Managed Care Organizations (MCOs) vs. Accountable Care Organizations (ACOs): Differences, Similarities and Future Transformation

Introduction

For decades, U.S. health care has struggled with high costs, fragmented care and uneven quality. Two organizational models were designed to address these problems: managed care organizations (MCOs), which grew rapidly in the 1980s and 1990s, and accountable care organizations (ACOs), which expanded after the Affordable Care Act created the Medicare Shared Savings Program in 2012. Both aim to deliver better care at lower cost, but they differ in who leads them, how they are paid and how much freedom patients have. Understanding these models, and how they are changing, matters for nurses, administrators and patients alike.

What is a managed care organization?

An MCO is a health plan that integrates the financing and delivery of care. It contracts with a defined network of providers, manages the use of services and pays providers in ways designed to control costs (Shi & Singh, 2022). Common types include:

• Health maintenance organizations (HMOs): members use in-network providers and usually need a primary care referral to see specialists.
• Preferred provider organizations (PPOs): members may see out-of-network providers at a higher cost.
• Point-of-service (POS) plans: a hybrid of HMO and PPO features.

MCOs use tools such as provider networks, capitation (a fixed payment per member per month), prior authorization, utilization review, formularies and care management. Today, managed care dominates public programs: 54% of eligible Medicare beneficiaries were enrolled in Medicare Advantage plans in 2025 (KFF, as reported by Home Health Care News, 2025), and most Medicaid enrollees receive coverage through comprehensive managed care plans.

What is an accountable care organization?

An ACO is a group of doctors, hospitals and other providers who voluntarily come together to coordinate care for a defined population and share accountability for its quality and total cost. The concept was described by Fisher et al. (2007) as an “extended hospital medical staff” accountable for the care of a population. In Medicare, ACOs remain paid largely through fee-for-service, but they can share in savings if spending falls below a benchmark and quality targets are met, and in two-sided models they also share in losses.

ACOs are growing. In 2026, about 14.3 million people with Medicare receive care through an ACO, including about 12.6 million in 511 Medicare Shared Savings Program ACOs, and 82.8% of these ACOs are in risk-bearing tracks, the highest share since the program began (Centers for Medicare & Medicaid Services [CMS], 2026). CMS’s ACO REACH model ends on December 31, 2026, and a new 10-year model, the Long-term Enhanced ACO Design (LEAD) model, is scheduled to begin in 2027 (CMS, 2026; Center to Advance Palliative Care [CAPC], n.d.).

Similarities

• Shared goals: both aim to control costs, improve quality and coordinate care, consistent with the Triple Aim of better care, better population health and lower per capita cost (Berwick et al., 2008).
• Population health focus: both manage care for a defined group of people rather than single episodes.
• Emphasis on primary care and prevention: both rely on primary care to coordinate services and prevent costly hospitalizations.
• Care coordination and data: both use care managers, data analytics and quality measures.
• Financial incentives tied to cost and quality: both move away from paying purely for volume.
• Accountability for outcomes: both report quality metrics, such as preventive screenings and patient experience.

Differences

A simple way to remember the difference

An MCO manages care from the payer side, deciding what will be covered and how providers will be paid. An ACO manages care from the provider side, with clinicians organizing themselves to deliver coordinated, high-quality care and sharing in the financial results.

The current health care environment

Several forces are shaping both models today:

• Rising costs and federal spending: Medicare Advantage growth has increased federal spending and prompted debate about how plans are paid.
• Push toward value-based care and risk: CMS aims to move more providers into accountable, risk-bearing arrangements, and most MSSP ACOs now take on two-sided risk (CMS, 2026).
• Prior authorization reform: federal rules require Medicare Advantage and Medicaid managed care plans to speed up and report on prior authorization decisions and to adopt electronic processes, in response to concerns about delayed and denied care.
• Aging and chronic disease: more older adults with multiple chronic conditions and dual Medicare–Medicaid eligibility need coordinated care.
• Health equity and social determinants: payers and regulators increasingly expect organizations to address housing, food, transportation and other social needs.
• Technology: telehealth, remote monitoring, interoperable data and artificial intelligence are changing how care is delivered and managed.
• Workforce shortages and consolidation: staffing shortages, health system mergers and vertical integration (insurers owning provider groups) are reshaping markets.

Speculation: how MCOs and ACOs may transform

1. The two models will continue to converge

The line between payers and providers is blurring. Insurers increasingly own physician practices and care delivery organizations, while large health systems create their own health plans or take on full risk through ACOs and Medicare Advantage contracts. In the future, many organizations will be hybrids: payer-provider partnerships in which MCOs contract with ACO-like provider groups under capitated or shared-risk arrangements. Consumers may experience fewer distinctions between “their plan” and “their care team.”

2. More risk, longer commitments and more complex patients

CMS’s move to the 10-year LEAD model signals a long-term commitment to accountable care and an effort to include providers serving dually eligible people and safety-net settings such as federally qualified health centers and rural clinics (CAPC, n.d.). ACOs will likely take on more downside risk and specialize in high-need populations, such as frail older adults, people with serious illness and people with kidney disease, using intensive care management, home-based care and palliative care.

