What is an Accountable Care Organization (ACO)?

An Accountable Care Organization (ACO) refers to a network of health care providers (doctors, hospitals, and other non-physician health care providers) who work together through various integration models to coordinate care and to improve quality of care and cost effectiveness. 

Under the 2010 Affordable Care Act (ACA), the Centers for Medicare & Medicaid Services (CMS) created Medicare Accountable Care Organizations (ACOs) as a new opportunity for groups of health care providers to contract with the government to deliver a full continuum of care for Medicare beneficiaries. These ACO contracts attempt to create incentives for health care providers to work together to treat patients across care settings.

Why form an ACO?

The goal of an ACO is to lower health care costs by integrating patient care among providers, while ensuring that performance standards on quality of care are met. An ACO aims to serve as a patient-centered system where providers and patients work together to determine the best course of care.

How do ACOs propose to lower health care costs?

ACOs aim to lower costs by coordinating care among providers and reducing duplicative services. The structure of an ACO attempts to replace current medical systems that may offer fragmented services due to a perceived lack of coordination among providers. 

Is participation in an ACO mandatory?

No. Participation in an ACO by health care providers and patients is voluntary. 

Can a dermatologist join multiple ACOs?

Yes. Specialists can join more than one ACO, but should evaluate local circumstances carefully prior to making that decision. 

Who can form a Medicare ACO?

Integrated delivery systems (IDSs), independent physician associations (IPAs), multispecialty practices, and hospitals are all eligible to form ACOs.

Can a dermatologist form a Medicare ACO?

Any provider who is enrolled in and bills Medicare directly for services may join a Medicare ACO; however, providers who do not bill Medicare directly for primary care services may not form a Medicare ACO, unless they are joined by a provider who bills Medicare directly for primary care services.

Does Medicare offer different ACO programs?

Yes. Medicare offers three different ACO programs: the Medicare Shared Savings Program (MSSP), the Advanced Payment Model, and the Pioneer ACO Model. Note: The MSSP ACO option is the only ACO option that was set forth under the 2010 PPACA. Read more about each ACO program in ACO options for dermatologists.

What is the Medicare Shared Savings Program (MSSP) ACO?

The MSSP rewards ACOs for lowering the growth of their health care costs while meeting performance standards on quality of care for Medicare Fee-For-Service beneficiaries. It is estimated that Medicare could potentially save up to $960 million in the first three years of the Shared Savings Program.

How would a dermatologist go about participating in a Shared Savings Program ACO?

Dermatologists can join a multispecialty practice, contract with an existing ACO, join a network of individual practices that contain a primary care physician to form an ACO, or become employed by a hospital that joins or forms an ACO. Dermatologists also can contract with an IPA or a large primary care practice that has formed an ACO. Providers must join or form an ACO and then apply to CMS for acceptance into the MSSP program. Learn more about the application process.

What happens when an ACO is accepted into the MSSP?

If accepted into the MSSP, an ACO is required to serve at least 5,000 Medicare patients and agree to participate in the program for three years. Medicare would continue to pay providers for services as it does under original Medicare payment systems. 

How do ACOs share in savings & losses under the MSSP?

CMS develops a benchmark for each ACO based on estimates of what total expenditures for Medicare fee-for-service Parts A and B would have been without the ACO structure. This benchmark is updated/re-evaluated every year within the three-year performance period.

ACOs that do not meet quality measures and do not achieve cost-savings targets will be held accountable for losses.

Does CMS offer different models for shared savings and losses in the MSSP?

Yes. CMS offers a one-sided risk model and a two-sided risk model. In a one-sided risk model, the ACO shares in the savings for three years, and shares in the losses for the third year. This is ideal for less experienced ACOs. In a two-sided risk model, the ACO shares a greater portion of savings for each of the three years, but also shares the losses for all three years. This model is ideal for more experienced ACOs.

What is an Advanced Payment Model ACO?

An Advanced Payment Model is an initiative developed by the CMS Center for Medicare & Medicaid Innovation for ACOs already participating in the MSSP. It is targeted primarily at physician-owned and rural ACOs that might not have the capital to effectively participate in the MSSP. Note: The Advanced Payment Model ACO was not set forth under the 2010 ACA, but rather serves as a testing initiative for future models of ACO payment systems.

The Advance Payment Model offers ACOs advance payments that will be repaid by the ACO from future shared savings that are compared to a benchmark based off of estimates of what total expenditures for Medicare fee-for-service Parts A and B would have been without the ACO structure. The goal with the Advanced Payment Model is to increase participation in the MSSP by providing incentives up front.


What is a Pioneer ACO Model?

The Pioneer ACO Model is an initiative developed to test various payment arrangements for experienced and well-established ACOs. The Pioneer ACO Model offers higher levels of risk and reward, as compared to the MSSP. Note: The Pioneer ACO Model was not set forth under the 2010 ACA, but rather, serves as a testing initiative for future models of ACO payment systems.
In the first two years of the Pioneer ACO agreement, shared savings are determined by comparing the expenditures for the first two years with previous CMS expenditures for the patients that are affiliated with the Pioneer ACO. If the Pioneer ACO has provided savings, it will be eligible to change to a population-based payment model in its third year. Population-based payments allow for per-beneficiary per-month payments, which would replace the ACO’s fee-for-service payments. 

How does an ACO distribute the shared savings and/or losses in any of these ACO programs among its provider participants?

CMS does not provide rules regarding how income is distributed internally among the individual members of an ACO. If you are considering joining an ACO, it is important to review all contracting provisions.