The Accountable Care Organization (ACO) model is a new Medicare option for physicians, hospitals, and other providers to share in cost-savings. ACOs represent a dramatic change in Medicare policy and an opportunity to transform care delivery and provider alignment.

The Medicare Gain Sharing Program, part of the newly enacted healthcare reform law, creates the option for healthcare providers to form ACOs. Through an ACO, providers will take responsibility for quality and overall care of their Medicare patients. Medicare will

then share with ACO providers the savings from improved quality, fewer hospitalizations, and the elimination of unnecessary costs.

Starting in 2012, the ACO model will be a nationwide option in Medicare fee-for-service (FFS). In addition to shared savings, the ACO option includes freedom of choice for Medicare beneficiaries, national quality measures, evidence-based medicine, patient-centered care delivery, advanced care coordination, and information sharing.

Because the ACO model is designed to break down old barriers for providers to work together to improve care and reduce medical costs, state Medicaid programs and private health insurers will likely join Medicare in supporting the ACO model. Medicare may give preference to ACOs that are participating in similar arrangements with Medicaid, private payers, and other third parties – that is, multi-payor ACOs.

Specifically, Section 1899 of the Social Security Act governs the new Medicare Shared Savings Program and the option for providers to form ACOs. The law was created by Section 3022 of the Patient Protection and Affordable Care Act of 2010 (PPACA). The Centers for Medicare and Medicaid Services (CMS) must implement the ACO option no later than January 1, 2012. CMS plans to release proposed rules by late 2010.

To learn more about Accounable Care Organizations, please read my primer article on ACOs in the journal American Health & Drug Benefits.