An Accountable Care Organization, or ACO, is a group of doctors, hospitals, and other health care providers who voluntarily come together to give coordinated, high-quality care to a defined patient population. The basic deal is straightforward: if the ACO keeps its patients healthy and spends less than a predetermined spending target, it gets to keep a share of the savings. If it spends more than the target, it may owe money back, depending on the contract. The model flips the usual incentive in health care, where providers earn more by doing more, and instead rewards them for doing better with less.
The Financial Engine Behind an ACO
Every ACO operates against a spending benchmark, essentially a budget for the total cost of care for its attributed patients. In the Medicare Shared Savings Program (MSSP), the largest ACO program in the country, that benchmark is calculated using historical spending data for the ACO’s patient population, adjusted for regional spending patterns. Starting in 2017, Medicare began incorporating regional spending into those benchmarks, which favored the participation of ACOs and practices whose baseline spending was already lower than their surrounding region.1PubMed Central. Benchmarking Changes And Selective Participation In The Medicare Shared Savings Program That design choice matters: it means ACOs in already-efficient areas have an easier time earning bonuses, while those in high-spending areas face a steeper climb.
When total spending for the ACO’s patients comes in below the benchmark, the difference is “savings.” The ACO shares a percentage of those savings with the payer (Medicare, a commercial insurer, or Medicaid, depending on the contract). How large a percentage depends on which risk track the ACO has chosen and how well it scores on quality metrics. Quality scores are directly tied to the payout: research on the MSSP found that each additional percentage point in quality score was associated with roughly a dollar more in per-beneficiary shared savings earnings.2PubMed Central. Clinician Specialties, Quality Score and Shared Savings Receipt in Accountable Care Organizations In other words, an ACO that cuts costs but lets quality slip will see its bonus shrink.
One-Sided Risk Versus Two-Sided Risk
Not all ACOs accept the same financial stakes. In a one-sided risk arrangement, the ACO can earn shared savings if it beats its benchmark, but it does not owe anything back if it overspends. This is the training-wheels version: lower reward, but no downside exposure. In a two-sided risk arrangement, the ACO shares in both the savings and the losses. If spending exceeds the benchmark, the ACO writes a check back to the payer.
The tradeoff is real. A longitudinal analysis of MSSP participants from 2013 through 2022 found that ACOs that switched from one-sided to two-sided risk generated roughly 4% greater savings, scored about 1.7% higher on quality measures, and earned about 1.5% more in shared savings compared with ACOs that stayed in the one-sided model.3Accounting, Organizations and Society. Performance of risk-based models in value-based healthcare: Evidence from accountable care organizations The added financial pressure appears to sharpen focus. But it also raises the stakes considerably, and not every organization has the reserves or the infrastructure to absorb a bad year.
Medicare has been nudging ACOs toward two-sided risk over time. The program’s trajectory is clear: newer payment models increasingly require downside risk as a condition of participation, on the theory that skin in the game produces better results. Whether that push inadvertently excludes smaller or less-resourced organizations is a separate question, and one worth watching.
How Patients End Up in an ACO
If you are a Medicare beneficiary attributed to an ACO, you probably did not sign up for it. Attribution is the process by which a payer assigns patients to an ACO, typically based on where the patient gets most of their primary care. If you see a particular primary care doctor for most of your visits, and that doctor participates in an ACO, you are likely attributed to that ACO for spending and quality purposes. You can still see any doctor you want, go to any hospital, and use any specialist. Your freedom of choice does not change. What changes is that the ACO is now accountable for the total cost and quality of your care, even for services delivered outside its network.
Attribution can happen prospectively (at the start of a performance period, based on prior utilization patterns) or retrospectively (at the end, based on where the patient actually received care during the period). The choice matters more than it sounds. In a Medicaid simulation, retrospective attribution captured a population about 50% larger than prospective attribution but with lower average per-person costs.4JAMA Network Open. Analysis of North Carolina Medicaid Claims Data to Simulate a Pediatric Accountable Care Organization Prospective attribution gives the ACO a defined roster to plan around, but it may miss patients who drift in. Retrospective attribution catches a broader swath of patients, but the ACO does not know exactly who it is responsible for until after the fact. The method affects which care management strategies work best, because an ACO that does not know its full patient list until year-end will struggle to proactively coordinate care for everyone on it.5PubMed. Prospective or retrospective ACO attribution matters for seriously ill patients
What ACOs Actually Do Differently in Care Delivery
The financial model only works if the ACO changes how care is delivered. The most consistent effects across multiple studies and payer types have been reduced hospital admissions, fewer emergency department visits, and improved preventive care and chronic disease management.6PubMed. Impact of Accountable Care Organizations on Utilization, Care, and Outcomes: A Systematic Review The logic is intuitive: keeping people out of the hospital is the single biggest lever for reducing total cost. An ACO that invests in better diabetes management, for instance, avoids the expensive downstream complications that land patients in the ER or on an operating table.
