Accountable care organizations, a fashionable name for a loosely defined fix for U.S. healthcare, are the center of debate, gossip and conjecture among policymakers and the healthcare leaders.

But the murky state of the model and poorly received draft regulations intended to clarify the sketch included in the healthcare reform law have not deterred plans among some hospitals, medical groups and payers to make accountable care something real, rather than mere aspiration.

Indeed, the results of Modern Healthcare's first survey of accountable care organizations provide a snapshot of 13 accountable care organizations in the wild that executives say could reduce medical errors and waste with financial incentives for quality and lower costs.

They include everything from fledgling alliances to detailed agreements. Some already track quality and spending under contracts with commercial insurers. Others have yet to complete physician arrangements. A few have poured capital into ancillary businesses.

The wide-ranging mix of initiatives is no accident; accountable care emerged from the nation's health reform debate as a largely untested and loosely prescribed option to overhaul hospital and physician payment and delivery.

But as health systems, medical groups and other providers scramble to draft strategic plans and capital budgets around a working model of accountable care, such uncertainty could prove an advantage or significant risk.

Dr. Elliott Fisher, director of the Dartmouth College Center for Population Health and a proponent of accountable care, said some flexibility is needed to allow the model to take hold across the highly fragmented healthcare industry.

Accountable care, Fisher said, offers financial incentives for hospitals, doctors and other providers to more closely coordinate medical care.

Markets with competitive or highly independent providers would likely need more time and options to develop accountable care than large health systems with an existing network of employed physicians, he said.

Providers who agree to join these endeavors are vulnerable to costly missteps that could put finances and patients at risk. “Organizations will come together and try things, and they will encounter resistance and make mistakes,” said Sara Singer, an assistant professor of health policy and management at Harvard University School of Public Health.

Some mistakes will be significant, including a failure to manage financial risk, as was the case during the managed-care expansion during the 1990s, Singer and health policy expert Stephen Shortell wrote this month in the Journal of the American Medical Association.

“The important thing is to learn from those mistakes,” Singer said.

Modern Healthcare's survey included responses from 13 groups that reported ACOs large and small, in various stages of development. In South Carolina, an effort won't be fully up and running for two years, one official said. In Arizona, California and Illinois, operating accountable care organizations have months of data or first-year results.

Advocate Health Care in Oak Brook, Ill., reported the survey's largest accountable care organization, by number of participating doctors. In January, the health system and Blue Cross and Blue Shield of Illinois launched an ACO with 3,900 physicians and 350,000 enrollees and the health system's 10 hospitals.

The smallest respondent by the number of physicians (30) was the Southeast Texas Accountable Care Organization in Houston.

Health systems seeking to build an ACO must persuade the correct number and mix of physicians to join.

In Johnson City, Tenn., the Mountain States Health Alliance has sponsored trips for local independent physicians to nearby integrated health systems to learn more about accountable care, said Dr. David Moulton, an internal medicine physician with State of Franklin Healthcare Associates.

Moulton said the 65-physician medical group, composed largely of primary-care doctors, is considering Mountain States' proposal for an ACO. State of Franklin, though a major primary-care provider in the local community, does not have the estimated $1.8 million needed to build an ACO and would need a well-funded partner to do so, Moulton said. “You know you're going to have to have partners,” he said.

But access to capital investment won't be enough, Moulton said. Primary-care doctors fear hospital-employed specialists will dominate accountable care contracts and leadership. He said the doctors will seek “to be treated in a fair way.”

A program at Atlantic Health System's Gagnon Cardiovascular Institute seeks to reduce readmissions, the type of initiative that will be crucial to the success of its ACO.

New financial incentives could intensify existing conflicts between hospitals and physicians should one party exploit accountable care to boost market power, health policy experts Singer and Shortell cautioned in their journal article. Singer, in an interview, said growth to gain market clout contributed to failures in the 1990s during the push to slow health spending through managed care. Hospitals and medical groups in accountable care networks also face another familiar risk from the era of managed care: financial losses should they fail to curb healthcare costs.

