The Patient Protection and Affordable Care Act (PPACA) calls for the creation of accountable care organizations (ACOs) as a more cost-effective way of paying for healthcare. In order to succeed, ACOs will have to establish actuarial cost and utilization targets and use medical management to achieve those targets. This process of benchmarking and managing toward targets requires a delicate balance of actuarial and clinical know-how.

This briefing paper offers a practical guide for approaching this analytic and management imperative. In addition to identifying the steps required, it identifies the medical management priorities for an effective ACO and highlights some of the risks involved.