Accountable Care Organizations (ACO)


ACO are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. It is included in the federal patient protection and Affordable Care Act. The ACO initiative is scheduled to begin operating in January 2012 (hospitals and insurers have already begun to form their own ACO’s). There are three core principles for all ACO’s

  1. Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients;
  2. Payments linked to quality improvements that also reduce overall costs; and,
  3. Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care.

While ACO has the potential to improve the quality of care reducing health care spending it still has some challenges. One, as hospitals position themselves as integrated systems, many joining forces and purchasing physician practices leaving fewer independent hospitals and doctors., This gives these health systems more leverage in negotiations with insurers, which can lead to increase health costs. There are also concerns that ACOs are at risk of being accused of violating antitrust laws if they are perceived to drive costs through reducing healthcare competition while providing lower quality of care. To address this issue, the U.S. Justice department has offered a voluntary antitrust review process for ACOs.

More and more, healthcare is molded and critically impacted by the software and information technology that surrounds and supports the industry. Without the proper technology new methods of health care can never be reached. That is why for an Accountable Care Organization to be successful there are five information systems that need to be in place.
  1. An Electronic Medical Record (EMR) used in a consistent and meaningful way across the accountable care enterprise to document patients’ healthcare status and treatment and support safe, evidence based care.
  2. A Health Information Exchange (HIE) to enable the sharing of patients’ clinical data across disparate EMRs in the accountable care enterprise.
  3. An Activity Based Costing (ABC) system to enable detailed, patient-specific collection of cost data that in turn enables the accountable care organization to precisely understand cost of production and revenue margins in capitated payment models.
  4. A Patient Reported Outcomes (PRO) system to enable the complete understanding of clinical outcomes and quality, from the patient’s perspective. This is not a patient satisfaction system—it is a clinical outcomes assessment system, tailored to the patient and their protocols of treatment.
  5. An Enterprise Data Warehouse (EDW), which is central to enabling the analysis of data collected in the information systems described above—and more. Without the EDW, the data collection systems described above are relegated to small or non-existent ROI. It is the exposure and integration of the data in the EDW that liberates the ROI from those systems. It is common for EDWs to realize an ROI as high as 450% in two years.


One of ACO’s primary focus is placing a financial responsibility in providers (i.e. hospitals) to improve healthcare management and limiting unnecessary tests and procedures. While still giving patients the options to select who they want for medical services. ACO gives providers strong incentives to cooperate and save money. A benefit to providers if they save money, while meeting quality services, is that they get to keep a portion of their savings. But they are at risk of losing money as well. One way that ACOs will get paid is by keeping their patients healthy and out of the hospital. ACO will not do away with the Medicare’s traditional fee for service payment system (where doctors are paid more when they give hospitals more tests and procedures).

Web Resources:

ACO Summit
Accountable Care Explained: An Experiment in State Health Policy

Related Terminology:

Health Maintenance Organization (HMO)
Health Insurance Portability and Accountability Act (HIPPA)
Patient Protection and Affordable Care Act (PPACA)
Affordable Care Act


Can Accountable-Care Organizations Improve Health Care While Reducing Costs?
Accountable Care Organizations, Explained
Wikipedia - ACO
Five critical information systems


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