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 simple: instead of each provider working in isolation and billing separately for every test and visit, they share responsibility for keeping patients healthy and keeping costs down. When they succeed, they share in the money saved.
ACOs were created as part of the Affordable Care Act in 2010, primarily for Medicare, but the model has since expanded into private insurance. In 2023, the Medicare Shared Savings Program produced more than $2.1 billion in net savings, the largest in the program’s history.
How ACOs Work in Practice
In a traditional healthcare setup, your primary care doctor, your cardiologist, and your hospital may have no communication with each other. Each orders their own tests, keeps their own records, and bills Medicare or your insurer independently. There’s no shared incentive to avoid duplicate lab work, prevent an unnecessary ER visit, or follow up after a hospital discharge. ACOs change that equation by linking these providers together under one organizational umbrella, with shared financial goals tied to how well they care for their patient population as a whole.
If you’re a Medicare beneficiary, you’re typically assigned to an ACO based on where you receive most of your primary care. This assignment happens retrospectively, meaning Medicare looks at your claims data and determines which ACO’s providers handled the bulk of your care. In commercial insurance plans, the process is often more straightforward: you pick a primary care doctor within an ACO network at the start of your plan year, similar to how an HMO works. Either way, being part of an ACO doesn’t restrict your ability to see doctors outside the network. You keep full freedom to visit any Medicare-accepting provider.
The Financial Model Behind ACOs
ACOs operate on a benchmark system. CMS (the federal agency that runs Medicare) sets a spending target for each ACO based on the expected cost of caring for its assigned patients. If the ACO spends less than the benchmark while meeting quality standards, it keeps a portion of the difference. This is called shared savings.
There are two levels of financial risk. In a one-sided model, the ACO can earn up to 50% of the savings it generates but owes nothing back to Medicare if spending exceeds the benchmark. This track is designed as an entry point for smaller practices or organizations with less experience managing financial risk. The savings must exceed a minimum threshold (between 2% and 3.9% depending on the number of patients) before the ACO qualifies for any payout, and the total payment is capped at 10% of the benchmark.
In a two-sided model, the stakes are higher in both directions. ACOs can earn a greater share of savings, but they also owe Medicare money if spending runs over the benchmark by more than 2%. This structure pushes ACOs to invest more aggressively in care coordination, preventive services, and population health management, because the financial consequences of poor performance are real.
How Quality Is Measured
Saving money alone isn’t enough. ACOs must also hit quality targets across several categories, and their financial rewards are directly tied to how well they perform on these measures. CMS tracks 33 quality metrics spanning four broad areas.
- Patient experience: Survey-based measures of how patients rate their care, communication with providers, and access to timely appointments.
- Care coordination and patient safety: Hospital readmission rates, whether medications are properly reconciled when patients move between settings, and screening for fall risk in older adults.
- Preventive health: Rates of flu and pneumonia vaccination, cancer screenings (colorectal and breast), blood pressure checks, depression screening, tobacco use assessment, and weight management follow-up.
- At-risk populations: Management of chronic conditions like diabetes and heart disease, including blood sugar control and blood pressure management.
An ACO that saves Medicare money but scores poorly on these measures will receive a smaller share of savings, or potentially none at all. This design is meant to prevent organizations from cutting corners to reduce spending.
Medicare ACO Programs
The two main Medicare ACO programs are the Medicare Shared Savings Program (MSSP) and the ACO REACH Model. MSSP is the larger and more established program, open to a wide range of provider organizations across the country. It uses the shared savings and shared losses structure described above.
ACO REACH is a newer model run through CMS’s innovation center. It shares the same basic philosophy of coordinated, accountable care but places additional emphasis on health equity, patient choice, and stronger financial incentives. REACH participants take on more risk and are subject to closer monitoring to ensure patients maintain access to care. Both programs aim to move Medicare away from pure fee-for-service payment, where providers earn more by doing more, toward a system where they earn more by keeping people healthier.
ACOs in Private Insurance
ACOs aren’t limited to Medicare. Many commercial insurers have adopted similar models with private employers and individual plan members. The structure varies by contract, but the principles are the same: providers organize into a network, agree to quality benchmarks, and share in savings when they deliver efficient care.
One key difference is how patients are assigned. Commercial ACOs often use a prospective model where you choose a primary care physician at enrollment, making attribution cleaner than Medicare’s retrospective approach. Some commercial contracts also tie the percentage of shared savings or losses more directly to quality scores, giving providers even stronger incentive to hit performance targets. For patients, the experience is similar to being in an HMO or preferred provider network, with an emphasis on staying within the ACO’s group of coordinated providers.
What This Means for Patients
If your care is managed through an ACO, the most noticeable difference is better coordination between your providers. Your primary care doctor and specialists are more likely to share records, avoid ordering the same tests twice, and communicate about your treatment plan. After a hospital stay, you’re more likely to get a follow-up call or appointment to make sure your recovery is on track, because reducing readmissions is one of the metrics the ACO is graded on.
Preventive care also gets more attention. ACOs have financial motivation to catch problems early, so you may be more consistently reminded about cancer screenings, vaccinations, blood pressure checks, and mental health assessments. For people managing chronic conditions like diabetes or heart failure, ACOs often invest in care management programs that provide more regular check-ins and support between office visits.
You don’t pay anything extra to be part of an ACO, and in Medicare, your benefits and provider choices stay exactly the same. The changes happen behind the scenes in how your providers are organized and paid, with the goal of making your care less fragmented and more focused on keeping you well rather than simply treating problems after they arise.