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U.S. health insurer Aetna Inc. (AET - Analyst Report) has agreed to form an ‘Accountable Care Organization’ (“ACO”) with North American Medical Management, California, Inc. (NAMM), a member of the Aveta Inc. This is in sync with the company’s effort to improve the safety and quality of patient care and make health care more affordable.

The newly formed ACO will offer PrimeCare Physicians Plans – an Aetna Whole HealthSM product.  Aetna will provide NAMM with its health information technology, care management capabilities and point-of-care clinical decision support services. Both Aetna and NAMM will start serving the members from December 1, 2012.

An ACO is a collaboration of health care providers, who voluntarily from alliances to provide coordinated high quality care to patients. An ACO is accountable for the quality, cost, and overall care offered to members. By focusing on the needs of patients and linking payments to outcomes, the model is intended to improve the health of individuals and communities and curb rising health care costs.

ACOs or collaborative accountable care is one of the several ways by which President Obama's administration would like to improve the quality of health of all the Americans. It is viewed as a tool that would deliver seamless, high quality care for the overall population.

The Health Care Reform called for such an arrangement in order to trim down the unnecessary expenses associated with the absence of coordination between multiple physicians and other providers. Most Americans with multiple chronic conditions receive care from multiple physicians, and it has been observed that few patients were not taken care in a coordinated manner by these physicians. A large percentage of the sick population ended up being victims of medical errors and faced hospital readmissions within days of their discharge. Thus, ACOs were formed to reduce the exorbitant amounts spent due to lack of managed care.

Other health insuring giants 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 rapidly grow in numbers.

Aetna currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering its better-than-average fundamentals, we are maintaining our long-term ‘Outperform’ recommendation on the shares.

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