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What Is the ACO Payment Model?

August 12 2025
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Lower costs and better outcomes are the hallmarks of value-based care. As healthcare shifts away from fee-for-service and toward fee-for-value, accountable care organizations (ACOs) lead the charge in value-based care. These providers work to reduce healthcare spending while attending to patients' unique needs.

What does an ACO payment model mean for hospitals, physician groups, and healthcare centers adapting to new regulations and financial opportunities? In this post, we will explore:

  • The Basics of ACOs
  • The Benefits of ACO Payment Models

What Is an Accountable Care Organization?

ACOs are providers who pool their resources to prioritize value-based care. Within an accountable care organization, the group's performance outweighs a provider's individual services. The ACO strives to provide value-based care (VBC), including:

  • Improved a patient's overall care experience
  • Bolstered group performance
  • Reduced costs
  • Increased payer reimbursements

Key Principles of ACOs

By integrating their services and working as a more cohesive unit, ACOs work to promote clinical excellence across the board. To do this, they focus on three major principles:

  1. Accountability: Providers take on more responsibility for excellent outcomes and poor performance.
  2. Population health management: Providers seek to enhance the individual patient experience by more fully understanding the risks and concerns their group, called a "population," encounters, such as social and racial inequity.
  3. Coordination of care: ACOs actively coordinate their efforts rather than working autonomously, thus improving efficiency by sharing information.

 

ACO vs. Traditional Healthcare Models

The more traditional healthcare models are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Both are networks of doctors, providers, and hospitals that agree to provide medical care at a certain rate.

While ACOs, HMOs, and PPOs create physician networks, accountable care organizations have more freedom to self-define their groups. HMOs and PPOs are defined by a health plan. Another difference is that ACOs receive financial incentives by demonstrating their efficiency as a system.

 

What Are ACO Payment Models?

ACO payment models are an amalgamation of shared financial incentives and shared risks. These payment structures evaluate payments based on quality care metrics to determine the number of reimbursements. They also account for the risk of shared penalties after poor performance.

 

Fee-for-Service (FFS) vs. Value-Based Payments

In the fee-for-service payment model, doctors and providers receive reimbursements based on the number of procedures and tests performed. Many feel this payment structure is outdated as it rewards providers for the quantity of services — not the quality of care.

Value-based payments focus on outcomes and efficiency through rewarding ACOs that demonstrate quality and cost improvements. As doctor and providers are moving away from the FFS payment model, they are now switching to Patient-Driven Payment Model to implement value-based payments which has been shown to improve financials while better focusing on the patient’s unique needs.

 

The Role of Payment Models in ACOs

Traditional payment models lay the sole responsibility on the payers, regardless of care quality or patient outcomes. ACO payment models take a more hands-on approach. The ACO and payers share rewards, risks, and responsibilities. Thus, patient wellness and preventive services are linked to payment.

ACOs can achieve greater financial gain by:

  • Improving population health.
  • Shortening lengths of stay.
  • Keeping patients out of hospitals when possible.

 

Benefits of ACO Payment Models

Why restructure your current healthcare payment model? Implementing new systems is often difficult for providers. There is more pressure than ever to deliver value. Yet, ACO payment structures have proven effective in many essential capacities.

  • Improved care coordination: Patients remain the heart of the healthcare system. A synchronized care team can collaborate to work toward a common goal.
  • Cost reduction and efficiency: Lowering costs requires efficiency. Under the fee-for-service model, providers were incentivized to do more. A value-based model requires more planning and efficiency.
  • Quality improvement: Improved workflow, better communication and data sharing, a focus on overall health and wellness — with an ACO model, value is the new benchmark for payers.
  • Enhanced patient experience: ACOs give providers freedom and time to focus on the individual needs of their patients, improving the patient-provider relationship.
     

Case Studies: ACO Success Stories

ACOs are in a unique position, leading the way in patient outcomes, care coordination, and overall cost reductions. Read about ACO success stories in Medrina's PDPM Whitepaper and from the National Association of ACOs (NAACOS).

 

Let Medrina Help Your Organization

If you are looking to further expand upon your value-based care model within your skilled nursing facility or rehab center, a PDPM-trained physiatrist is a great way to provide value-based care. Medrina physicians are well-versed in the patient-driven payment model and understand the importance of outstanding patient care and accurate reimbursements. 

Learn more about our service lines and programs in regards to how they can help your facility. Then, reach out to speak with a friendly team member to discuss your center's unique needs.

Matt Ray
Content Reviewed By: Matt Ray
Chief Operating Officer

Matt Ray is a seasoned professional with a rich background in healthcare and leadership. As the COO and co-founder of Medrina, he brings a wealth of experience and expertise to the dynamic world of medical innovation. Matt's journey in the industry began in 2010 when he co-founded Integrated Rehab Consultants (Rebranded Medrina), showcasing his entrepreneurial spirit and commitment to pushing the boundaries of healthcare solutions.

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