A colleague and former health system CEO recently told us that he often hears accountable care organizations (ACOs) referred to as “a wolf in sheep’s clothing.” 


He was referring to the viewpoint that ACOs differ little from the HMOs that were popular in the late 1980s and early 1990s and that are still active in some parts of the country. 

Similar comments were commonplace when the concept of an ACO was first developed four or five years ago. For example, one colleague said she could not see the difference between the often-despised primary care gatekeepers of the early health maintenance organizations (HMOs) and the patient-centered medical homes (PCMHs). Yet we believe there are substantial differences between the gatekeepers of early HMOs and PCMHs—and, more broadly, between ACOs and managed care.

In our view, ACOs are part of the movement toward population health management, with a strong emphasis on quality improvement, greater patient access, and cost containment (the Triple Aim). How ACOs go about achieving these aims differs somewhat from what we saw in the movement in the 1990s toward tightly managed care, with its emphasis on cost control. Advances and broader application in clinical information systems (electronic health records [EHRs] and more), coupled with the enhanced ability to analyze claims data in real time, have paved the way for other important changes. The industry’s increasing recognition of chronic disease as a cost driver, and of the need to manage the conditions of patients with chronic disease more closely, is also part of the picture.

A few additional background factors do suggest similarities between ACOs and old-fashioned HMOs. For example, hospital employment of primary care physicians exploded during the managed care era, and then (in the face of heavy financial losses) declined for a few years before picking up speed again about five years ago. The difference is that this time the physician employment train has included some specialists. 

There also has been growing recognition of the importance of physician leadership in hospitals and health systems, with the result that many organizations are beginning to look more like integrated systems. (Our earlier research on large integrated systems identified the role of physician leaders in shaping the culture of the organization.) 

Leaders of hospitals and medical groups often express an interest in becoming more integrated to be able to better coordinate care, reduce waste and redundancy in care, and lower costs. Employing physicians also enables health systems to begin to experiment with new forms of physician compensation and more easily form bundles of services to be paid at a fixed price. 

The quality movement, which began in earnest in health care about 20 years ago, continues in most organizations, including both hospitals and larger medical groups. There was fear among consumers in the height of the managed care boom that providers would shirk on quality; we believe most organizations now have the data to dispel that concern. 

An apparent change in the relationship between health plans and providers is another differentiating factor. This relationship is not as adversarial as it was 15 to 20 years ago. In many cases, health plans are funding health system efforts to deliver improved, coordinated care for patients with chronic disease. For example, nurse care coordinators at Danville, Pa.-based Geisinger Health Sytem are funded by the Geisinger Health Plan, and nurse care coordinators at Catholic Medical Partners in Buffalo, N.Y., are funded by several local health plans. 

Our interviews with health plan leaders suggest that many health plans are actively encouraging delivery reform—and sometimes financing it—among medical groups and hospitals. There is more of a collaborative environment out there today. 

One other difference between the 1980s and today is that there is greater emphasis today on patient education and accountability—often described as patient engagement. The physician leader of an 800-physican group told us that his organization is particularly focused on this issue. Employers and health plans also are encouraging greater patient engagement.

Specific Comparisons

We have identified five major differences between ACOs and tightly managed care in the form of HMOs, which are highlighted in the exhibit below.a

The first item for comparison, gatekeepers versus PCMHs, reflects one of the most significant differences between ACOs and HMOs. In the past two years, we have observed a massive movement toward PCMHs. These entities, which usually are composed of three to five primary care physicians and have an EHR, are designed to coordinate patient care, including specialist referrals. Some use clinical care coordinators (nurses) to focus on sicker patients, especially those with chronic disease. PCMHs are care managers, not gatekeepers. Most ACOs have embraced the PCMH model of care; they have not shown any tendency to use gatekeepers, however. 


Business Intelligence Exhibit

The second item on our list, prospective versus retrospective review, also represents a major difference. By engaging in prospective review, HMOs had to clear hospital admissions and specialist visits (a requirement often derided as “Mother, may I?”). In ACOs, the review occurs after the fact. The new Centers for Medicare & Medicaid Services shared savings plans are a prime example of retrospective review: Providers won’t find out how they did in controlling utilization until several months after the close of the accounting period. 

We are aware of some ACOs that are developing actuarial data and analytical capabilities to understand and utilize their clinical data in as close to real time as possible. The data are being used to reduce unwanted variations in care delivery, help care coordinators manage high-risk patients, and optimize care across settings. 

The third item, comparing risk-adjusted payment with capitated payment that is not risk adjusted, also reflects a significant difference between ACOs and HMOs. The CEO of a primary care network that also accepts financial risk for specialty care told us that, without risk adjustments in the population of the Medicare Advantage product, it would be impossible to make money on capitated payment. “With risk adjustment, we love taking care of older, sicker patients,” she said. Risk adjustment was not part of most early HMOs, and they tended to avoid sicker people.

We also regard ACOs’ focus on those with chronic disease, the fourth item, as a key difference. The HMO approach did not normally differentiate among subscribers; it treated a 27-year old healthy patient the same as a 59-year-old patient with chronic obstructive pulmonary disease (COPD). As we know, the big dollars to be saved in health care are in better managing those with chronic illnesses such as diabetes, COPD, and congestive heart failure. 

The fifth item—regarding the general availability of the EHR combined with analytics tools to analyze claims data—represents a huge difference between ACOs and HMOs. Physicians who are out of line in their treatment protocols, or whose quality of care is below average, can be more quickly identified and guided to corrective action. 

A Difference Worth Noting

There is a fair amount of skepticism about the future of ACOs, but we see them as an important part of bending the cost curve. The U.S. healthcare system, as well as the nation, has a lot at stake in the success of this latest experiment in improving quality and containing costs. Healthcare leaders in the provider community who fully understand and are able to articulate the important differences between ACOs and HMOs can play an important role in ensuring the nation achieves that success.

Keith D. Moore is CEO, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter.

Katie Eyestone is a senior consultant, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter. 

Dean C. Coddington is a senior consultant, McManis Consulting, Denver, and a member of HFMA’s Colorado Chapter.

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