Information technology has improved in the past decade, but it's unclear if technology can meet providers' needs and evolve rapidly enough to keep pace, Singer said. She and Shortell warned that hospitals and health systems risk underestimating the cost and potential disruption caused by adoption of information technology, which could undermine their ability to track quality performance within ACOs.

“What will matter in the long run is the resilience of the organizations and the partnerships,” Singer said, “and their ability to try, test, refine and improve on a path to making it work.” How organizations learn when efforts fail will matter, she said, but those lessons could come at a price.

“I think it is certainly valid to suggest that some of the mistakes could be quite costly,” she said.

Success will depend on several factors, Fisher said, including hefty financial incentives tied to quality measures and freedom for patients to choose providers. Those elements are safeguards for patients against providers withholding care for purely financial reasons, he said.

It is because of quality incentives, Fisher said, that federal policymakers have allowed more leeway for various alliances between hospitals and doctors as long as ACOs produce results, he said.

Congress authorized Medicare to offer accountable care payments under the 2010 Patient Protection and Affordable Care Act, one of several payment reform proposals to be tested under the law.

Southeast Michigan Accountable Care, based in Dearborn, Mich., and Atlantic ACO, based in Morristown, N.J., aren't scheduled to start until Medicare begins accountable care payments in 2012.

Dr. David Shulkin, vice president for Atlantic Health System and president of the Morristown Medical Center, said he hopes to see the system's accountable care network well-positioned to qualify for the Medicare program. “I don't want to sound Pollyanna-ish,” he said. “It really is clear to us that healthcare is going to change and there is going to have to be leadership” from doctors and health systems, he said.

Many leaders in the healthcare industry sharply criticized proposed rules for Medicare accountable care, but final rules have not been released. Still, Atlantic Health continues to recruit doctors to participate once Medicare offers three-year contracts, he said. Atlantic Health agreements require doctors to electronically share patient-care data; meet criteria for meaningful use of information technology; and report specified quality measures.

“If we were to wait until the final rules are published and then give ourselves time to analyze and decide based on the final rules, we would not have enough time,” Shulkin said.

The majority of Modern Healthcare survey respondents reported forming ACOs following passage of the law, though groundwork for some began prior to the Affordable Care Act amid increased pressure to curb health spending, said executives with surveyed ACOs.

“With limited dollars ahead of us, we're going to have to manage the health of our population,” said Dennis Vonderfecht, president and CEO for Mountain States Health Alliance, a health system that owns eight hospitals in two states.

Mountain States board of directors approved strategic plans for an accountable care group two months after the law passed, he said. Mountain States moved to convert an existing provider organization, Integrated Health Solutions Network, into an accountable care organization in April.

“The fact is we're running out of money for healthcare,” Vonderfecht said. “The incentives will have to change our way of operating within that new environment.”

Medical groups and hospitals have seen pressure to curb costs intensify as the recent recession and weak economy forced lawmakers to grapple with state and federal budget deficits. Meanwhile, the Affordable Care Act staggered significant changes over several years with a massive health insurance expansion scheduled for 2014.

“Having a price competitive product is going to be critical” for Advocate Health Care starting in 2014, said Dr. Lee Sacks, executive vice president and chief medical officer for the health system.

Advocate and the Illinois Blues agreed to a three-year accountable care contract. Sacks said the partners hope to earn a financial return as they design programs to manage population health. Lower costs would better position the health system for upcoming insurance exchanges, he said, where low- and middle-income households can buy subsidized insurance plans starting in 2014.

Sacks said providers agreed to manage health spending and are eligible for bonuses based on savings, should the accountable care organization prove less costly than the local market.

He declined to provide details of how much providers must save to earn bonuses or the percentage of savings that could be awarded, citing a confidentiality agreement.

The accountable care incentives differ from prior Advocate physician contracts that included pay-for-performance agreements.

Sacks said prior agreements, which awarded up to 10% of health spending as bonuses, resulted in conflicting incentives for physicians. Bonuses rewarded quality gains, but incentives did not offset lost revenue as providers improved operations, he said. Nonetheless, those contracts provided experience and templates for the accountable care contract, which expanded to include hospitals, he said.

