How Do ACOs vs. MCOs Compare and Contrast?

A nurse working in an ACO.

Over the past decade, quality has come to the forefront of debates about how healthcare should be administered, assessed, and paid for in the U.S.

Legislation such as the Medicare and CHIP Reauthorization Act of 2015 have made substantial changes to Medicare reimbursement, incentivizing value over volume and rewarding participation in alternative payment models. At the same time, states such as Minnesota and Colorado have continued to modify their Medicaid offerings with new types of accountable care organizations (ACOs). Medicaid managed care organizations (MCOs) also continue to play a pivotal part within that program.

Indeed, both ACOs and MCOs are fixtures of the current health landscape, and as such healthcare professionals should be aware of their respective structures and limitations. In this article, we'll help you further prepare for life after earning your online healthcare MBA by diving deep into ACOs vs. MCOs and exploring how they both influence the ongoing shift away from fee-for-service (FFS) and toward value-based reimbursement (VBR).

What is an Accountable Care Organization?

The Centers for Medicare and Medicaid Services (CMS) generally defines an ACO as a group of "doctors, hospitals and other healthcare providers" that voluntarily coordinate care to better serve Medicare beneficiaries. The Patient Protection and Affordable Care Act (ACA or, informally, Obamacare) includes a more comprehensive definition, detailing who can qualify as an ACO and what requirements they must meet to continue participating in the Medicare Shared Savings Program (MSSP). For example, a qualifying ACO must serve at least 5,000 patients and operate as such for a minimum of three years.

The original logic behind ACO implementation via the ACA was to reduce healthcare costs and improve quality. Toward that end, ACOs within MSSP are held accountable for the cost and of the services they deliver to their assigned Medicare patients, with financial incentives from CMS for reaching certain benchmarks. The different stakeholders in an ACO will work toward those goals by sharing information primarily through technologies such as electronic health records systems ― and syncing operations, so that patients receive more effective and targeted care across all providers while undergoing fewer unnecessary, duplicate and/or potentially risky procedures.

Under an ideal setup, an ACO benefits payers (such as Medicare) as well as patients. A successful ACO can trim the transactional costs of the FFS payment model, which has traditionally rewarded volume over value. Some ACOs even replace FFS with alternatives such as capitation, a model involving fixed payments to providers for each patient regardless of whether they used medical services or not. For patients, an ACO can serve as a highly integrated system of providers who share a common point of reference for each patient. Instead of shifting between disconnected doctors and hospitals, patients get coordinated care that should produce better outcomes at a lower expense.

What do ACOs look like in practice? They may take forms such as physician groups, integrated delivery networks and independent practice associations. In addition to MSSP, they may participate in other CMS programs such as the Next Generation ACO Model or the Pioneer ACO Model.

ACOs can also be configured within private payer networks or Medicaid. More than 20 states had either launched or planned to launch Medicaid ACOs in February 2018. By the end of Q1 2018, there were more than 1,000 total ACOs in operation covering almost 33 million patients, according to a report from Leavitt Partners and the Accountable Care Learning Collaborative.

What is a Managed Care Organization?

MCOs have a longer history than ACOs. Their origin dates back to the Health Maintenance Organization Act of 1973, which authorized the creation of health maintenance organizations (HMOs) that serve as liaisons between patients and providers in negotiating rates and covered services; HMOs, PPOs and point-of-service plans are all examples of managed care arrangements. An MCO can be thought of as any of these networks, each of which has its own agreed-upon requirements for cost, utilization and quality.

The goal of an MCO is similar to that of an ACO, namely to provide economical and effective care to patients. An MCO might set guidelines on which tests are appropriate, how long a patient should stay in the hospital, and what medications they can be prescribed. The managed care administered via MCOs can be contrasted with indemnity or FFS plans, which provide a high degree of patient freedom in choosing providers and utilizing services. In contrast, MCOs and in particular HMOs carefully limit their networks.

Such limitations can be positive or negative for patients, depending on their details. On the plus side, an MCO can ensure access to high-quality care at affordable rates. However, there is the risk that economic expediency can take precedence over sound medicine, leading to networks built primarily to save money rather than to give patients the best possible level of care. Labor unions like the American Federation of State, County and Municipal Employees have cautioned about managed care.

Like ACOs, MCOs are also important components of many Medicaid programs. For instance, in Virginia MCOs can help Medicaid enrollees choose providers and pay for covered medical services. CMS itself touts MCOs as enablers of major savings, superior utilization and higher quality in Medicaid programs. It also regulates the use of MCOs and prepaid inpatient health plans in Medicaid. As of 2019, 40 states contracted with MCOs and PIHPs for Medicaid services.

How Earning Your Online Healthcare MBA Prepares You for a Career at an ACO or MCO

The online healthcare MBA at the George Washington University (GW) includes multiple courses that provide relevant background for navigating ACO and MCO relationships, including:

  • Health Information, Quality and Outcomes
  • HCQ Analysis
  • Issues and Trends in Health Systems
  • Decision Making & Data Analysis
  • Operations Management

The HCMBA track provides an extensive background in both business and healthcare to prepare students for careers in leadership, wherein they will likely deal with ACOs and MCOs in some capacity. To learn more, visit the program overview page, where you can answer a few questions to receive a free copy of the HCMBA brochure with more details.

Recommended Reading

The Realities of America's Healthcare System

How Medicaid and Medicare Are Changing

George Washington University Healthcare MBA Program


Types of Managed Care Organizations

Accountable Care Organizations (ACOs): General Information

Medicaid Managed Care Quality

Delineating Responsibilities across Accountable Care Organizations and Managed Care Organizations

Medicaid Accountable Care Organizations Version 2.0 Underway in Minnesota and Colorado

Reviewing Medicaid ACO Progress in the Leading-Edge States

How Does The Affordable Care Act define ACOs?

After a Slow 2017, ACOs Grow and Expand Their Contracts in 2018

Managed Care Organizations