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 patient population. The core idea is simple: instead of each provider working in isolation and billing separately for every test, visit, and procedure, an ACO aligns them around shared goals of keeping patients healthier while spending less. As of January 2025, 476 ACOs serve 11.2 million Medicare beneficiaries through the federal Shared Savings Program alone, and many more operate through private insurers.
How ACOs Differ From Traditional Healthcare
In a traditional fee-for-service system, providers earn more when they do more. Every office visit, imaging scan, and lab test generates a separate bill. There’s little financial incentive to prevent a patient from needing that second ER visit or to make sure a cardiologist and a primary care doctor are actually talking to each other. ACOs flip that incentive. The organizations set a spending benchmark for their patient population, and if they keep total costs below that benchmark while hitting quality targets, they share in the savings. This makes prevention and coordination financially worthwhile rather than financially punishing.
The model is built around what’s known as the Triple Aim: improving population health, reducing per-person costs, and enhancing the patient experience. Those three goals shape everything from how an ACO tracks chronic disease to how it measures success at the end of each performance year.
The Financial Model Behind ACOs
ACOs in the Medicare Shared Savings Program operate under one of two basic risk arrangements. In the lower-risk track, an ACO can share in savings if it spends less than its benchmark and meets quality standards, but it owes nothing back to Medicare if spending runs over. This “upside only” model lets organizations test coordinated care without betting their finances on the outcome. ACOs in this track can receive 60 to 75 percent of total savings, depending on their quality scores.
The higher-risk track raises both the reward and the stakes. ACOs earn a larger share of any savings, but if spending exceeds the benchmark, they owe Medicare back 40 to 60 percent of the overage. This two-sided risk structure pushes organizations to invest more aggressively in care management, preventive services, and reducing unnecessary hospitalizations because the financial consequences of failing to do so are real.
The program generated more than $2.1 billion in net savings for Medicare in 2023, the largest total in the program’s history.
What Patients Actually Experience
If you’re a Medicare beneficiary assigned to an ACO, you may not notice much difference in your day-to-day healthcare. You keep your freedom to see any Medicare-participating provider, including doctors outside the ACO network. There’s no enrollment card and no restricted panel the way a traditional HMO works. What changes is happening behind the scenes: your providers share clinical data more actively, a care coordinator may follow up after a hospital stay, and your primary care doctor has a clearer picture of what your specialists are doing.
ACOs must have at least 5,000 Medicare fee-for-service beneficiaries assigned to them to participate in the Shared Savings Program. Assignment is typically based on which primary care provider you visit most often. The ACO is required to share medical records with providers both inside and outside the network, so your care isn’t siloed even if you see someone who isn’t part of the organization. Data shared across the network includes diagnosis codes, procedure codes, prescription details, and service dates, all of which help providers spot gaps in care or flag potential drug interactions.
Quality Standards ACOs Must Meet
Saving money isn’t enough on its own. ACOs must also meet quality benchmarks and publicly report their performance results. These measures cover areas like preventive health (are patients getting their recommended screenings?), chronic disease management (is blood pressure well-controlled in patients with hypertension?), and patient experience. If an ACO cuts costs by skimping on care, its quality scores drop, and it loses eligibility for shared savings. The quality requirement is what separates the ACO model from simple cost-cutting.
ACOs in Private Insurance
ACOs aren’t limited to Medicare. Many commercial insurers run their own versions, though the specific financial arrangements vary. Research comparing the two has found some interesting patterns. ACOs that hold both Medicare and commercial contracts tend to have higher quality scores, likely because of greater experience with pay-for-performance programs and more upfront investment in care management. However, those same organizations often achieve smaller Medicare savings than ACOs operating only in the public program. One possible explanation is that commercially contracted ACOs already have lower per-person spending benchmarks, leaving less room to cut.
Private-payer ACOs also differ in structure. Some offer upfront care management payments to participating providers rather than relying solely on shared savings at year’s end. This gives doctors working capital to hire care coordinators, invest in patient outreach, and build the infrastructure needed to manage population health proactively.
The Technology That Makes It Work
Coordinating care across dozens of practices and hospitals requires a shared information backbone. Electronic health records and health information exchange platforms are the two most critical pieces. EHRs give individual providers a digital chart for each patient, while information exchange systems let those charts talk to each other across different organizations. Together, they allow an ACO to track physician performance, identify patients who are overdue for preventive care, flag high-risk individuals before they end up in the emergency room, and measure whether quality improvement initiatives are actually working.
A systematic review of 32 studies on health IT in ACOs found that these two capabilities, data exchange and performance tracking, are the primary technological mechanisms behind successful care coordination. ACOs that struggle with interoperability between their member organizations’ systems face steeper challenges in hitting both cost and quality targets.
Who Makes Up an ACO
ACOs can include virtually any combination of healthcare providers: primary care physicians, specialists, hospitals, home health agencies, skilled nursing facilities, and mental health professionals. Some are anchored by a large hospital system, while others are physician-led networks without a hospital partner. An ACO can also be geographically focused or organized around a specific condition, like chronic kidney disease, depending on the population it serves. The flexibility in structure means that ACOs look quite different from one another, even within the same program. What ties them together is the shared accountability for cost and quality outcomes across their entire patient population.