Surgical readmissions illustrate this clearly. A study of hospitals participating in the MSSP found that ACO-affiliated hospitals saw a larger decline in 30-day readmission rates after major surgery than non-ACO hospitals, translating to an estimated 4,410 avoided rehospitalizations.7PubMed Central. Association between hospital participation in Medicare Shared Savings Program Accountable Care Organizations and readmission following major surgery Those are real patients who did not have to go back to the hospital, and real costs that Medicare did not have to pay.
Beyond utilization numbers, ACOs that cultivate a patient-centered culture appear to get better results for complex patients. Among adults with both chronic physical conditions and mental health diagnoses, those treated at ACO practices with strong patient-engagement cultures reported better physical functioning compared with practices that scored lower on patient-centeredness.8PubMed Central. Patient Engagement in ACO Practices and Patient-reported Outcomes Among Adults With Co-occurring Chronic Disease and Mental Health Conditions The ACO model creates a reason to invest in things that fee-for-service medicine historically undervalues: care coordination, follow-up calls, health coaching, and building relationships with patients who have complicated needs.
The Role of Data and Technology
Running an ACO requires knowing things about your patient population that most medical practices have never needed to track. Which patients are at risk for a hospitalization next month? Who has not had their recommended screenings? Where are the gaps between what a specialist recommends and what the primary care team follows through on? ACOs rely heavily on data analytics to sort patients into risk categories and tailor interventions accordingly, using claims data, electronic health records, and sometimes social-determinants data to build a picture of each patient’s needs and trajectory.9PubMed Central. Accounting for accountable care: Value-based population health management
This is one of the biggest practical barriers to ACO participation. Building or buying the technology to do population-level analytics is expensive. In a survey of rural health clinics, 43% reported that they lacked the capital to upgrade their information technology systems, and more than half cited financing broadly as a deterrent to ACO participation.10PubMed Central. Accountable Care Organizations: Benefits and Barriers as Perceived by Rural Health Clinic Management A small rural clinic may serve a population that would benefit enormously from coordinated care, but it simply cannot afford the infrastructure to make the model work. Legal and regulatory complexity added another layer: about half of the clinics surveyed also cited regulatory barriers to participation.
The Specialist Problem
Primary care is the foundation of most ACOs, but specialists drive a large share of health care spending. Getting specialists aligned with ACO goals has proven difficult. In a national survey of MSSP ACOs, only about 38% reported major efforts to engage specialists in quality improvement, and just 30% convened specialists to develop evidence-based care pathways. The most common obstacle, cited by 58% of ACOs, was the continued influence of fee-for-service payment on specialist behavior.11The American Journal of Managed Care. Accountable Care Organization Initiatives to Improve the Cost and Outcomes of Specialty Care When specialists outside the ACO are still paid per procedure, the ACO has limited ability to change how they practice.
The relationship between specialist use and ACO spending is not as simple as “fewer specialists means lower costs.” An analysis of MSSP data found a U-shaped pattern: ACOs with the lowest and highest proportions of specialist encounters both had the highest expenditures. ACOs with moderate specialist use spent the least. On the other end, ACOs with very few specialist visits had substantially more emergency department visits, hospital admissions, and skilled nursing facility stays.12JAMA Network Open. Association Between Specialist Office Visits and Health Expenditures in Accountable Care Organizations Too little specialist involvement can mean that conditions escalate to crises that require expensive hospital care. Too much specialist involvement can mean duplicated tests, fragmented care, and runaway imaging costs. The sweet spot is somewhere in the middle, and finding it requires the kind of coordination that ACOs are built to provide but often struggle to execute.
How Much Money Has the Model Actually Saved?
The headline number is substantial. A study published in JAMA estimated that ACOs in the MSSP generated between roughly $9 billion and $13 billion in gross savings to Medicare between 2012 and 2019. After subtracting the $4.9 billion in shared savings bonuses that Medicare paid out to the ACOs, net savings to the program fell somewhere between $4 billion and $8 billion.13JAMA. Long-Term Spending of Accountable Care Organizations in the Medicare Shared Savings Program Those are real dollars that Medicare did not spend on care for ACO-attributed beneficiaries compared with what would have been expected under the old payment model.
But context matters. Medicare spent roughly $800 billion in 2019 alone. Net savings of a few billion dollars over eight years, while meaningful, represent a modest slice of total program spending. The ACO model is not transforming the federal budget. What it may be doing is demonstrating a proof of concept: that coordinated, accountable care can bend the cost curve without harming patients. A systematic review of Medicare ACO evaluations found no evidence that ACOs worsened outcomes or patient experience, even while reducing utilization.6PubMed. Impact of Accountable Care Organizations on Utilization, Care, and Outcomes: A Systematic Review
Who Leads the ACO Matters
ACOs come in several organizational flavors. Some are led by physician groups, some by hospitals, and some by joint physician-hospital partnerships. Early research suggested that physician-led ACOs outperformed hospital-led ones on quality, which made intuitive sense: physicians in smaller groups may be more nimble and more directly connected to patients. But more recent work paints a different picture. A study of MSSP ACOs found that hospital-managed ACOs, whether hospital-led or co-led with physicians, scored higher on a composite measure of value than physician-led ACOs. The researchers attributed this partly to the hospital-managed ACOs’ ability to offer a full spectrum of care and manage patient referrals more effectively within their own systems.14PubMed Central. Measuring value in health care: lessons from accountable care organizations The answer to “which structure works best” appears to be shifting as the model matures.
