Accountable care organizations or ACOs gained widespread attention with the passage of the ACA and the inclusion of provisions in the ACA that authorized Medicare to create new accountable payment models. An ACO is a group of medical professionals that may include hospitals, primary care physicians, specialists and others who share information and agree to be accountable for the cost and quality of health care provided to a patient population. ACOs can be led by hospitals or by physicians, but patient populations that are attributed or assigned to an ACO are dependent on patient relationships with primary care physicians. Some common characteristics of ACOs include an IT infrastructure allowing for information sharing; care coordination, financial payment models that incentivize quality and cost efficiency, data analysis to identify high risk patients and those who need additional care. If this sounds a bit familiar, then great. ACOs, in many ways, are modeled after the ideals of the early HMOs but also incorporating lessons learned and newer technology like the use of health IT, data analytics and quality to ensure that there are no incentives to withhold necessary care. When you think about an ACO, think about hiring a general contractor to do work on your home bathroom. The contractor gives you a cost estimate for the work to be done, including gutting the current bathroom, retiling, replacing tub and shower, new faucets and fixtures and electrical updates, and then he's responsible for gathering the necessary workers to get the entire job done correctly and on budget. If smart, the contractor is going to hire the most cost-effective and high-quality subcontractors he can find. If they do the job incorrectly or at a higher cost, then the contractor is on the hook for having the work redone at a cost that comes out of his own pocket. In an ACO, the primary care physician is like the general contractor. In that, he or she wants to be able to rely on a network of medical professionals, like specialists, hospitals and imaging centers, who will care for the patient efficiently and with the highest quality. Payment models for ACOs are typically two-sided risk models, where a budget or target is established for cost and quality for patient. If the ACO delivers results better than those targets, better quality at a lower cost, then they share in the savings. But if the ACO does not deliver good results, they are penalized and are required to pay money back to the payer. Given the high degree of risk that is assumed by the ACOs, they need to make sure they have a sufficiently large patient population so that they can pull risk like an insurer and not be adversely impacted by a few, high-cost patients. Review this chart that shows the relative stability of patient populations increasing with the number of people in a risk pool. The larger the risk pool, as indicated on the far right side of the chart, the more predictable the costs will be within a relatively tight range of possible results. The smaller the risk pool, look towards the left side of the chart, the more volatile the costs and the wider the range of possible results. Medicare has introduced several voluntary ACO models designed with varying levels of risk assumed by the providers. Pioneer and Next Generation ACOs are for the more experienced ACOs, and Medicare Shared Savings programs are for others including one-sided risk models where there's no downside risk. Initial results indicates savings on two-sided risk models but added cost on the one-sided model. Private insurers have also rolled out voluntary and mandatory versions of ACO models. There are several examples of private insurer ACO experiments that have been successful including the CalPERS, who's the employer, Blue Shield of California, the insurer, and Catholic Health West and Hill Physicians, the providers. This arrangement entailed data-sharing across all of those stakeholders specifically the doctors, the hospital, the insurer and the employer who's the purchaser with a target of keeping health care costs unchanged year over year relative to historical annual trends or increases of 10 percent. They exceeded their goals and achieved $20 million in savings primarily due to reduced readmissions and reduced number of days of hospital care. Another private insurer ACO example is the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract, otherwise known as the AQC that was rolled out to their entire provider network over the course of several years. Early results showed improved quality and lower costs primarily due to shifting the delivery of health care to lower costs settings. For example, substantial savings were achieved by shifting the setting for radiology and lab services from high-cost hospitals to lower-cost freestanding facilities. Later results showed additional cost savings associated with reduced utilization of imaging, lab and medical procedures which are far more difficult to achieve. Experts are mixed in there thinking about ACOs and many actually call them unicorns. While they focus on the entire patient population and spend, that can be a bit overwhelming. The populations they are treating are large in terms of the number of people and heterogeneous in terms of the clinical needs. It is difficult to coordinate strategies to target quality and cost across diverse specialties and care settings. Also, ACOs tend to be very primary care physician focused with patient identification and quality measures based predominantly on the patient and PCP relationship. However, that ignores the substantial impact that specialists have on population health and spending, and that is where many feel that bundled payments have a significant role.