For example, a patient with diabetes might have a care coordinator who checks in regularly, or an elderly patient might receive follow-up calls after being discharged to ensure they understand their medications. This enhanced coordination between different doctors and specialists helps patients feel more secure and better equipped to manage their health, leading to improved outcomes and a more positive healthcare experience.
Address Health Equity
ACOs are uniquely positioned to address long-standing issues of health equity. By design, they encourage providers to look at the bigger picture of a patient’s life, including social factors that impact health, like access to safe housing or healthy food. Many accountable care organizations actively work to make healthcare more accessible for underserved communities through services like telehealth or home visits. By identifying and addressing these non-medical barriers, ACOs can connect patients with local social services and community resources. This holistic approach helps tackle the root causes of health disparities, working toward a system where everyone has a fair chance to be healthy, regardless of their circumstances.
Provide Better Care While Lowering Costs
ACOs are focused on providing quality outcomes while also reducing costs to payers and patients. Under ACOs, only necessary tests and procedure are ordered for patients. Reimbursement is based on quality rather than quantity. With the emphasis on coordination of care, providers can easily check to see which tests and services have previously been performed for a patient, thus reducing duplication.
Maintain Your Independence as a Practice
If you enjoy the independence that your practice brings and would prefer not to be part of a broader system, the accountable care organization structure can be an incentive to remain solely sustainable. Joining an accountable care organization allows physicians to access increased benchmark data that gives their practice the chance to analyze their progress on cost and quality measures. ACOs can be an attractive option for physicians looking to retain their independence while benefiting from collaboration with others delivering patient care. Despite all of these positives, accountable care organizations also have some downsides.
The Cons: What Are the Challenges of an ACO?
Prepare to Adjust Your Practice Operations
When you become part of an accountable care organization, you may have to adjust your established practices to become more focused on quality and cost savings, because an ACO is a value-based payment system, rather than the more common systems based on the volume of patients seen on a daily or weekly basis. This can be challenging for hospitals and physicians whose practices are designed around the fee-for-service system, because the basic purpose of ACOs is to reduce hospital stays, emergency room visits, and specialist and testing services—all ways that hospitals and physicians make money in the fee-for-service system.
Factor in Potentially High Startup Costs
The startup costs involved with joining an ACO can be prohibitively expensive for small practices, ranging into the millions of dollars. This depends, of course, on the size of the practice, as well as the practice’s geographic location and the infrastructure it already has in place. If your practice hasn’t gone digital yet, you’ll need to invest in the hardware and software needed to support an EHR. You’ll also need to have a health information exchange (HIE) system in place so that you can safely share patient information with other providers. Practices must also invest in care and disease management programs, which are particularly important for patients with chronic diseases. These costs can add up to millions of dollars, which explains why many ACOs are small practices joining with large hospitals that have greater resources, with available software and systems in place.
Understand the Expectation of Financial Risk
As ACOs have emerged as one of the most broadly implemented value-based payment models, the Center for Medicare and Medicaid Services has been pushing ACOs to take on more financial risk. CMS has designed a six-year Medicare Shared Savings Program ramp-up in which participants can gain the experience that comes with being part of the program, meaning they have the shared savings, but they also have the risk of losses. Ultimately, if an ACO is unable to reduce the cost of patient care, there will be no savings to share. This can adversely affect an ACOs operating budget. Even worse, an ACO may have to pay a penalty if it doesn’t meet certain quality and cost-saving benchmarks.
Is an ACO Right for Your Practice?
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Frequently Asked Questions
What’s the real difference between “shared savings” and “shared risk”? Think of shared savings as the reward for a job well done. If your ACO provides high-quality care and keeps costs below a set benchmark, you get a portion of that saved money back as a bonus. Shared risk is the other side of that coin. In models with shared risk, if your ACO’s costs go above the benchmark, you are responsible for paying back a portion of that loss. While risk can feel intimidating, many programs are designed to ease practices into it, allowing you to gain experience with shared savings first.
My practice is small. Are the high startup costs of joining an ACO unavoidable? Not necessarily. While investing in technology like an EHR is a significant expense, you don’t have to go it alone. Many smaller, independent practices join larger ACOs that are sponsored by hospitals or health systems. This allows them to access the necessary infrastructure, like data analytics platforms and care coordination teams, without shouldering the entire financial burden themselves. It’s a way to gain the benefits of the model while maintaining your practice’s independence.
How does joining an ACO change the day-to-day workflow for my clinical staff? The biggest shift is a move toward more proactive and collaborative teamwork. Instead of just treating patients when they’re sick, your staff will spend more time on preventive care and managing chronic conditions. This involves more communication between providers, regular patient follow-ups, and using data to identify at-risk patients. It requires an adjustment from a volume-based mindset to one focused on value, which means workflows will be built around care coordination and patient outcomes rather than just the number of appointments.
How can I best explain what an ACO is to my patients without confusing them? Keep it simple and focus on the benefits to them. You can explain that you’ve joined a team of doctors who are working together more closely to keep them healthy. Reassure them that their Medicare benefits and their freedom to choose any doctor who accepts Medicare will not change. You can highlight that this teamwork helps prevent duplicate tests and ensures all their doctors are on the same page, which means a better, more coordinated healthcare experience for them at no extra cost.
What are the most important metrics my practice should track to succeed in an ACO? Success in an ACO is measured by both quality and cost. You’ll need to closely monitor quality metrics, such as patient satisfaction scores, preventive screening rates, and how well you manage chronic diseases like diabetes. On the financial side, you should track key indicators like hospital readmission rates, emergency room visits, and the total cost of care per patient. Having strong analytics in place to watch these numbers is essential for identifying areas for improvement and maximizing your shared savings potential.
Key Takeaways
- Understand the financial model’s risks and rewards: ACOs operate on a value-based system, offering shared savings for delivering high-quality, cost-effective care. This also means your practice must be prepared for shared financial risk if cost and quality benchmarks are not met.
- Improve patient care through true collaboration: The foundation of a successful ACO is coordinated care, where doctors, hospitals, and specialists work as a unified team. This approach reduces duplicate services, improves communication, and helps proactively manage patient health.
- Prepare for significant operational and tech updates: Joining an ACO requires more than a signature; it demands adjusting your practice’s daily workflows, investing in technology for secure information sharing, and adapting to a new system of performance measurement.
