Accountable Care Organizations (ACOs) are a Medicare reform program instituted as part of the Patient Protection and Affordable Care Act (commonly referred to as the Affordable Care Act, ACT), passed in 2010. An ACO is a network of providers — including primary care doctors, specialists, hospitals and home health care — who agree to work together to better coordinate their patients’ care. Providers are then rewarded financially if they can control the growth in their patients’ health care costs, while maintaining or improving their quality of care. The Centers for Medicare & Medicaid Services (CMS) issued its final guidelines and regulations for ACOs as part of the Medicare Shared Savings Program in October 2011, and the first ACOs are scheduled to become operational in April, 2012.
According to an analysis from the Urban Institute, ACOs are distinct in the following three characteristics:
• Shared Savings: By sharing monetary savings with providers, ACOs create an incentive for doctors and hospitals to be more judicious in their recommendations and usage of health services. The size of the provider bonus depends on how much the provider saves on health care services per patient. Providers are rewarded if they keep costs below historic spending levels, regardless of whether these levels are considered high or low.
• Accountability: To prevent ACO providers from administering too few services in order to save money, ACOs are subject to quality controls that ensure that the proper level of high-quality care is being delivered.
• Patient Choice: ACOs are nonbinding for the Medicare beneficiary. Patients assigned to ACOs remain free to seek care from other providers that accept Medicare, a key distinction between the ACO and health maintenance organization (HMO) model.
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