What is an ACO

The Accountable Care Organization (ACO) approach builds on current reform efforts including the patient centered medical home model and bundled payments. On their own, these initiatives may help strengthen primary care and improve care coordination, but they do not address the problem of supply-driven cost growth. These reforms adopted within an ACO framework of overall accountability for cost and quality would have added incentives to support higher-value care delivery.

How Does The ACO Model Work?

An ACO is a provider-led organization whose mission is to be accountable for the overall cost and quality for a full spectrum of care for a defined population. Prior research shows that most physicians already practice within referral networks around one or a few hospitals, paving the way for care coordination. ACOs provide support to provider organizations through shared savings to coordinate and deliver care in new ways that improve outcomes while reducing costs. Because the ACO framework offers a basic method of decoupling volume and intensity from revenue and profit, it is the first step to achieving a sustainable health care delivery system.

The ACO model relies on three major principles:

  • Local Accountability: ACOs include providers within a community that can provide or manage the full continuum of patients’ care, from preventive services to hospital-based and nursing home care. Patients are aligned with an ACO based on where they receive the majority of their care, and the ACO does not require patient “lock-in” or “opt-in” to any provider group maintaining full patient choice.
  • Shared Savings: ACOs that hit quality standards while slowing spending growth share the total savings with the payers. The shared savings model provides an incentive for ACOs to reduce expenditures through systematic efforts to improve quality and reduce costs across the organization. Spending benchmarks for the ACO’s patient population are based on historical spending patterns, making the local system accountable for cost, quality and capacity.  Savings can be reinvested (e.g., in health IT) to further improve care and slow cost growth.
  • Performance Measurement: ACOs must collect a core set of performance measures that can include clinical process measures, outcome measures, and patient experience measures. Measurement is essential to ensure that appropriate care is being delivered and that cost savings are not the result of limiting necessary care.

All ACOs must be capable of:

  • Providing or managing the continuum of care for patients as a real or virtually integrated delivery system.
  • Supporting comprehensive performance measurement and expenditure projections.
  • Internally distributing shared savings and prospectively planning budgets and resource needs.
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