Please tell me in simple terms; exactly what is a Accountable Care Organization?

An ACO or Accountable Care Organization according to the Centers for Medicare and Medicaid Services (CMS):

“ACOs are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve. Coordinated care helps ensure that patients, especially the chronically ill, get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.”

ACOs are not limited to Medicare patients, but are a key element of Obamacare attempting to manage Medicare costs in the future.

ACOs are a version of the HMO concept with the same goals; quality care, coordination of care and as a result less costly care overall. However, ACOs as constituted under the Affordable Care Act are less structured than an HMO. Patients may not know they are part of an ACO (patients are assigned to the ACO by CMS based on their use of providers), patients are not limited to using ACO health care providers while the providers are held accountable for all care the patient receives.

In large measure those who organize themselves as an ACO do so as a defensive measure against the pressure on health care costs and the threat of further reductions in fees paid by Medicare.

According to the American Hospital Association:

There were 428 total accountable care organizations in the US as of January 10, 2013, according to Leavitt Partners’ Center for Accountable Care Intelligence. Every state but Delaware had at least one ACO. This count includes both Medicare and private ACOs.

The group also reports that physician group-led ACOs increased the most over the past year and are now more numerous, though generally smaller, than hospital-run ACOs. Insurers or community-based groups sponsor some ACOs as well, but there are fewer of them.

While Medicare ACOs have similar structures, the private ACOs have a wider range of payment models – full or partial capitation, bundled payments, retainer agreements, in-kind services and subsidies, and pay-for-performance incentives.

Source: Muhlestein D. Continued growth of public and private accountable care organizations. Health Affairs blog, Feb. 19, 2013.