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Accountable Care Organizations and Health Reform

Partner Institute: 
Johns Hopkins Bloomberg School of Public Health, Department of Health Policy and Management
Survey no: 
Emily Adrion and Gerard Anderson
Health Policy Issues: 
Role Private Sector, System Organisation/ Integration, Funding / Pooling, Quality Improvement, Remuneration / Payment
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes yes yes yes no no no


Accountable Care Organizations may be broadly defined as an organized group of providers that are both clinically and financially responsible for all the health care that their patients may need. The Patient Protection and Affordable Care Act of 2010 includes provisions that promote the establishment of Accountable Care Organizations within the Medicare program beginning in 2012.

Purpose of health policy or idea

It is argued that, because they involve changes in the incentives (financial and non-financial) facing providers, Accountable Care Organizations (ACOs), could lead to a reduction in the growth of health care costs over time. By including provisions within the Patient Protection and Affordable Care Act that provide moderate financial incentives to promote ACOs in Medicare, it is hoped that some cost savings may ultimately be achieved. 

Main points

Main objectives

In order to decrease the rate of health care cost growth in the United States, many argue that changes in delivery system organization, particularly in the organization and payment of providers and hospitals, are necessary. In an effort to address this issue, provisions were included within the Patient Protection and Affordable Care Act of 2010 that promote the establishment of ACOs within the Medicare program. Although there is some debate surrounding their exact definition, ACOs are generally described as entities in which providers are held financially accountable for the care of their patients.

The Patient Protection and Affordable Care Act enables the Centers for Medicare and Medicaid Services (CMS) to provide financial incentives for providers that have organized themselves as ACOs, beginning in 2012. The legislation stipulates that participating ACOs must: 1) agree to a three year contract, 2) agree to be accountable for the care of an established group of Medicare beneficiaries, 3) ensure an adequate supply of primary care providers within their organization, 4) meet quality standards established by CMS, 5) promote evidence-based medicine within their organization and 6) work to coordinate the care that their Medicare beneficiaries receive. Participating ACOs that fulfill these requirements and that are able to achieve a certain established level of cost savings for the Medicare program will be eligible to receive a share of those cost savings.

Officials at CMS are currently working to establish guidelines to identify which types of provider organizations will be able to qualify as ACOs in 2012. 


Type of incentives

Financial: Participating ACOs may receive a share of the cost savings that they generate for the Medicare program. The Medicare program will also receive some of the savings.

Though the exact methods for how shared savings will be generated are still under development, the general idea seems to be that when a certified ACO provides care for less than a benchmark amount (which will be established by CMS) - while meeting criteria for quality and patient satisfaction - they will be entitled to receive a share of those savings.

Whether this is effective will depend on how the benchmark rate is established; e.g. if the benchmark rate is set too high, organizations that may already provide high quality, coordinated care at a low cost may have little motivation to improve their services, whereas if the benchmark is set too low, it may make participation in the program undesirable or unrealistic for all but those organizations that are already performing well.

Groups affected

Health care providers, Hospitals, Health insurers, Medicare beneficiaries

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Characteristics of this policy

Degree of Innovation traditional rather innovative innovative
Degree of Controversy consensual neutral highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low low very high
Transferability strongly system-dependent rather system-neutral system-neutral

 Ultimately, the outcomes of this policy will depend on the exact formulation of the policy as will be decided by CMS. In particular, the outcomes will very much depend on how ACOs are defined, and whether there are modifications to the current Medicare payment structure with respect to ACOs.

Ideally, a policy structured so as to maximize the potential benefits of ACOs would have the potential to reduce costs and improve care coordination and quality of care for Medicare beneficiaries enrolled in the traditional fee-for-service program.

Political and economic background

Following the election of President Obama, health care reform was high on the political agenda in the United States.  In addition to improving health insurance coverage, cost containment was a key aim of most of the health care reform proposals put forth in 2008-2009. Delivery system reform was seen as one of the ways through which reductions in cost growth could be achieved.


