What Is an ACO and How Does It Work in 2025

Health care in the United States can still feel overwhelming, whether someone has insurance or not. Both patients and health care providers want the same thing. A system that delivers high quality care without waste, duplication, or unnecessary costs.

This is where the accountable care organization, often called an ACO, comes into play. Today, ACOs are a core part of how the Medicare program delivers care. Millions of Medicare beneficiaries now receive services from doctors and hospitals that operate inside an ACO framework.

An ACO brings together groups of doctors, hospitals, and other health care providers who agree to work as a team. Their goal is simple. Deliver high quality care, improve the patient experience, and lower overall health care costs.

Unlike traditional fragmented care, the ACO model focuses on coordinated care, long term health outcomes, and responsible spending across an entire patient population.

What Is an Accountable Care Organization

An accountable care organization is a network of doctors, hospitals, and healthcare professionals who voluntarily partner together to manage and improve patient care for people enrolled in traditional Medicare.

The main purpose of an ACO is to improve the quality of care while controlling the cost of care. Providers in an ACO focus heavily on prevention, early intervention, and strong communication between a primary care provider, specialists, and hospital teams.

ACOs do not replace Medicare. They operate inside the Medicare program using traditional fee for service billing while layering in performance incentives tied to outcomes and spending.

Most ACOs participate in the Medicare Shared Savings Program, often called MSSP, which is managed by the Centers for Medicare and Medicaid Services.

As of 2025, hundreds of ACOs serve more than eleven million Medicare beneficiaries, making this model one of the largest coordinated care initiatives in the country.

How Does an ACO Work

In an ACO, care is organized around the patient instead of around individual visits. Primary care physicians, specialists, hospitals, and support teams coordinate through shared systems, including the electronic health record and secure health information platforms.

This allows providers to track test results, prescriptions, referrals, and follow ups in one connected system. As a result, medical errors decrease, duplicated testing drops, and delays in treatment are reduced.

ACOs emphasize:

• Preventive care
• Strong care coordination
• Proactive care management
• Support for patients with chronic conditions
• Improved health outcomes across the patient population

Patients do not enroll into an ACO the way they enroll into a health plan. Instead, patients become part of an ACO when they receive most of their care from a provider that participates in one.

Why Would a Physician Join an ACO

There are several strong reasons physicians choose to participate in an ACO.

First, ACOs allow doctors to move away from pure volume based medicine and toward outcomes based medicine. Physicians are rewarded for delivering higher quality, not simply for doing more procedures.

Second, doctors gain access to tools that support care delivery, population health, and complex patient management. This includes care coordinators, analytics, patient outreach, and integrated care services.

Third, physicians can share in financial rewards when the ACO reduces unnecessary spending while meeting required quality measures and benchmarks.

Lastly, many providers join because the ACO model aligns with the broader shift created under the Affordable Care Act, also known as the ACA, toward value based care.

How Does an ACO Make Money

ACOs do not make money by selling insurance. Instead, they generate revenue through shared savings with Medicare.

Here is how it works:

The gov establishes spending targets based on historical costs for a defined group of beneficiaries. These targets are called benchmarks.

If the ACO keeps actual spending below those benchmarks while meeting strict quality standards, the ACO earns a percentage of the savings.

Some ACO models include downside risk, meaning the ACO may also be responsible for losses if spending goes above benchmarks.

This structure encourages smarter use of services, fewer unnecessary hospital stays, stronger preventive care, and better management of health system resources.

What Is the Medicare Shared Savings Program

The Medicare Shared Savings Program, or MSSP, is the main ACO program operated by the Centers for Medicare and Medicaid Services.

Under MSSP:

• ACOs accept responsibility for managing the care of assigned Medicare patients
• Spending is compared against established benchmarks
• Quality measures must be met
• Successful performance allows ACOs to share in savings

MSSP remains the backbone of the ACO movement and continues to expand each year.

What Is the Difference Between an ACO and an HMO

This is one of the most common questions.

An ACO is not a health maintenance organization, also known as an HMO. It is also not a Medicare Advantage plan.

An ACO is a provider arrangement. It focuses on how doctors and hospitals work together behind the scenes.

An HMO or Medicare Advantage plan is a type of health plan issued by an insurance payer. These plans replace Original Medicare and usually involve networks, referrals, and prior authorizations.

In an ACO, patients remain in traditional fee for service Medicare and keep full freedom to see any Medicare provider.

Is the ACO a Medicare Advantage Plan or an HMO

No. An ACO is not an insurance plan. It does not control enrollment, premiums, or coverage rules. It simply coordinates care across providers who treat Medicare patients.

How Do ACOs Improve Patient Care

ACOs improve patient care by creating consistent communication across all providers involved in treatment.

Key improvements include:

• Stronger coordination between primary care, specialists, and hospitals
• Reduced medical errors through shared medical records
• Better monitoring of chronic conditions
• Earlier detection of health risks
• Expanded use of telehealth
• Smoother transitions after hospital discharge

All of this leads to better long term health outcomes and better overall patient experience.

How Do Patients Benefit From Being Part of an ACO

Patients benefit in several important ways:

• Better access to coordinated medical teams
• More personalized care plans
• Fewer repeated tests and conflicting treatments
• Better control of chronic disease
• Reduced unnecessary hospital visits
• Lower overall health care costs over time

Most importantly, patients keep their full Medicare freedom of choice.

What Are the Benefits of ACOs for Providers and Hospitals

Physicians benefit from:

• Improved workflows
• Access to care coordination tools
• Performance based shared savings
• Stronger alignment with value based care

Hospitals benefit from:

• Reduced avoidable admissions
• Improved discharge planning
• Lower readmission rates
• More stable long term care strategies

What Is the Downside of an ACO

ACOs are not perfect. Some of the challenges include:

• Upfront investment in infrastructure and technology
• Administrative reporting requirements
• Financial risk in downside models
• Pressure to meet strict performance benchmarks
• Variation in success across different organizations

These concerns are real, but most continue to improve as the model matures.

How Do Accountable Care Organizations Support Care Coordination

ACOs support care coordination by assigning care managers, tracking patient outcomes in real time, and ensuring every provider involved has access to shared records.

This allows providers to proactively manage patient needs instead of reacting only when problems arise.

What If I Do Not Want to Share My Health Information With the ACO

Patients always retain full privacy rights under Medicare. Information shared within an ACO follows federal privacy laws. Patients may request limitations on the use of their medical data if they choose.

Which Mayo Clinic Providers Participate in an ACO

Large systems such as Mayo Clinic and its regional sites participate in ACO efforts through CMS approved programs. Participation varies by location and care setting, and patients can confirm directly with their provider.

Final Thoughts on the ACO Model in 2025

The ACO model continues to expand as one of the most important initiative programs in Medicare today. It supports patient centered care, smarter spending, and improved long term outcomes.

For providers, it offers a structured path into value based care.
For patients, it delivers coordinated treatment without giving up freedom of choice.
For the Medicare program, it helps control rising costs while protecting access and quality.