Accountable Care Organizations: Structure and Role in US Healthcare

Accountable Care Organizations (ACOs) are formally defined provider networks that accept shared accountability for the cost and quality of care delivered to an assigned patient population under Medicare and, in some models, Medicaid or commercial insurance. This page covers their regulatory basis, structural mechanics, operational scenarios, and the classification boundaries that distinguish ACO models from other value-based care models. Understanding how ACOs function is essential context for anyone examining healthcare quality measures, payment reform, or how care coordination and case management is structured at a network level.

Definition and scope

An Accountable Care Organization is a group of doctors, hospitals, and other health care providers who voluntarily join together to deliver coordinated, high-quality care to Medicare patients. The formal regulatory basis in the federal Medicare program derives from Section 3022 of the Affordable Care Act (ACA), codified at 42 U.S.C. § 1395jjj, which established the Medicare Shared Savings Program (MSSP). The Centers for Medicare & Medicaid Services (CMS) administers the MSSP and sets the participation rules, quality reporting standards, and financial benchmarks governing all Medicare ACOs (CMS MSSP).

The scope of ACOs has expanded well beyond the original MSSP framework. CMS operates additional ACO tracks through the Center for Medicare and Medicaid Innovation (CMMI), including the ACO REACH (Realizing Equity, Access, and Community Health) model, which targets high-need and underserved populations. Medicaid ACOs operate in states such as Oregon, Massachusetts, and Maine under State Plan Amendments or Section 1115 waivers approved by CMS. Commercial ACOs are contractually defined arrangements between provider networks and private insurers and are not governed by a single federal statute.

The patient population assigned to a Medicare ACO is determined algorithmically, not by patient enrollment. CMS assigns beneficiaries to an ACO based on their plurality of primary care visits with ACO-affiliated physicians. In 2023, more than 480 ACOs participated in the MSSP, covering approximately 10.8 million assigned beneficiaries (CMS MSSP Fast Facts, 2023).

How it works

ACOs operate on a financial model that separates fee-for-service billing from performance accountability. Providers within an ACO continue to bill Medicare on a standard fee-for-service basis. Separately, CMS establishes a benchmark — an expected spending level for the ACO's assigned population — and at year-end compares actual spending against that benchmark. If the ACO spends less than the benchmark while meeting minimum quality thresholds, it may receive a share of the savings. If it exceeds the benchmark, it may owe repayments to CMS depending on its risk track.

The MSSP uses a tiered risk structure with two main participation tracks:

BASIC Track — Includes five levels (A through E). Levels A and B are one-sided risk arrangements, meaning the ACO shares in savings but bears no downside financial risk. Levels C, D, and E introduce progressively greater downside risk exposure. ACOs must advance through BASIC levels over time before moving to the ENHANCED Track.
ENHANCED Track — A two-sided risk model in which ACOs bear full downside risk but are eligible for higher sharing rates on savings, up to 75 percent of savings above the minimum savings rate, as specified in 42 C.F.R. Part 425.

Quality performance is measured across four domains — Patient/Caregiver Experience, Care Coordination/Patient Safety, Preventive Health, and At-Risk Population/Frail Elderly Health — using a standardized set of quality measures. Beginning with performance year 2024, CMS has moved ACO quality reporting toward the ACO CAHPS survey and a streamlined measure set aligned with the Universal Foundation quality framework (CMS Quality Framework).

Infrastructure requirements for ACOs include a formal legal entity structure, a governing body with at least 75 percent control held by ACO participants, written internal governance procedures, and a compliance plan that satisfies CMS program integrity standards.

Common scenarios

ACO models appear across multiple payer and market contexts. Three representative configurations illustrate the range:

Medicare MSSP ACO (Physician-Led): A large independent physician association negotiates ACO status with CMS. Participating physicians continue individual billing but receive shared savings distributions through the ACO legal entity if the group achieves spending benchmarks and quality thresholds. This is the most common structure by participant count.

Hospital-Integrated ACO: A health system creates an ACO entity that includes employed physicians, affiliated specialists, and one or more owned hospitals. The ACO governs chronic disease management protocols, post-acute placement decisions, and transitions from inpatient to home health services, with the goal of reducing readmissions and redundant utilization.

ACO REACH (Equity-Focused): A CMMI innovation model in which a sponsoring entity — which may be a payer, provider, or a hybrid organization — takes on global risk (both upside and downside) for a defined Medicare beneficiary population. ACO REACH includes a mandatory Health Equity Plan requirement and a benchmark adjustment mechanism intended to account for social determinants of health in high-need populations.

State Medicaid ACO: Oregon's Coordinated Care Organizations (CCOs), authorized under an 1115 waiver, function as Medicaid ACOs that manage a global budget for a regional Medicaid population. Massachusetts has operated a similar model through its MassHealth ACO program since 2018.

Decision boundaries

Not all coordinated care structures qualify as ACOs under CMS program definitions. Clear classification boundaries distinguish ACOs from adjacent models:

ACO vs. Health Maintenance Organization (HMO): An HMO restricts enrollees to a defined network through the insurance product itself; beneficiaries choose to enroll. An ACO assigns beneficiaries algorithmically based on care patterns; beneficiaries retain freedom to see any Medicare-accepting provider regardless of ACO affiliation.
ACO vs. Bundled Payment Model: Bundled payments (such as CMS's Bundled Payments for Care Improvement Advanced, or BPCI-A) are episode-based arrangements tied to a specific procedure or condition (e.g., joint replacement, cardiac surgery). ACOs are population-based and apply to all care delivered to an assigned beneficiary over a performance year, not to discrete episodes.
ACO vs. Direct Contracting (Legacy Model): The ACO REACH model replaced the Global and Professional Direct Contracting model in 2022. The distinction is administrative; ACO REACH added equity requirements and beneficiary notification standards that the prior model lacked.
Medicare ACO vs. Commercial ACO: Medicare ACOs operate under federally defined program rules (42 C.F.R. Part 425). Commercial ACOs are contractually defined and have no single federal regulatory framework; terms, benchmarks, and quality measures vary by insurer contract.

Participation in an ACO does not alter a patient's Medicare coverage, restrict provider choice, or change billing rights. The patient rights in healthcare protections established under Medicare apply in full regardless of ACO assignment. ACO arrangements are also subject to antitrust review; CMS and the Department of Justice have jointly issued guidelines on ACO formation under the rule-of-reason standard to distinguish lawful coordination from anticompetitive market consolidation.

Healthcare regulation federal agencies — specifically CMS, the Office of Inspector General (OIG), and the Federal Trade Commission (FTC) — each maintain oversight authority over ACO formation, compliance, and market conduct.

References

📜 4 regulatory citations referenced · 🔍 Monitored by ANA Regulatory Watch · View update log

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