Change of government

The election of President Obama, who campaigned on the promise to fix health care, set the stage for health care reform in general. As a result, many health care cost containment proposals, including those involving delivery system reform, were put forth.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes yes yes yes no no no

Origins of health policy idea

Group practices in medicine have been around since the early 20th century. In more recent years, the idea of group practices owning or having close ties to hospitals as method to reduce costs and coordinate care has gained wider recognition. Group practices such as the Permanente Medical Group, Geisinger Health System, Intermountain Health Care, and the Mayo Clinic all either own their own hospitals or have close working relationships with certain hospitals. Both leading up to, and during, the health care reform debate, these group practices were cited by President Obama and others as model delivery systems capable of reducing the fragmentation of care and incentivizing cost containment and care coordination. However, such integrated delivery systems do not exist across the United States as a whole, and thus, the benefits of integrated delivery systems were thought to be limited.

This recent emphasis on the advantages of integrated delivery systems, along with increasing recognition over the past decade that delivery system reform to change the organization and payment of physicians is necessary to reduce cost growth, set the stage for the notion of ACOs. It placed the responsibility of cost containment in the hands of providers.

The concept of ACOs, as they are described in the health reform legislation, largely stemmed from the work of Elliott Fisher and his colleagues at Dartmouth College. In 2006, Fisher and colleagues noted that most Medicare beneficiaries received their care from one particular primary care provider or from a hospital with which that provider was affiliated. They proposed that "virtually integrated delivery systems" could be created by modifying payments to providers based on these predictable usage patterns (Crossen FJ et al, 2010). Later, in 2009, Fisher et al. suggested that Medicare could encourage the development of ACOs through a voluntary program in which participating provider groups could receive a share of savings if they could achieve cost reductions while providing high quality care. The ACO provisions that ultimately passed under the health reform legislation closely resembled these ideas proposed by Fisher and colleagues in 2009. 

Following the health care reform debates and with the implementation of the Patient Protection and Affordable Care Act underway, there has been increased discussion of which types of provider organizations should be considered by CMS to qualify as an ACO. 

Initiators of idea/main actors

  • Government: The Obama Administration supported the idea of ACOs during the reform debates and the Centers for Medicare and Medicaid Services have been very involved in the development of the ACO program.
  • Providers: Those providers involved in care delivery systems that are already closely integrated may be supportive; academic medical centers, in particular, are positive. Others, including solo practitioners or practitioners in rural areas are less supportive.
  • Patients, Consumers: Medicare beneficiaries may not be informed about what an ACO is or how the program would work. However, any savings that can be generated and used to extend the solvency of the Medicare program would likely be supported by this group.
  • Opinion Leaders: Academics and policy analysts have been supportive of the program, but have been actively debating what types of provider organizations should qualify as ACOs under the developing CMS regulations.

Approach of idea

The approach of the idea is described as:

Innovation or pilot project

Pilot project - The ACO provisions of PPACA to some extent also build on pilots such as the 2005 Physician Group Practice Demonstration, a Medicare demonstration project that focused on improving quality and lowering costs among a select group of provider organizations.

Stakeholder positions

As officials at CMS work to establish guidelines to identify which types of provider organizations will be able to qualify as ACOs in 2012, debates among policy analysts, industry representatives and researchers surrounding the definition of ACOs have been occurring. Some of the debate around the definition of ACOs has related to whether or not ACOs include ties to hospitals.



Actors and positions

Description of actors and their positions
The Obama Administrationvery supportivevery supportive strongly opposed
The Centers for Medicare and Medicaid Services (CMS)very supportivesupportive strongly opposed
Health care providersvery supportivesupportive strongly opposed
Hospitalsvery supportivesupportive strongly opposed
Patients, Consumers
Medicare beneficiariesvery supportiveneutral strongly opposed
Opinion Leaders
Opinion leadersvery supportivesupportive strongly opposed

Influences in policy making and legislation

The Patient Protection and Affordable Care Act of 2010 included provisions promoting the development of ACOs. However, the details regarding what types of provider organizations should qualify as ACOs and the specifics surrounding how financial incentives will be structured are still being worked out within CMS.

Through policy papers, research and debates, academics, policy analysts and provider organizations have been attempting to influence the discussion around how ACOs are defined and how the legislation should be implemented. Ultimately, however, the officials at CMS will dictate how ACOs are defined, and the Center for Medicare and Medicaid Innovation (a division of CMS created under the health reform legislation) will have the authority to experiment with different methods of payment of ACOs.   


