ACOs & Programs

ACO (Accountable Care Organization)

~9 min readBy Pelica Health teamPublished August 28, 2026Updated August 28, 2026Reviewed by Catherine Zhao

Short answer

An Accountable Care Organization is a group of doctors, hospitals, and other clinicians that contracts with Medicare to be held jointly accountable for the total cost and quality of care for an assigned group of patients. Providers keep billing fee-for-service. At the end of the year CMS compares actual spending against a benchmark, checks the group's quality score, and pays out a share of any savings or collects a share of any overrun. As of January 2026, 14.3 million people with Medicare were in ACO-coordinated care.

What an ACO is

An Accountable Care Organization is a group of doctors, hospitals, and other clinicians that signs a contract with Medicare to be held jointly accountable for the total cost and quality of care for a defined group of patients. The clinicians keep billing fee-for-service and keep getting paid the same way. What changes is the settlement at the end of the year: CMS compares what those patients actually cost against a spending benchmark, checks the group's quality score, and pays out a share of any savings or collects a share of any overrun.

Congress created the model in section 3022 of the Affordable Care Act, which added section 1899 to the Social Security Act. The operating rules sit in 42 CFR Part 425. The first ACOs went live in 2012.

An ACO is a legal entity, not a building or a specialty. It has a governing body, a participant list of tax ID numbers, and a population CMS assigns to it. The practices, hospitals, IPAs, and health centers underneath it keep their own ownership and their own books.

How large the model is in 2026

CMS estimates that 14.3 million people with Medicare were getting care coordinated by an ACO as of January 2026, up from 13.7 million a year earlier. Most of that population sits in the Medicare Shared Savings Program, which has grown every year since 2012.

14.3M

People with Medicare in ACO-coordinated care, January 2026, up from 13.7M in 2025.

511

Shared Savings Program ACOs in performance year 2026, covering 12.6 million assigned beneficiaries.

$4.1B

Shared savings ACOs earned for performance year 2024, on $2.5 billion of net savings to Medicare.

The ACO programs running in 2026

"ACO" describes a structure. The program it participates in determines how it gets paid, how much risk it carries, and how long the arrangement lasts. Five are operating or announced right now.

Program	How it pays	Status in 2026	Scale
Medicare Shared Savings Program	Fee-for-service plus shared savings and, on most tracks, shared losses	Permanent statutory program	511 ACOs, 12.6M assigned
ACO REACH	Capitation with 50% or 100% risk	Final performance year, ends December 31, 2026	74 ACOs, ~1.7M beneficiaries
LEAD Model	Flexible capitated population-based payments	Starts January 1, 2027, runs through 2036	Not yet in operation
ACO Primary Care Flex	Prospective primary care payment inside the Shared Savings Program	Running	23 ACOs, 359,720 beneficiaries
Kidney Care Choices	Total cost of care for chronic kidney disease and ESRD	Running	74 Kidney Contracting Entities, 237,000 beneficiaries

The Shared Savings Program is permanent because Congress wrote it into statute. The rest are CMS Innovation Center tests with fixed end dates, which is why REACH sunsets on December 31, 2026 and LEAD picks up the next day with a ten-year performance period, the longest CMS has run. For the mechanics of either, see MSSP and ACO REACH.

How shared savings work

Four numbers decide whether an ACO gets paid, and they resolve in order.

The benchmark. CMS sets a per-capita spending target for the assigned population, built from historical spending, trended with regional and national growth factors, and risk-adjusted. Risk-score growth is capped: for agreement periods starting in 2024 or later, a positive HCC risk-score adjustment cannot exceed the ACO's own demographic risk growth plus 3 percentage points.
The minimum savings rate. Coming in under the benchmark is not enough. Spending has to be under it by at least the minimum savings rate before any payment is triggered, which keeps random variation from being paid out as performance. A minimum loss rate works the same way on the downside.
The quality standard. An ACO that clears its savings threshold but misses the quality performance standard does not get paid in full. Quality is a gate on the money, not a report card filed afterward.
The sharing rate. What is left gets split. Upside-only arrangements share up to 40%, two-sided arrangements up to 50%, and the full-risk track pays 75% of savings, subject to a cap on the payment.

Most ACOs now carry downside risk. In 2026, 76% of Shared Savings Program ACOs are in a two-sided arrangement and 58% are in the ENHANCED track. CMS reports 82.8% qualify as Advanced Alternative Payment Models, the highest share since the program started.

How patients end up in an ACO

Beneficiaries do not enroll in an ACO and are never told to stay in network. CMS assigns them based on where they got the plurality of their primary care services. An ACO picks one of two assignment methods, and the choice changes how much of the year it spends guessing.

Prospective assignment locks the panel at the start of the performance year. 129 ACOs, a quarter of the program, use it in 2026.
Preliminary prospective assignment with retrospective reconciliation gives a working list up front and trues it up at year-end. 382 ACOs use it, and their final panel is not known until after the year is over.

Either way, patients keep full freedom of choice. They can see any provider who takes Medicare, and every dollar of that care still counts against the benchmark. That is the structural difference between an ACO and a health plan, and it is the one that catches out teams whose instincts come from managed care.

What an ACO is not

Four terms get used interchangeably in conversation and mean different things on paper.

