An ACO, or Accountable Care Organization, is a group of doctors, hospitals, and other healthcare providers who voluntarily team up to deliver coordinated care to a defined group of patients. The core idea is straightforward: instead of each provider working independently and billing separately for every test and visit, an ACO shares responsibility for keeping patients healthy while managing costs. In 2025, 476 ACOs participate in Medicare’s main program alone, covering more than 11.2 million people.
How ACOs Work
In traditional healthcare, providers are paid for each service they deliver. More visits, more tests, and more procedures all mean more revenue, regardless of whether the patient’s health actually improves. ACOs flip that incentive. Providers in an ACO agree to be measured on the quality of care they deliver and how well they control spending for their patient population. If the ACO keeps costs below a projected benchmark while meeting quality standards, it shares in the savings with Medicare. If costs run over, depending on the arrangement, the ACO may owe money back.
This model encourages providers to communicate with each other, reduce duplicate tests, catch health problems earlier, and focus on preventive care. A primary care doctor, a cardiologist, and a hospital within the same ACO all have a financial reason to make sure a patient with heart failure gets consistent follow-up rather than repeated emergency visits.
What ACOs Mean for Patients
If you’re a Medicare beneficiary aligned with an ACO, your day-to-day experience may not change dramatically. You keep full freedom to visit any healthcare provider that accepts Medicare. You don’t need referrals to see specialists outside the ACO. There’s no additional premium for being part of one, and you’re never penalized for seeing a non-ACO provider. Some ACOs offer small rewards for receiving most of your care within their network, but participation is never mandatory.
This is one of the biggest differences between an ACO and an HMO or Medicare Advantage plan. In managed care arrangements like HMOs, you typically must stay within a defined provider network and get referrals before seeing specialists. ACOs operate within Original Medicare, so none of those restrictions apply. The coordination happens behind the scenes among your providers rather than through rules that limit where you can go.
Types of ACO Programs
The largest ACO program is the Medicare Shared Savings Program (MSSP), which has been running for over 12 years. In 2025, it includes 476 ACOs with more than 655,000 participating healthcare providers and organizations. But it’s not the only one.
The ACO REACH Model focuses on equity and community health, with 103 ACOs serving roughly 2.5 million people. A newer program launched in 2025, the ACO Primary Care Flex Model, includes 24 ACOs covering about 349,000 Medicare beneficiaries. There’s also a kidney-specific model with 78 contracting entities and 15 specialized practices caring for 240,000 people with chronic kidney disease.
Risk Levels in the Shared Savings Program
Not all ACOs take on the same financial risk. The Shared Savings Program offers a BASIC track and an ENHANCED track, each with different levels of potential reward and liability.
At the entry levels (A and B), ACOs operate under a “one-sided” model: they can earn a share of any savings they generate, but they don’t owe anything back if costs exceed the benchmark. This lets newer organizations test the model without major financial exposure. As ACOs move up through Levels C, D, and E, they begin sharing in losses as well as savings. The ENHANCED track represents the highest level of risk, where an ACO can share in up to 75% of losses (capped at 15% of the benchmark). In return, the potential reward is also greater. ACOs can stay at Level E of the BASIC track indefinitely, and moving to the ENHANCED track is always optional.
Who Can Form an ACO
Four main types of organizations typically lead ACOs: integrated health systems (like large hospital networks), multispecialty provider groups, physician-hospital organizations, and independent provider associations. To participate in the Shared Savings Program, all providers and suppliers involved must be enrolled in Medicare. Individual physicians or small practices that want to participate can join an existing ACO rather than building one from scratch.
How Quality Is Measured
Saving money alone isn’t enough. ACOs must also meet quality benchmarks across several areas to earn their share of savings. These measures fall into broad categories that reflect what matters to patients.
- Patient experience: How easily you can get appointments, how well doctors communicate, and whether you’re involved in decisions about your care.
- Care coordination and safety: Rates of hospital readmissions, whether medications are reviewed properly after a hospital stay, and screening for fall risk in older adults.
- Preventive health: Screening rates for cancer, depression, tobacco use, and blood pressure, along with vaccination rates for flu and pneumonia.
- Chronic disease management: How well the ACO controls blood sugar in patients with diabetes, manages blood pressure in those with hypertension, and treats patients with heart disease.
These measures create accountability. An ACO that cuts costs by skipping necessary care would fail its quality benchmarks and lose its share of any savings.
How ACOs Differ From HMOs
The comparison comes up often because both ACOs and HMOs aim to coordinate care and control costs. The mechanics are quite different, though.
HMOs and other managed care plans restrict you to a specific network. You generally need a primary care doctor to refer you to specialists, and going out of network usually means paying out of pocket. ACOs impose no such restrictions. You remain in Original Medicare with full choice of provider.
The financial structure also differs. HMOs receive a fixed payment per member per month and take on the full risk of managing care within that budget. ACOs continue to bill Medicare on a fee-for-service basis for each visit and procedure. The shared savings (or shared losses) are calculated after the fact, based on whether total spending for the ACO’s patient population came in above or below a benchmark. This means ACOs represent a middle ground between pure fee-for-service medicine and fully capitated managed care, keeping some traditional payment structures while adding incentives for efficiency and quality.