accountable care organizations

Accountable Care Organizations are growing rapidly and are increasingly being recognized as a valuable part of the healthcare landscape. In a traditional payment system, providers are paid for every test, procedure, or service they provide, regardless of whether the patient needed it or not. ACO uses alternative payment models, such as capitation, to ensure that patients are receiving the best possible care.

With a huge 30% of healthcare spending considered wasted, there are many advantages to establishing an ACO. Compared to the current fee-for-service system, this new healthcare model helps reduce costs and improve quality care across the healthcare sector. They seek to improve patient engagement and clinical proficiency resulting in reduction of costs.

However, the current system has many problems. Accountable Care Organizations are not free from controversy. Moreover, there are financial incentives that can make them unpopular, and data challenges that need to be addressed. Considering the Accountable Care Organizations’ pros and cons is essential before making the final decision.


In the past few years, there has been much talk about Accountable Care Organizations (ACOs), and for good reason. ACOs have shared savings models in which payers and providers make arrangements to share the cost of care.

In exchange for sharing their cost data, healthcare providers receive a bonus if their costs stay below a set amount. ACOs are also subject to quality targets, so providers must meet them to receive bonus payments. ACOs don’t limit patients’ choices of doctors. Moreover, patients remain free to choose any other doctor they wish to see, and they are not locked into an ACO’s network.

The operating costs of an ACO vary widely. High-performing ACOs prioritize data interoperability and analyze claims data to identify opportunities to improve patient care and reduce system leakage.

While ACOs can build their own analytics tools, the cost of these utilities depends on the number of participants. On average, building analytics solutions in-house requires $24M upfront development. Annual costs for hiring analysts and data scientists are $6M.

Similarly, savings derived from ACOs vary greatly. The most commonly reported measure is the utilization savings. This measure reflects changes in provider patterns and relates to the ability of new payment models to improve healthcare utilization. However, it is important to remember that these savings are not purely internal and are shared between the payer and the ACO. They also tend to be lower than the savings from an ACO’s utilization. But the benefits of Accountable Care Organizations cannot be overlooked.


While hospitals and doctors’ groups claim to provide quality care, the question of how to define it is a difficult one. ACOs are a model of integration, designed to avoid the problems of previous efforts. Historically, ACOs were clustered around large hospitals, but these organizations have increasingly turned to doctor’s groups as their nucleus.

Primary care physicians, for example, understand patients better than most other physicians and are more likely to provide appropriate care. Pioneer ACOs include Atrius, a non-profit organization that has partnered with 32 hospitals and physicians to develop an organized care system for the purpose of sharing cost savings.

Pay-for-performance incentives are another important part of the ACO payment structure. While healthcare providers receive fee-for-service payments throughout the performance period, payers adjust those payments based on quality performance. Quality performance also determines eligibility for shared savings payments. Financial risk plays a key role here because ACOs tie payments to quality and hold providers financially responsible for their health care costs. The ACO payment structure requires physicians to provide higher quality care at lower costs.

Despite the many benefits of Accountable Care Organizations, it is difficult to implement a meaningful ACO without a strong reimbursement model. The reimbursement model, as designed by the Affordable Care Act, requires the healthcare system to bear the financial risk for quality care.

Financial Incentives

There are many financial incentives for accountable care organizations, including higher reimbursement and the opportunity to reduce costs. ACOs are more likely to be larger, have multiple payer contracts, and include a hospital.

However, the benefits of an Accountable Care Organizations contract go beyond financial incentives. For example, financial incentives may increase provider productivity and lower the cost of care by reducing hospital stays and emergency room visits. This is a significant goal for many providers, but ultimately, it will require a transition beyond ACOs to full financial responsibility.

ACOs have several types of members. Some are managed by insurers, while others are governed by physicians. Typically, the insurer is the sole payer for primary care, but a few ACOs receive capitated payments for all other care. Most of these ACOs are physician practices or hospitals with a long history of value-based care programs and an excellent track record of providing quality patient care. The current model is temporary and expires in 2026. ACOs are expected to serve two to three million Medicare patients by that time.

ACOs may choose to offer physicians financial incentives in exchange for quality scores. These measures can help reduce readmissions and improve hospital-physician alignment. In fact, many studies have indicated that ACOs can reduce leakage by as much as 10 to 30 percent. These programs can also extend to other parts of the healthcare system. So, why do hospitals want to be an ACO? Because they will receive more reimbursement and care management, they may want to invest in them.

