In traditional Medicare payment system hospitals and doctors are generally paid for each procedure and test. According to experts it increases the costs. But ACO’s create saving incentives by providing the bonuses when the providers keep the costs down. Hospitals and doctors are required to meet some specific standards, mainly focusing on prevention. What it means in simple words is that the providers are paid for keeping the patients healthy and out of the hospitals. If for some reason ACO isn’t able to save any money than they could be trapped with investments costs mainly consisting of improvement costs like adding a new nurse manager, they also have to pay a penalty if they doesn’t meet benchmarks of savings and performances. Those ACOs being sponsored by any rural providers or physicians can however apply to receive their payments in advance, in order to help them build infrastructure for a harmonized care.

Read more about ACOs at the link below:
http://alextate07.wordpress.com/2014/02/18/what-is-an-aco-accountable-care-organization/