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Pharma Insights

ACOs: Changing Health Care Cost and Quality to Be Accountable

Authored by

Marylou Buyse, MD, MS; Maureen Hennessey, PhD, CPCC, CPHQ; Larry Blandford, PharmD—Column Editor


Precision for Value, New York, NY


Dr Buyse is vice president, Integrated Health Solutions, Precision for Value, and Dr Hennessey is senior vice president, director, Precision for Value. Precision for Value performs value and access consulting services and has provided those to entities that may be involved in value-based contracting. 


J Clin Pathways. 2018;4(10):43-47. doi:10.25270/jcp.2018.12.00053

Accountable care organizations (ACOs) were an innovation for Medicare following the Affordable Care Act and became the first new model of care for Medicare beneficiaries. ACOs launched in 2012-2013 could choose various degrees of risk sharing with the Centers for Medicare & Medicaid Services (CMS). All models required meeting quality metrics to share in financial benefits. ACO performance shows generally mixed results with respect to financial performance and the ability to maintain or improve quality. CMS has made program adjustments and is now narrowing in on ACO risk sharing, shortening the time to lower Medicare spending or face financial penalties. ACOs have not welcomed these new changes. At this point, value-based contracts and other techniques to mitigate risk are highly valued. If CMS is able to successfully move the market to ACOs or its other risk-based models, the market will respond and adapt accordingly. We review both the financial and quality results of ACOs and their implications for other payers. 

The Center for Medicare and Medicaid Innovation’s (CMMI) Medicare Shared Savings Program (MSSP) was established by the Affordable Care Act of 2010 and made it clear that health care providers and systems would be held accountable for managing costs and improving quality of care.1 The structure of CMMI allowed for projects and pilots that offer flexibility and testing not generally available through CMS. According to CMS: 

ACOs are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve. Coordinated care helps ensure that patients, especially the chronically ill, get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.2 

Under ACOs, teams of doctors, hospitals, and other health care providers and suppliers work together to coordinate and improve care for patients with original Medicare (ie, those not in Medicare Advantage private health plans).1 To share in savings, ACOs are required to meet quality standards in 5 key areas:

  • Patient/caregiver care experiences
  • Care coordination
  • Patient safety
  • Preventive health
  • At-risk population/frail elderly health

If ACOs save money by getting beneficiaries the right care at the right time—for example, by improving access to primary care so that patients can avoid a trip to the emergency room—the ACO can share in those savings with Medicare. ACOs that do not meet quality standards cannot share in program savings, and, over time, those who do not generate savings can be held accountable (with financial penalties for those in a 2-sided risk model). The ACO rules also include strong protections to ensure patients do not have their care choices limited by an ACO. Today Medicare offers several ACO programs, including2:

  • Medicare Shared Savings Program (—For fee-for-service beneficiaries
  • Pioneer ACO Model—Health care organizations and providers already experienced in coordinating care for patients across care settings
  • Next Generation ACO Model—For ACOs experienced in managing care for populations of patients
  • ACO Investment Model—For MSSP ACOs to test prepaid savings in rural and underserved areas
  • Advance Payment ACO Model—For certain eligible providers already in or interested in the MSSP
  • Comprehensive End-Stage Renal Disease Care Initiative—For beneficiaries receiving dialysis services

In this column, we review both the financial and quality results of ACOs and their implications for other payers. Much has been learned through the ACO programs; this knowledge provides a strong foundation for more accountable and high-quality health care in the United States.

ACO Programs Highlights

The MSSP ACO model has grown from 27 ACO participants in 2012 to 561 in 2018; these ACOs provide care for about 10.5 million Medicare beneficiaries and represent the largest alternative payment model within Medicare (Table 1).3 Most MSSP ACOs continue to select the upside-only track, which does not require participants to repay CMS for spending above their target.4


The Pioneer ACO model accepted only health care organizations and providers already experienced in coordinating care for patients across care settings. It began modestly with 32 ACOs in 2012 and concluded at the end of 2016 with 9 participating ACOs. This program is now closed with participants generally moving to the MSSP or Next Gen ACO (NGACO) models.

The majority of the 561 MSSP ACOs (82%) participate under the one-sided risk model, meaning they do not assume any negative financial risk in the event that cost targets are not met. CMS has noted that some ACOs on this track are generating losses (thus increasing Medicare spending) while having access to waivers of some federal requirements associated with program participation. Two-sided risk models, meanwhile, share in both savings and losses and “have shown significant savings to the Medicare program and are improving quality.”4,5

The NGACO model launched in January 2016 with an initial cohort of 18 participants. The model ranks swelled to 45 NGACO participants in the 2017 performance year and 51 in the 2018 performance year. The ACOs currently participating in the NGACO model have significant experience coordinating care for patient populations through initiatives such as the MSSP and Pioneer ACO models.6 

According to CMS, the NGACO model generated approximately $62 million in net savings for Medicare while maintaining quality of care for beneficiaries. Overall, that represented a net reduction of 1.1% of Medicare spending within the program.5 It is notable, however, that over half of the model’s cost and utilization decline was generated by 4 of the 18 NGACOs.7 

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