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U.S. health insurer Aetna Inc. (AET - Analyst Report) has agreed to form an Accountable Care Organization (ACO) with PinnacleHealth System. This is in sync with the company’s efforts to improve safety and quality of patient care and a move towards more affordable health care.

An ACO is a collaboration of health care providers who voluntarily form alliances to provide coordinated high quality care to patients. An ACO is accountable for the quality, cost, and overall care offered to members.

With this ACO agreement in place, Aetna wishes to introduce both fully insured and self-insured healthcare plans in Central Pennsylvania. A fully insured product will be available on April 1, 2014. A small-group product for groups of between two and 50 employees will be available from Jul 1, 2014.

ACOs or collaborative accountable care is one of the several ways by which policies undertaken under President Obama will go to improve the quality of health of all Americans.

Aetna is aggressively expanding its ACO strategy by collaborating with provider systems, which includes multi-payer primary care, Medicaid primary care, state-wide ACOs and multi-line multi-payer ACOs. As a consequence, Aetna’s ACOs are gaining traction and enhancing its core business. Aetna plans to hit a total of 30 ACOs by the end of 2013. The company intends to double this again in 2014 to 60 ACOs. Aetna has over 200 ACO deals in its pipeline that could serve 60% of the U.S. population. ACOs allow the company tighter control over medical management, generating on average 10% savings. Aetna’s ACO strategy will enable it to attain highly competitive cost structures.

Other health insurers like UnitedHealth Group Inc. (UNH - Analyst Report) and Cigna Corp. (CI - Analyst Report) are also aggressively forming ACOs. Going forward, we expect such patient-centered collaborations to grow rapidly.

Aetna currently retains a Zacks Rank #3 (Hold). A better ranked health care provider under our coverage, Centene Corp. (CNC - Snapshot Report), with a Zacks Rank #2 (Buy) is worth considering.

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