This Health Policy Brief provides an overview of accountable care organizations (ACOs), their origins, and the current status of adoption by Medicare and private health insurance plans.

ACOs are networks of physicians and other providers that are held accountable for the cost and quality of the full continuum of care delivered to a group of patients. Although the ACO model is being adopted in the private sector, industry observers are keeping a close eye on how it is being implemented within the Medicare program. What are the next steps for ACOs? Will this new approach to health care delivery live up to the dual promises of reducing costs and improving quality of care?

Under contracts to the Centers for Medicare and Medicaid Services (CMS), authorized by the Affordable Care Act, the Medicare Shared Savings Program will go into effect in April 2012. ACOs will work to improve Medicare enrollees' health while simultaneously constraining costs and will earn annual bonus payments if they succeed. According to these researchers, it is already resulting in a number of ACO contracts between providers and health plans. For example, the American Medical Group Association states that more than 100 of its member medical groups are well positioned to become ACOs under Medicare's Shared Savings Program, and many other providers are likely to be interested in exploring the ACO concept.

The authors say the ACO approach may appeal to many more health plans because it provides a model for an intermediate form of delivery. The brief also examines the five-year Medicare Physician Group Practice Demonstration's results, suggesting that ACOs will be able to improve the quality of care they deliver, but may have a difficult time generating savings.