Advocate was not the only survey respondent with an operating ACO, and some are even further along in the experiment.

Norton Healthcare, which is headquartered in Louisville and owns four Kentucky hospitals, and insurer Humana ended the first year of an ACO test in June. The pilot is one of five organized by Dartmouth University and the Brookings Institution. The ACO includes 176 doctors and 6,026 Norton and Humana employees, according to the survey.

Blue Shield of California is midway through the second year of its accountable care pilot with Catholic Healthcare West and Hill Physicians.

During the first year, the San Francisco-based Catholic Healthcare West and the medical group saved $16 million.

Kristen Miranda, vice president for provider network management for Blue Shield of California, said the savings eliminated an estimated 9% to 10% increase in health spending for 41,500 California Public Employees' Retirement System enrollees.

The partners spent eight months ahead of the ACO launch identifying potential savings from unnecessary variation in medical care, pharmacies and other areas, Miranda said. Now the partners face another challenge: Finding additional savings has grown more difficult, she said. “That's the good news and the bad news.”

Savings for the second year, now under way, are projected to total $7 million to $9 million and are expected to decline further the following year, she said.

Among survey respondents not yet under way with a population of patients, some are busy laying the clinical foundation for the payment incentives. Palmetto Health Quality Collaborative, which has reached participation agreements with more than 200 doctors, will collect quality data for one year before adopting financial incentives, said Dr. William Gerard, an emergency room physician with three-hospital Palmetto Health, in Columbia, S.C.

While many accountable care organizations are being assembled through alliances among physicians, hospitals and payers, some survey respondents have expanded into new business lines to prepare for accountable care.

In Tennessee, Mountain States launched its own health benefit company after talks to launch an ACO with commercial health plans failed.

The system switched its own workers into CrestPoint Health, its newly created health benefit manager, after the health system dropped a national insurer that previously managed employee health benefits in July.

Robert Slattery, president and CEO of Mountain States' Integrated Health Solutions Network, said the system eventually hopes to design employee health benefits with incentives for workers who actively monitor their health and treatment options.

In New Jersey, Atlantic Health System became part owner of a company that will manage IT and financial reporting for its ACO, Shulkin said.

As an owner, the health system will be able to exert control over the company that it would lack as a customer, he said. Such influence will matter as accountable care evolves, he said. Shulkin declined to name the company or the price of the deal, but called the investment “significant.”

Leaders in the early wave of accountable care say ACO investments are risky, but so is the chance they could be left behind.

Agnesian HealthCare in Fond du Lac, Wis., made a significant investment in information technology after officials agreed to form an accountable care network with four other Wisconsin health systems, said Steven Little, Agnesian's executive vice president.

Fearful the hospital could fall behind policy changes, Agnesian executives began work to prepare for accountable care months before the Affordable Care Act became law, said Little, who was named to succeed the hospital's retiring president and CEO next year. “We believed in the principles of accountable care,” he said.

Executives found the cost to go it alone daunting, he said. When a Milwaukee-based hospital proposed a joint effort, Agnesian agreed. No one “wanted to give up financial independence, or independence in general,” so to overcome potential antitrust hurdles, the partners began working toward closer clinical ties, he said.

The five partners have nearly finished reporting criteria for quality measures that each will submit to a joint repository. The data will become the base for proposed accountable care payments with commercial insurers, possibly as early as 2013.

Little said he is not aware of another arrangement similar to the five-partner accountable care group in Wisconsin. “I don't know that any of us know exactly where we're headed with this,” he said.

Neither do insurers.

Payers, who fear healthcare providers will gain leverage as they consolidate in the name of accountable care, are “skeptical of what our ultimate goal is” but have welcomed officials with the Wisconsin ACO during early talks, Little said.

Little said he is encouraged and optimistic about the success of the endeavor, but acknowledged he does worry about risks. “Until we see some tangible results, we're just pumping money into something that hasn't any proven benefit to society,” he said. “Stay tuned.”