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With the signing of the Patient Protection and Affordable Care Act (ACA) in March 2010, one area of the law that was not greatly discussed at the time was a new health care organization known as an Accountable Care Organization (ACO).

What is an Accountable Care Organization?

Accountable Care Organizations (ACOs) are groups of providers (doctors, hospitals, and other health care providers), who coordinate care and accept responsibility for the care of a population of patients. The goals of an ACO are to:

  • Improve the health of the population using evidence-based medicine;
  • Enhance the patient experience of care (including quality, access and reliability), while encouraging patient engagement;
  • Reduce, or at least control, the per capita cost of care.

The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.

When an ACO succeeds both in delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the program. This is also known as value based pricing or risk sharing.

One of the driving reasons for creating the ACOs was that the cost of the traditional Preferred Provider Organizations (PPO), Point of Service (POS) plans, Exclusive Provider Organizations (EPO) and some types of HMO’s costs were increasing due to the fee for service payment system. There was a general consensus among insurance companies and medical providers that a more efficient system could be developed that would limit the drastic increases in cost that healthcare has experienced over the last number of years.

Focus of the ACO

Doctors have traditionally treated each patient on the basis of need. In many cases the doctors are at a disadvantage because many patients don’t see a doctor on a regular basis. Serious conditions go undetected that otherwise could have been negated if treated earlier. The main focus of the ACO model is to have medical providers interact on a regular basis with their patients in order to eliminate serious and costly future medical conditions.

The ACO focuses on primary care which would include internal medicine, family medicine, general practice and pediatrics. Additionally, specialty physicians also participate in ACOs in the following areas: cardiology, endocrinology, oncology, pulmonology, gastroenterology, rheumatology, nephrology, and OB/GYN. The ACO will enter into a contract with an insurance company and together they will develop a set of matrixes based upon evidence-based medicine as a means to improve the population health of the ACO's patients. Some of those matrixes are as follows:

  • Outpatient surgeries/procedures performed at preferred (ambulatory) facilities
  • Reduction in avoidable hospital readmissions for medical and behavioral health
  • Avoidable emergency room utilization
  • Ambulatory condition admissions
  • Non-trauma admissions
  • 30-day readmissions
  • Outpatient laboratory tests/services
  • Radiology services at preferred (freestanding) facilities
  • Generic prescribing rate
  • Improvement in breast cancer screening
  • Improvement in colorectal screening
  • Improvement in cervical cancer screening
  • Improvement in diabetes Hba1c screening
  • Higher flu vaccination rates
  • Higher pneumonia vaccination rates
  • Improved Diabetes/Lipid screening
  • Other preventive care measures

The ACO will be judged on the basis of how well it succeeds in having patients comply with the matrix. It is believed that if these matrixes are followed by the population that costs will be reduced and the overall population will be healthier.

ACO Payments

The ACO’s compensation from the insurance company will work in the following manner. At the time the service is performed by the ACO, they will receive a payment for the service. However, at the end of the contract year that the ACO has with the insurance company, a complete analysis will be done to determine if the ACO successfully achieved their matrix. If this is the case, then the ACO will receive additional compensation because of the matrixes’ success. Some ACOs have had early success in both controlling the health of the population and receiving their additional compensation. As an example, AETNA’s Medicare Advantage Program reduced hospital admissions by 45% and hospital days by 50% and has stated that this produced an annual savings per ACO patient of $600.


As with other aspects of the ACA, the ACO has its detractors as well as proponents. Proponents of ACOs state that additional payments will have to be paid by the plan sponsor whether fully-insured or self-funded to incent the ACO. These additional payments would only be made if the ACO achieved success with their matrixes. It is anticipated that medical cost should be reduced by 5% to 8%. Generally, most insurance companies collect the additional premium in the course of the year. If, as an example, the ACO does not successfully manage their matrix, then the ACO will not receive additional payment. However, fully-insured plan sponsors will not receive a refund of the additional premium paid. Self-funded plan sponsors will receive all or a portion of the additional premium that they paid if the ACO is unsuccessful. Detractors state that the matrixes that have been developed should be a part of the normal routine of a competent medical provider. Medical providers state that they do not have the staff to treat patients in this manner due to the current fee structures they work under. However, the key complaint that detractors have is that there is no way to really measure the claims of reduced cost. As an example, if an individual is told to have a colonoscopy and does with negative results, how is the cost savings determined? There is no way to measure if this action reduced cost.

Another example that the detractors point out is that they are forced to have to include the providers additional compensation with their monthly payments to the insurance company whether or not the providers actually earns it. In any event the plan sponsor is paying for the claim as well as any other additional compensation for the success of the matrix of the ACO. The key question that detractors ask has the individual plan sponsor benefited from this arrangement?

ACOs recognize that in order to have negotiation power with insurance companies, they need to have critical mass. Over the last 4 years, ACOs have been buying doctors’ practices and hospitals in order to gain this critical mass. Clearly, if an ACO is a major player in a geographic region, they will be able to negotiate enhanced terms with insurance companies. Some detractors state that “bigger is better” really doesn’t serve the patient. It also must be stated that if the ACO doesn’t achieve matrix success, then they will not receive additional payment no matter how large or small they are.


Blue Cross, AETNA, United HealthCare and CIGNA are all heavily involved in developing ACO relationships. Additionally, Medicare and Medicaid will be adopting ACOs as their primary delivery system. As is the case with most of the ACA, only time will tell how effective this new delivery system will be in delivering cost efficient and competent health care.

For more information on this topic, please contact your local UHY LLP professional or the author of this article, John DePalma.