ACOs Beyond Medicare
The ACO model is not limited to Medicare. Commercial insurers and some state Medicaid programs have adopted their own versions. Commercial ACOs tend to look different from their Medicare counterparts: they are larger, more integrated with hospitals, and report lower benchmark expenditures and higher quality scores. They also rely more heavily on tools like disease monitoring systems and patient satisfaction data.15PubMed Central. ACOs Holding Commercial Contracts Are Larger And More Efficient Than Noncommercial ACOs
The results, however, are mixed. A five-year evaluation of a commercial ACO found that it improved some outpatient quality measures and eventually slowed outpatient spending growth by about the fourth year of operation, but it had negligible impact on inpatient hospital costs, utilization, or quality.16Medical Care. Five-year Impact of a Commercial Accountable Care Organization on Health Care Spending, Utilization, and Quality of Care The first two years actually showed increased total spending. This lag is a common theme in ACO implementation: the upfront investments in care coordination, IT infrastructure, and staffing can temporarily raise costs before the downstream savings materialize. Organizations and payers that lack the patience for a multi-year runway may bail out before the model has a chance to pay off.
Health Equity and the ACO REACH Model
One persistent criticism of the ACO model is that it may inadvertently disadvantage patients in underserved communities. If ACOs earn savings by reducing utilization, and underserved populations already receive less care than they need, the model could theoretically reward organizations for perpetuating gaps rather than closing them. Medicare’s ACO Realizing Equity, Access, and Community Health (ACO REACH) program, launched in January 2023, was designed to address this concern. It built on a prior model and distinguished itself by explicitly focusing on health equity and emphasizing capitated payments, where the ACO receives a fixed amount per patient rather than billing for each service.17PubMed. First Year Of ACO Realizing Equity, Access, And Community Health Program Yields Good Quality, Savings Results Early results from the program’s first year showed favorable quality and savings performance, though the program remains young and its long-term impact on equity remains to be seen.
Changing How Doctors Think, Not Just How They Are Paid
One of the less obvious aspects of how ACOs function is the effort to change physician behavior through means other than money. Case studies of ACOs found that the organizations more strongly emphasized nonfinancial motivators for changing clinician behavior than financial incentives alone. These included appeals to professional mastery and social purpose, essentially reminding physicians that better-coordinated care aligns with the reasons they went into medicine in the first place.18PubMed Central. More Than Money: Motivating Physician Behavior Change in Accountable Care Organizations Financial incentives were part of the picture, but they were not the primary lever. The difficulty was sustaining those cultural shifts when physician attention was fragmented across multiple payer contracts, quality programs, and competing priorities.
The Consolidation Concern
Critics have worried that ACOs might accelerate provider consolidation, giving large health systems more bargaining power to raise prices on the commercial insurance side. There is some basis for this concern: counties with the greatest ACO penetration saw a four-percentage-point increase in the share of large physician practices (those with 50 or more doctors) between 2010 and 2015, compared with counties that had no ACO presence. The growth was concentrated in specialty and hospital-owned practices.19PubMed. Changes In Physician Consolidation With The Spread Of Accountable Care Organizations
The price effects, though, appear more modest than feared. Research on “soft consolidation,” where independent practices join health-system-led ACOs without being formally acquired, found that some independent primary care practices experienced abrupt price jumps after joining. But those jumps were rare across the full population of independent practices in system-led ACOs, averaging only about a 4% increase. The researchers concluded that the price effects were more consistent with existing pricing power extending to a few practices than with a broad new expansion of market power.20PubMed. Soft Consolidation In Medicare ACOs: Potential For Higher Prices Without Mergers Or Acquisitions A separate analysis of overall market structure found that markets with higher ACO participation did not experience greater growth in physician-hospital integration, physician group size, or commercial prices compared with markets with lower ACO participation.21PubMed Central. Association Between Payment Reform and Provider Consolidation The consolidation story is worth monitoring, but it has not played out as dramatically as some early predictions suggested.
What Patients Should Know
If you are told your doctor participates in an ACO, the practical implications for you are minimal in terms of choice and access. You can still see any provider you want. You will not receive a bill from the ACO. Your insurance coverage does not change. What you might notice is more follow-up: a nurse calling after a hospitalization, a care coordinator helping you manage medications, or your doctor’s office reaching out about overdue screenings. Those touches are the visible surface of the ACO machinery working underneath.
The risk to watch for, at least in theory, is that an ACO under financial pressure might skimp on necessary care. The evidence so far does not support that fear. Across multiple payer types, systematic reviews have found no evidence that ACOs worsen patient outcomes or care quality. But the model is still evolving, and monitoring matters. If you feel that your doctor is discouraging appropriate referrals or tests, you retain the right to seek care elsewhere, and your ACO participation does not limit that right.