Accountable Care Organization and Healthcare Costs

Subject: Administration and Regulation
Pages: 5
Words: 1113
Reading time:
4 min
Study level: College


An Accountable Care Organization (ACO) is a group of coordinated healthcare practitioners who offer quality care to Medicare patients in order to enhance health outcomes and lower medical costs. The main goal of ACOs is to lower the prevalence of medical errors and to ensure that unnecessary medical services are not repeatedly offered to patients. Examples of ACO programs offered under the Medicare program include ACO Investment Model, Advance Payment ACO Model, Pioneer ACO Model, and the Comprehensive ESRD Care Initiative. ACOs are being formed through partnerships between companies that offer managed care and physicians. These organizations have several benefits including the reduction of health care costs and the provision of quality health care.


The history of ACOs dates back to 2006 when the term was first used during a meeting of the Medicare Payment Advisory Committee. It was incorporated into the Patient Protection and Affordable Care Act, and in 2011, the United States Department of Health and Human Services (HHS) approved the first 32 ACOs (Cimasi 45). In 2013, the number had increased from 32 to 428 ACOs spread across 49 states. In 2016, there were 838 ACOs spread across the country serving about 28 million patients. The proliferation of these organizations can be attributed to reforms in the health care industry. Moreover, their value-based care reimbursement practices are attractive to many patients and stakeholders in the healthcare industry.

Overall Objectives

Accountable care organizations provide a framework that gives health care providers financial rewards for attaining specific benchmarks that are set by the HHS. The structure ensures that patients receive appropriate and timely care, while eliminating the probability of medical errors and unnecessary duplication of services happening (Cimasi 49). In that regard, the overall objective of ACOs is to provide coordinated care by facilitating the sharing of patient information between healthcare organizations and physicians. Health care providers partner with patients to improve the quality of health care decisions (Cimasi 56). In that regard, the patient is the center of care. ACOs aim to achieve specific quality measures that are focused on patient safety, coordinated care, use of preventive health services, enhancing care experiences for patients and caregivers, and improving care management for at-risk groups (Cimasi 66). Other objectives include chronic disease management, management of complex patients, and reduced hospitalizations.


An accountable care organization has a flexible structure that is based on a basic framework established by the Medicare program. Administrative, legal, and management groups work together to meet the objectives of the organization. According to Section 3022 of the Patient Protection and Affordable Care Act, an ACO must have the capability to serve at least 5,000 Medicare beneficiaries and develop a legal structure for distributing shared savings payments (Cimasi 51). The executive structure encompasses both administrative and clinical systems. The organizations also hire third parties to perform the various functions assigned. The organizations enter into contracts with care coordinators, staffing companies, billing companies, claims-management firms, and information-technology vendors (Davidson 59). Therefore, a legal team is needed.

Key Features

The key features of an ACO include local accountability, purchaser designation, shared savings, performance measurement, a culture of teamwork, primary care physicians, adequate administrative capabilities, information technology and data, and organizational capacity. Local accountability means that an ACO is accountable for the local care based on local cost and its quality benchmarks (Davidson 49). The organization is designated by a purchaser to be accountable to provide high-quality health care services at affordable costs. The sharing of savings with stakeholders is a key feature of ACOs. This is a payment incentive that encourages the strengthening of population health management and the reduction of medical cost. An ACO must have a team-oriented culture that encourages physicians and other health care providers to work together to improve medical care (Davidson 55). A successful organization must have adequate primary care physicians to take care of the needs of patients. A successful ACO has three categories of data, namely baseline, clinical tool, and performance measurement data. It is important for the organization to have a means of sharing information with other health care providers. The organization should also possess the capability to arrange and coordinate care, measure performance, control payments, and allocate shared savings (Davidson 64).

Impact on Reducing Health Care Costs

Accountable care organizations reduce health care costs while producing quality outcomes. Research has shown that value-based care promotes preventive care and reduces the length of hospital stays as well as the number of visits to emergency rooms (Davidson 72). ACOs are able to reduce the costs of medical services by investing more of their resources on population health management and the attainment of quality improvement goals. The quality performance benchmarks that are set by the Centers for Medicare & Medicaid Services (CMS) act as motivating factors that direct the actions of ACOs. Time and commitment are key factors in the attainment of cost savings from the program. Another positive impact of ACOs in reducing health care costs is the adoption of risk-based payment contracts that encourage responsibility and financial incentives. Physicians are motivated to improve their best practices and enhance quality performance in ways that reduce medical cost (Davidson 88). The integration of risk-based contracts and value-based care reimbursement is beneficial to patients because it possesses the potential to improve the quality of medical services.

ACOs lower the cost of medical care by reducing hospital admissions, lowering visits to emergency rooms, and improving population health management and patient outcomes (Davidson 98). For example, Medicaid ACOs focus a large percentage of their resources on disease prevention and wellness promotion. These aspects of health care delivery result in stronger population health outcomes. A healthy population experiences fewer cases of hospitalizations and visits to emergency rooms because diseases are unlikely to progress to stages that are costly to treat (Davidson 98). Moreover, they prevent the overuse of medical services that results in wasteful spending.


Accountable care organizations are groups of health care providers and organizations that provide coordinated care to patients in the Medicare program. They were founded in 2011 and have been growing rapidly in number in the last decade. The main objective of the organizations is to provide appropriate and timely care, while eliminating the occurrence of medical errors and unnecessary duplication of services, chronic disease management, and reduced hospitalizations. Key features of ACOs include primary care organizations, a team-oriented culture, performance measurement, financial incentives, adequate administrative capabilities, and local accountability. These organizations lower medical cost and improve health outcomes by reducing hospital admissions, lowering visits to emergency rooms, and improving population health management and patient outcomes. Disease prevention and wellness promotion are examples of activities that reduce medical costs and improve health outcomes.

Works Cited

Cimasi, Robert James. Accountable Care Organizations: Value Metrics and Capital Formation. CRC Press, 2016.

Davidson, Stephen M. A New Era in U.S. Health Care: Critical Next Steps under the Affordable Care Act. Stanford University Press, 2013.