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Practice Management & Allied Staff News & Materials

ACOs-Accountable Care Organization Overview

November 23rd, 2011

On October 20, 2011, the Department of Health and Human Services (HHS) released its long awaited final rule on Accountable Care Organizations (ACOs), which are scheduled to launch in January 2012. ACOs are groups of doctors, hospitals, and long-term care facilities, who come together voluntarily to provide high quality care to the Medicare patients they serve. The intention is that the coordinated care these ACOs provide, will ensure patients, especially the chronically ill, get the right care at the right time with the goal of avoiding unnecessary duplication of services and unnecessary costs. When an ACO succeeds in both delivering high quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.

In Medicare's traditional fee-for-service payment system, doctors and hospitals generally receive most of their income for the extensive amount of tests and procedures performed during one visit, which drives up the costs of health care. ACOs do not replace fee-for-service but, create savings incentives by offering bonuses that providers may earn when they benchmark costs and focus on prevention and carefully managing patients with chronic diseases. In other words, providers would get paid more for keeping their patients healthy and out of the hospital. Once providers clear a savings target created by CMS, the ACO members will receive a bonus consisting of all the shared savings. However, if the benchmark performance measure has not been met, the ACO can be held accountable for losses. HHS estimates that ACOs could save Medicare between $510 million and $960 million in the first three years. If the program is successful, it can be expanded by the Secretary of Health and Human Services.

ACOs may choose one of Medicare's incentive options under the final rule. Many organizations are at different stages in their ability to move towards ACO participation. Three models were created by the CMS to encourage all different providers and organizations to get started. The three models of an Accountable Care Organization would be:

  • Medicare Shared Savings Program- facilitates coordination and cooperation among providers to improve the quality of care for Medicare Fee-For-Service (FFS) and reduce unnecessary costs. The Shared Savings Program is designed to improve beneficiary outcomes and increase value of care by:
    • Promoting accountability for the care of Medicare FFS beneficiaries
    • Requiring coordinated care for all services provided under Medicare FFS
    • Encouraging investment in infrastructure and redesigned care processes
  • Advanced Payment Initiative- through the Advance Payment Model, selected participants in the Shared Savings Program will receive advance payments that will be recouped from the shared savings they earn. Under the Advance Payment ACO Model, participating ACOs will receive three types of payments:
    • An upfront, fixed payment: Each ACO will receive a fixed payment.
    • An upfront, variable payment: Each ACO will receive a payment based on the number of its historically-assigned beneficiaries.
    • A monthly payment of varying amount depending on the size of the ACO: Each ACO will receive a monthly payment based on the number of its historically-assigned beneficiaries.

  • Pioneer ACO Model- population-based payment initiative for health care organizations and providers already experienced in coordinating care for patients across care settings.
  • For more information on Accountable Care Organizations, visit the CMS website at