As the ACO model begins to take shape, a number of challenges remain. The fundamental assumption underlying ACOs is that doctors work primarily for money, and this is an unproven assumption.

In reality, however, most physicians are motivated by other factors, which behavioral economists call intrinsic motivations. The incentives that come with an ACO undermine these intrinsic motivations. Ultimately, ACOs may encourage better quality care by promoting more integrated care and more efficient health services.

Data Challenges

The ACO model requires care providers to shift away from the siloed, disconnected nature of traditional medicine toward a coordinated, team-based approach. Health information technology is a critical enabler of the transition to the ACO model, supporting efficient data collection, analysis, and exchange.

Despite these improvements, data access remains a major challenge for ACOs. Identifying care gaps and tracking progress against program benchmarks require comprehensive data aggregation and analysis. Wait times can impede optimal performance.

The MSSP program requires that ACOs achieve financial and quality targets. These benchmarks are calculated by averaging historic expenses and risk-adjusted costs for an attributed population of patients.

While the ultimate goal of an ACO is to increase quality and lower costs, ACOs must successfully manage data to achieve these objectives. Some health systems refuse to share information and are resistant to ACOs’ requests for it. Moreover, Internet bandwidth and the adoption of electronic medical records vary widely across rural areas.

The ACOs also face a lack of standardized EHR systems. They would benefit from a single infrastructure that would integrate data from all participating providers. However, this is unlikely to happen unless member organizations work together to develop an infrastructure to synchronize data from multiple systems.

Data exchange technology could help ACOs achieve greater coordination and patient safety. Moreover, third-party payer investments in health information exchange technology could promote information sharing and analytics across multiple systems.

Accountable Care Organizations are built on collaboration and information sharing. These organizations are made up of various care sites and providers. They are typically a complex collaboration between care sites and providers, juggling different technologies and vastly varying levels of health IT sophistication.

The Pros and Cons of Accountable Care Organizations

The proponents of Accountable Care Organizations argue that they improve the quality of health care, increase access to quality providers, and decrease costs. But what are the cons?

As a healthcare provider, you may be wondering whether you should join one. If you are considering this option, you must be aware of the pros and cons of ACOs. The Medicare Shared Savings Program is the predominant model for ACOs in the U.S. ACOs are collaborative partnerships between providers who share patient records and cost information. The teamwork between providers cuts down on unnecessary testing and costs.

In addition, patients receive a care coordinator who ensures providers know what services they need. Patients will not have to repeat medical histories and undergo retake exams. Moreover, ACOs can result in significant cost savings, but only if the healthcare providers are willing to take on more risk.

Although the pros of Accountable Care Organizations outweigh the cons, the debate is still raging. Some providers are opposed to the idea, and others are recommending against it. The pros of Accountable Care Organizations are largely based on how they benefit patients. This new model involves grouping hospitals and other health care providers together to coordinate high-quality care for a large number of Medicare patients.

Among the pros of Accountable Care Organizations is reduced cost. It allows providers to focus on ensuring that patients get high-quality care, prevent medical errors, and cut unnecessary tests. It also reduces the burden on health care payers, since the ACOs are held financially responsible for the total costs of the patients they serve. In addition, if they can reduce costs through collaboration, they can receive a share of the savings. On the downside, ACOs can suffer losses if they go over budget benchmarks.

  • Ease of Use

ACOs help providers access and share critical patient information with other healthcare providers. This results in less paperwork and fewer hardcopy transfer of data. Electronic health records include CAT scans and MRIs, so collaborating with providers in an Accountable Care Organization can greatly benefit a patient’s health. However, the cost of building IT infrastructure can be prohibitive for some providers.

  • Risk-bearing Contracts

An ACO’s success depends on its ability to track its patients. In a risk-bearing contract, physicians must track patients from various facilities. As such, ACOs must develop data analytics and health information exchange capabilities.

See Also: 5 Most Common Billing Errors in Healthcare


ACOs are more than just a network of healthcare providers. The goal is to optimize the quality of care by analyzing data, eliminating gaps, and coordinating care across the healthcare continuum. Ultimately, they aim to increase patient safety and reduce costs while delivering better outcomes for healthcare dollars spent. Most ACOs comprise hospitals, specialists, nursing homes, and other healthcare facilities. And they may also reduce access to care for certain populations.

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