Legislative outcome


Actors and influence

Description of actors and their influence

The Obama Administrationvery strongstrong none
The Centers for Medicare and Medicaid Services (CMS)very strongstrong none
Health care providersvery strongstrong none
Hospitalsvery strongvery strong none
Patients, Consumers
Medicare beneficiariesvery strongweak none
Opinion Leaders
Opinion leadersvery strongneutral none
The Obama AdministrationOpinion leadersThe Centers for Medicare and Medicaid Services (CMS), Health care providersHospitalsMedicare beneficiaries

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

The details regarding what types of provider organizations should qualify as ACOs and the specifics surrounding how financial incentives will be structured are currently being decided by officials within the Centers for Medicare and Medicaid Services and implementation of the legislation will not take place until 2012. Until the specific details surrounding ACOs are worked out by CMS, it is difficult to speculate regarding the adoption and implementation of these provisions.

The way that CMS ultimately chooses to define ACOs will determine whether they more closely resemble integrated delivery systems (IDSs), or whether the definition is broader and more all encompassing than IDSs. While some stakeholders have argued that a successful ACO needs to include a hospital and function similarly to tightly organized integrated delivery systems such as Kaiser Permanente, or even multispecialty group practices like the Mayo Clinic, others argue that the definition should be broadened to include more loosely organized groups, such as independent practice associations or even "virtual" physician organizations (defined as a group of small practices that share information, make electronic health records accessible to each other and build disease registries).

A broader definition may encourage more organizations to participate in the effort to coordinate care, improve quality and lower costs, but a narrower definition of ACOs may be necessary for ACOs to successfully achieve these outcomes. Shortell et al have recommended that CMS adopt a broad definition of ACOs and modify payments such that the more tightly managed IDSs receive fully bundled or capitated payments, whereas the more loosely managed independent practice associations and "virtual" ACOs - that are less able to manage financial risk - receive partially capitated reimbursements, where they continue to be reimbursed based on a fee-for-service system for most services, but receive capitation payments for care that falls into particular disease categories (Shortell et al, 2010). The idea is that this type of structure would allow a wider range of organizations to participate.

Monitoring and evaluation

CMS in general, and the Center for Medicare and Medicaid Innovation in particular, will be responsible for monitoring the implementation of the provisions within the Patient Protection and Affordable Care Act that pertain to ACOs. No formal review or evaluation process was specifically outlined in the legislation.   

Review mechanisms


Results of evaluation


Expected outcome

At this time, with CMS just beginning to work out the details of the policy, it is difficult to speculate as to the ultimate outcome of the policy. 


Impact of this policy

Quality of Health Care Services marginal neutral fundamental
Level of Equity system less equitable neutral system more equitable
Cost Efficiency very low high very high

 Still under development.


Sources of Information


  • Crosson FJ and Tollen LA (eds). Partners in Health: How Physicians and Hospitals Can Be Accountable Together. Jossey-Bass(Wiley). San Francisco, 2010.
  • The Henry J. Kaiser Family Foundation. "Focus on Health Reform: Summary of Key Changes to Medicare in 2010 Health Reform Law." Available at: Accessed September, 2010.
  • McClellan M, McKethan AN, Lewis JL, Roski J, Fisher ES. "A National Strategy to Put Accountable Care into Practice." Health Affairs. May 2010, 29(5): 982-990. 
  • Medicare Payment Advisory Commission (MedPAC), "Accountable Care Organizations." Report to the Congress: Improving Incentives in the Medicare Program. Washington, D.C., 2009.
  • Shortell SM, Casalino LP, Fisher ES. "How the Center for Medicare and Medicaid Innovation Should Test Accountable Care Organizations." Health Affairs. July 2010, 29(7):1293-8.


Author/s and/or contributors to this survey

Emily Adrion and Gerard Anderson

Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health

Suggested citation for this online article

Emily Adrion and Gerard Anderson. "Accountable Care Organizations and Health Reform". Health Policy Monitor, October 2010. Available at