Accountable Care Organization (ACO)

Definition

The term accountable care organization refers to a group of healthcare providers that coordinate the care they provide to patients.  The objective of an accountable care organization is to lower the cost of providing health care, while at the same time improving the quality of care to patients.

Explanation

An accountable care organization, or ACO, consists of a network of doctors and hospitals that coordinate care provided to patients with the objective of eliminating unnecessary costs.  Typically, this arrangement is coordinated through the patient's primary care physician.  The guidelines for establishing an ACO were introduced in the Patient Protection and Affordable Care Act (PPACA), also known as Obamacare.

While an ACO will facilitate the sharing of information between insurers, medical providers and treatment facilities, patients are not required to stay within a prescribed network of providers as is the case with health maintenance organizations (HMOs).  The ACO can save money by providing disease and / or chronic care management services and eliminating oftentimes duplicated tests and procedures.

Doctors and treatment facilities, such as hospitals, typically make money through a fee-for-service arrangement.  To maintain the profitability of these organizations, the ACO is eligible for bonus payments when they deliver care efficiently and effectively.  That is to say, not only can the ACO lower some medical expenses, but the ACO receives incentive payments when quality-of-care benchmarks are achieved.

Related Terms

preferred provider organization, point of service, health maintenance organization