An Accountable Care Organization is a group of clinicians who have organized themselves in a way that enables them to take accountability for the overall quality of care and the total cost to payers of all or most of the healthcare services needed by a group of patients over a period of time. In the Affordable Care Act, Congress authorized the use of different methods of paying for services to Medicare beneficiaries if the clinicians are part of an Accountable Care Organization that meets specific eligibility criteria established in the statute and in regulations promulgated by the Centers for Medicare and Medicaid Services (CMS). However, the term Accountable Care Organization is also used to describe clinician organizations that may not meet all of the standards established in the Medicare Shared Savings program but are measuring and managing the cost and quality of services for their patients. An Accountable Care Organization is not a payment model — it is an organizational structure designed to deliver care in a different way.

An Accountable Care Organization is not a payment model — it is an organizational structure designed to deliver care in a different way.

Although CMS is paying clinicians that meet its ACOs standards using a shared-savings payment model, the Affordable Care Act authorized the use of other payment models for ACOs in the Medicare program, including partial capitation. A number of clinicians who have defined themselves as an Accountable Care Organization are participating in payment contracts with commercial health insurance plans, Medicaid programs, etc. that use payment models different from the payment model used in the Medicare Shared Savings Program. Moreover, clinicians do not need to form an ACO in order to participate in a shared savings payment model, since many payers, including CMS, are using shared savings payment models to pay individual physician practices and hospitals that are not part of an Accountable Care Organization.

While CMS has defined an Accountable Care Organization as a group of clinicians that includes primary care physicians and that takes accountability for the costs of all services associated with the patients attributed to those primary care physicians, the term Accountable Care Organization is also used to describe a group of specialists who take accountability for all of the costs related to a particular health condition, such as cancer.

• Next Generation ACO. The Next Generation ACO Program is a demonstration program announced by the Center for Medicare and Medicaid Innovation in 2015. It offers multiple payment options, including a capitation payment model, and it requires clinicians to accept virtually full performance risk and some insurance risk for the population of Medicare beneficiaries assigned to the ACO.
• Pioneer ACO. A Pioneer ACO is a clinician organization participating in a special demonstration program with the Center for Medicare and Medicaid Innovation using a shared-savings payment model with different rules than those that apply to clinician organizations participating as ACOs in the Medicare Shared Savings Program.
• Track 1 ACO. In the Medicare Shared Savings Program, a “Track 1 ACO” is an Accountable Care Organization that is eligible for a shared savings payment if savings are achieved, but the ACO is not liable to make payments to CMS if spending increases (i.e., Track 1 is an “upside-only” shared savings model).
• Track 2 ACO. In the Medicare Shared Savings Program, a “Track 2 ACO” is an Accountable Care Organization that is eligible for a shared savings payment if savings are achieved, but the ACO is also liable to make payments to CMS if spending increases (i.e., Track 2 is a “shared risk” payment model).
• Track 3 ACO. In the Medicare Shared Savings Program, a “Track 3 ACO” is an Accountable Care Organization that is eligible for a shared savings payment if savings are achieved and is liable to make payments to CMS if spending increases, but the ACO receives a greater share of savings and is liable for larger payments to CMS than a Track 2 ACO.

ACO vs. HMO vs. PPO.

There are a number of important similarities and differences between ACOs, HMOs (Health Maintenance Organizations), and PPOs (Preferred Clinician Organizations):

An ACO is generally based on a self-defined network of clinicians, whereas in most HMOs and PPOs, the network is defined by a health plan.
In the Medicare Shared Savings Program and most commercial ACOs that are part of PPO health plans, an ACO cannot limit a patient’s ability to use clinicians that are not part of the ACO, whereas the primary care clinicians in an HMO typically have the ability to limit which services a patient can receive and from which clinicians they can receive approved services. In the Medicare Shared Savings Program, a Medicare beneficiary remains able to use any Medicare clinician, and in most commercial ACO programs, a commercially- insured patient can continue to use any clinician in the network of clinicians that is under contract to the payer.

In an ACO that is paid through shared saving programs, there is no change to the underlying fee-for-service payment structure for the clinicians in the ACO. In contrast, in many HMOs, a clinician group receives a capitation payment that it can use to pay its physicians and other clinicians in different ways.