3. MCOs will be pushed to reduce friction and prove value

With scrutiny of prior authorization and payment practices, MCOs will likely streamline or eliminate prior authorization for routine services, use electronic real-time approvals and compete more on quality ratings, member experience and supplemental benefits. Plans that rely on denials to control costs may face stronger regulation and reputational risk (HHS-OIG, 2022). Successful MCOs will shift toward partnering with providers to manage care rather than policing it.

4. Consumer-centered, whole-person care

Consumers increasingly expect convenience, transparency and personalization. Both models are likely to expand:

• telehealth, remote patient monitoring and hospital-at-home programs;
• digital tools for scheduling, cost estimates and communication with care teams;
• benefits that address social needs, such as transportation, meals and housing support;
• integrated behavioral health and primary care;
• culturally and linguistically tailored care to reduce disparities.

5. Data, analytics and AI-driven care management

Both MCOs and ACOs will rely more on predictive analytics and AI to identify high-risk patients, close care gaps and personalize outreach. This could improve outcomes, but it also raises concerns about algorithmic bias, privacy and transparency in coverage decisions, which will require strong governance and regulation.

6. Growing roles for nurses and advanced practice providers

Value-based models depend on care coordination, transitions of care, patient education and chronic disease management, which are core nursing strengths. Nurse care managers, nurse practitioners and community health workers will play larger roles in both MCOs and ACOs, particularly as physician shortages continue.

Potential challenges

• Small, rural and independent practices may struggle with the investment and risk ACOs require.
• Consolidation may reduce competition and raise prices.
• Savings from ACOs have been real but modest, so policymakers will continue to adjust benchmarks and incentives (McWilliams et al., 2018).
• Balancing cost control with patient access and choice will remain the central tension.

Sample discussion post

Managed care organizations and accountable care organizations both aim to improve quality and control costs by coordinating care for defined populations, consistent with the Triple Aim (Berwick et al., 2008). The key difference is who leads and bears risk. MCOs, such as HMOs and Medicare Advantage plans, are usually payer-led; they collect premiums, contract with networks and use tools like prior authorization and capitation (Shi & Singh, 2022). ACOs are provider-led groups that coordinate care and share savings or losses with payers, while patients in traditional Medicare keep freedom of choice (Fisher et al., 2007). Medicare ACOs have produced modest savings (McWilliams et al., 2018), and their reach is growing: 14.3 million Medicare beneficiaries are in ACOs in 2026, and most MSSP ACOs now accept two-sided risk (CMS, 2026). Meanwhile, MCOs face scrutiny over prior authorization denials (HHS-OIG, 2022). I predict the models will converge into payer-provider partnerships, with ACOs taking on more risk and complex patients under CMS’s new LEAD model, MCOs reducing administrative barriers, and both expanding telehealth, social-needs benefits, data analytics and nurse-led care coordination to meet consumers’ expectations for accessible, whole-person care.

Related reading: Triple Aim vs. Quadruple Aim and using data to improve chronic disease outcomes.

Conclusion

MCOs and ACOs share the goals of lower costs, better quality and coordinated population health, but they differ in leadership, payment, risk and patient choice. In today’s environment of rising costs, value-based payment reform, prior authorization scrutiny, an aging population and rapid technological change, the two models are likely to converge, take on more accountability for outcomes and become more consumer-centered. Their success will depend on balancing cost control with access, equity and patient experience.

References

Berwick, D. M., Nolan, T. W., & Whittington, J. (2008). The triple aim: Care, health, and cost. Health Affairs, 27(3), 759–769. https://doi.org/10.1377/hlthaff.27.3.759

Center to Advance Palliative Care. (n.d.). New Medicare accountable care organization (ACO) model launching January 1, 2027. https://www.capc.org/blog/new-medicare-accountable-care-organization-aco-model-launching-january-1-2027/

Centers for Medicare & Medicaid Services. (2026, February 4). 2026 Medicare accountable care organization initiatives participation highlights [Fact sheet]. https://www.cms.gov/newsroom/fact-sheets/2026-medicare-accountable-care-organization-initiatives-participation-highlights

Fisher, E. S., Staiger, D. O., Bynum, J. P. W., & Gottlieb, D. J. (2007). Creating accountable care organizations: The extended hospital medical staff. Health Affairs, 26(1), w44–w57. https://doi.org/10.1377/hlthaff.26.1.w44

Home Health Care News. (2025, July). Medicare Advantage enrollment reaches 54% in 2025, drives rising federal spending. https://homehealthcarenews.com/2025/07/medicare-advantage-enrollment-reaches-54-in-2025-drives-rising-federal-spending/

McWilliams, J. M., Hatfield, L. A., Landon, B. E., Hamed, P., & Chernew, M. E. (2018). Medicare spending after 3 years of the Medicare Shared Savings Program. New England Journal of Medicine, 379(12), 1139–1149. https://doi.org/10.1056/NEJMsa1803388

Shi, L., & Singh, D. A. (2022). Delivering health care in America: A systems approach (8th ed.). Jones & Bartlett Learning.

U.S. Department of Health and Human Services, Office of Inspector General. (2022). Some Medicare Advantage organization denials of prior authorization requests raise concerns about beneficiary access to medically necessary care (OEI-09-18-00260). https://oig.hhs.gov/oei/reports/OEI-09-18-00260.asp