Calling Something an ACO Does Not Really Make It So

Many who claim to be constructing such entities are really creating ‘clinically integrated organizations’

Organizations that are not aligned with the definition of an ACO can be more accurately described as clinically integrated organizations (CIOs). The major difference between the two is that true ACOs, by definition, are Medicare fee-for-service (FFS) entities only.

HMOs compared with ACOs
Authorization 1973 HMO Act 2010 Affordable Care Act
Number of plans 564* 220†
Membership 70,239,338‡ 4,000,000
Financial Arrangement
Payment Commercial, Medicare, Medicaid Medicare only
Financial responsibility All medical expenditures: hospital, medical and pharmaceutical Medicare Parts A & B only
Pharmaceuticals Responsible for Part B and D pharmaceuticals Not responsible for Part D pharmaceuticals
Level of risk Full risk, including pharmaceuticals Shared savings
Report card CMS 5-Star Rating for Medicare Plans 33 quality measures
Contracting period Typically 1 year 3 years
Member responsibility Stay within network Free to move among Medicare FFS providers
Membership assignment Voluntary member enrollment The Health and Human Services (HHS) secretary will assign Medicare FFS beneficiaries based on their utilization of primary care services
Leadership Large publicly traded corporations Physician-led organizations
Physician Participation May participate in several HMOs Only participate in one ACO
*United States: Number of HMOs, July 2011 Accessed February 26, 2013.
† Program news and announcements.
‡Total HMO Enrollment, July 2011 Accessed Feb. 26, 2013.

The term ACO is said to have been coined by the Medicare Payment Advisory Commission in late 2006. By 2009, it had found its way into several versions of health care reform legislation, eventually ending up in provisions of the Affordable Care Act (ACA). These provisions, in Section 3022 of the ACA under the title “Shared Savings Program,” authorized the Centers for Medicare & Medicaid Services (CMS) to create an ACO “program” by no later than Jan. 1, 2012.

Managed care executives need to be aware of ACOs primarily for two reasons: Many will be called upon to lead these new emerging ACOs, and many traditional managed care organizations (MCOs) will find themselves contracting with ACOs for services. While ACOs as defined in the Medicare Shared Savings Program contract with Medicare only, similar models have appeared in the commercial segment as well in the form of CIOs. These organizations are best described as joint ventures between a hospital and physicians in a clinically integrated system that accepts responsibility for the quality and cost of the care provided. CIOs can be reimbursed through Medicare, Medicaid, and commercial payers and since they do not have a specific operating definition, numerous variations in design can be seen. Whatever the design, the popularity of the accountable care models is exploding, with an estimated 10 percent of people (30 million) in the United States covered by either an ACO or a CIO. It’s important to note that of the 30 million, only about 3 million are covered under a true Medicare ACO.

Although the concept of the ACO is similar to that of a health maintenance organization (HMO), the ACO in the Medicare Shared Savings Program has been structured by the ACA to achieve three goals — better health, better care, and lower costs. The CMS expects that ACOs will help foster a new approach to delivering care that reduces fragmented or unnecessary care and excessive costs for Medicare FFS beneficiaries and other patients.

Although ACOs and HMOs share a great number of similarities, the major difference between them is how they are structured. HMOs are insurers that contract with providers, whereas ACOs are provider groups that contract with Medicare. ACOs can also contract beyond Medicare with HMOs to provide the same services to an HMO’s membership. In the end, providing services beyond FFS Medicare may be essential for an ACO’s survival, because many ACOs may find it impossible to successfully operate under the CMS rules — especially the rules that prohibit ACOs from restricting utilization of the patients they are responsible for. This inability of restricting patients means that patients can seek care outside of the ACO network for which the ACO is responsible.

CMS has established some broad structural requirements as to what groups can be considered ACOs. The following groups of providers of services and suppliers that have established a mechanism for shared governance are eligible to participate as ACOs under the program.

  • ACO professionals in group practice arrangements. An ACO professional is defined as a physician, as well as a physician assistant, nurse practitioner or clinical nurse specialist.
  • Networks of individual practices of ACO professionals
  • Partnerships or joint ventures between hospitals and ACO professionals
  • Hospitals that employ ACO professionals
  • Other groups of providers of services and suppliers as the HHS secretary determines appropriate

Beyond the variety of possible organizational structures for ACOs, the number of possible financial arrangements is equal to the number of possible organizational arrangements and can be implemented along a continuum of payment bundling and quality bonuses (See Figure 1). Although based on the shared savings approach, ACOs can also be paid in several other ways, including the following:

  • Bonus payment at risk. Receiving a bonus payment is contingent on quality and/or efficiency performance.
  • Market share risk. Patients are provided with incentives, such as lower copayments or premiums, to select certain providers, so providers not in the ACO risk losing market share.
  • Risk of baseline revenue loss. Providers face financial loss if they fail to meet certain cost or quality thresholds and/or if actual costs exceed targets.
  • Financial risk for patient population (whole or partial). Providers manage patient treatment costs for all or for a designated set of services within a predetermined payment stream and are at risk for costs that exceed payments.

Understanding the ACO structure with an eye on what the organization can deliver regarding coordinated care is going to be critical for MCOs. Armed with this information, MCOs could eventually contract with an ACO to provide services to the MCO’s own members more efficiently and effectively.


Devers K, Berenson R. Can accountable care organizations improve the value of health care by solving the cost and quality quandaries? Urban Institute website. Published October 2009. Accessed February 20, 2013.

Fisher ES, McClellan MB, Bertko J, et al. Fostering accountable health care: Moving Forward in Medicare. Health Aff. 2009;28:w219–w231.

McClellan M, McKethan AN, Lewis JL, Roski J, Fisher ES. A national strategy to put accountable care into practice. Health Aff. 2010;29(5):982–990.

Richard G. Stefanacci, DO, MGH, MBA, AGSF, CMD, is the chief medical officer at the Access Group. Scott Guerin, PhD, is the director of government policy systems at the Access Group.


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