Not a Medicare Advantage plan. An ACO has no premium, no benefit design, no network, and no prior authorization. It works on Traditional Medicare, and its patients keep Original Medicare coverage.
Not an IPA. An IPA is a contracting vehicle that lets independent physicians negotiate as a group. Plenty of ACOs are built on top of one.
Not a CIN. A clinically integrated network is a structure that gives legally independent providers antitrust cover to contract jointly, usually with commercial payers.
Not an MSO. An MSO sells administrative services. It can run an ACO's back office without being the accountable entity.

An organization often is several of these at once. The ACO is the piece holding the Medicare contract.

Where ACOs lose the money they earned

These failures are operational. Every one of them is a data or workflow problem that shows up as dollars at reconciliation.

What goes wrong	Why it costs money
The care team works a stale panel	Under retrospective reconciliation the final assigned list moves all year; effort spent on unassigned patients does not count toward the benchmark
Quality treated as a year-end reporting exercise	The quality standard gates the payment; a shortfall reduces or eliminates savings the ACO already earned
Chronic conditions never re-documented	Risk scores reset annually, so a condition captured last year and not this year quietly lowers the benchmark
Leakage to out-of-network specialists and facilities	Spending counts wherever it happens, and the ACO has no network to steer with
Post-acute placement decided by whoever has a bed	Skilled nursing and readmission spend is among the largest controllable line items in a Medicare population
Discharges found weeks late from claims	The follow-up window that prevents a readmission closes in days, not months

How Pelica supports ACO operations

An ACO's hardest problem is that the work spans systems nobody built to talk to each other: claims for attribution and spend, the EHR for documentation, ADT for transitions, and a quality vendor for measures. Coordinators end up reconciling by hand, and the panel they are working is usually a month old.

Pelica ingests claims, EHR, pharmacy, lab, and ADT feeds into one live record per patient, then runs an AI workforce on top of it: quality gaps, risk documentation, adherence, and network operations worked by copilots that follow up until an item is resolved. Across deployments, customers improve gap closure by 41%, cut weekly assignment prep from 8 hours to 15 minutes, and go live in 2 weeks. The platform runs on 350,000+ members today.

Related terms

MSSP covers the permanent Shared Savings Program in detail: tracks, benchmarks, and quality reporting. ACO REACH covers the full-risk Innovation Center model and its 2026 sunset. Value-based care puts ACOs in the wider context of payment reform, and capitation explains the payment mechanism the newer models use.

Sources

Frequently asked questions

Common questions about what an Accountable Care Organization is, how it earns money, and how it differs from other provider structures.

What is an ACO in simple terms?

An ACO is a group of doctors, hospitals, and other clinicians that agrees to be judged together on the total cost and quality of care for a defined group of Medicare patients. Everyone keeps billing the usual way during the year. At the end of the year Medicare adds up what those patients cost, compares it to a spending target, checks quality, and either pays the group a share of the savings or bills it for a share of the overrun.

How does an ACO make money?

It earns a share of the difference between its actual spending and its benchmark, but only after clearing two hurdles. Spending has to be under the benchmark by at least a minimum savings rate, and the group has to meet its quality performance standard. Upside-only arrangements share up to 40% of the savings, two-sided arrangements up to 50%, and the full-risk track pays 75%, subject to a cap.

Is an ACO the same as a Medicare Advantage plan?

No. A Medicare Advantage plan is an insurance product with a premium, a benefit design, a network, and prior authorization. An ACO has none of those. Its patients stay in Traditional Medicare, keep full freedom of choice, and can see any provider who accepts Medicare. All of that spending still counts against the ACO's benchmark.

Do patients have to stay in network at an ACO?

No. There is no network. Medicare assigns a patient to an ACO based on where they received the plurality of their primary care services, and the patient is never locked in or restricted. They can see any Medicare provider, and the ACO is accountable for what that care costs.

What is the difference between an ACO, an IPA, and a CIN?

An ACO is the entity that holds the accountable care contract with Medicare and carries the financial risk. An IPA is a contracting vehicle that lets independent physicians negotiate as a group. A CIN is a structure that gives legally independent providers a basis to contract jointly, usually with commercial payers. One organization is often all three at once; the ACO is the piece holding the Medicare contract.

How many people receive care through an ACO?

CMS estimates 14.3 million people with Medicare were receiving care coordinated by an ACO as of January 2026, up from 13.7 million in 2025. The Medicare Shared Savings Program accounts for 12.6 million of them, across 511 ACOs and more than 700,000 participating providers and organizations.

Do ACOs take downside risk?

Most do now. In 2026, 76% of Shared Savings Program ACOs are in a two-sided arrangement where they owe money back if spending exceeds the benchmark by more than the minimum loss rate, and 58% are in the highest-risk track. CMS reports 82.8% meet the criteria to be an Advanced Alternative Payment Model, the highest share since the program began in 2012.

The panel your coordinators are working is usually a month behind reconciliation.

Pelica puts claims, EHR, pharmacy, lab, and ADT on one live record per patient, and runs AI copilots that close quality gaps, capture risk documentation, and work transitions until they are resolved. Customers improve gap closure by 41%, cut weekly assignment prep from 8 hours to 15 minutes, and go live in 2 weeks.

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