What does PPACA mean by an ACO? Dr. Elliott Fisher of Dartmouth Medical School, a primary originator of the concept, defined it as “a provider-led organization whose mission is to manage the full continuum of care and be accountable for the overall costs and quality of care for a defined population” and listed several provider groupings that could form ACOs. PPACA provides additional criteria, including having a formal legal structure and administrative systems, meeting CMS requirements for quality assurance and reporting, and serving at least 5000 Medicare beneficiaries. PPACA also specifies a deadline for the ACO pilot: “Not later than January 1, 2012, the Secretary shall establish…a program…”

The goal of an ACO is to reduce costs and improve quality of care through cooperation and coordination among providers, similar to that achieved by integrated delivery systems like Geisinger, HealthPartners, and Intermountain Health Care, but within what may be essentially a virtual organization superimposed on a loose network of providers and covering only a subset of patients.

The ACO concept has been enthusiastically supported by an impressive list of health care experts, plus Dartmouth and the Brookings Institute, but not by Jeff Goldsmith, the author of a critical piece posted on the Health Affairs blog. Goldsmith is particularly skeptical about the difficulty of getting providers to work together, noting “a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care…” Goldsmith is also doubtful about economic aspects of ACOs: “40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.” In a rebuttal piece, Brookings’ Dr. Mark McClellan and others defended ACOs as a critical step away from volume-based health care payment and toward better care at lower cost, but provided no examples of successful implementations.

And that’s the problem. Like some mythical medieval creature, the ACO has not been sighted, other than within existing formal organizational structures in which providers are subject to centralized management—and payment.

This doesn’t mean that we won’t be reading about some ACO successes.  The Brookings-Dartmouth ACO Learning Network has attracted an impressive list of interested provider organizations and is assisting in pilot implementations. However AultCare and Carilion Clinic—the Network’s first pilot sites—both have existing health plans and have much in common with integrated delivery systems. Even so, efforts to revamp IT and financial systems have been substantial, with key details—like how to reward providers for cost savings—still to be worked out, according to a recent article in Modern Healthcare.

Prospects for the virtual forms of ACOs seem much less promising, given the need to create, more or less from scratch, the support systems necessary to make the concept feasible, plus the extreme difficulties of changing the mindset of providers who may demonstrate Goldsmith’s “thundering lack of collegiality.” Vermont—where the ACO concept has been studied since 2008, and where the schedule for pilot project start-up has already slipped a year, to 2011—provides a measure of the time and effort involved, with a recent Commonwealth Fund report providing a lengthy list of “lessons learned” (so far, that is).

An even greater obstacle than lack of provider collegiality may be provider fear of loss of income.  Physicians used to having control over their own fee-for-service world may well hesitate to sign up for a  “share of savings” that is dependent on reduced billings by ACO providers, especially if the share will be net of the administrative costs necessary to support the ACO.

None of this means that Dr. Fisher and his colleagues are wrong in their objectives. If the health care “waste” identified by the Dartmouth Atlas project and other studies is to be reduced, providers must work cooperatively.  It may even be that successful implementation of ACO concepts, first by formal integrated delivery systems, and then by less tightly organized systems with existing central management, will start to put enough pressure on other providers they too begin to look beyond billings to better integrated patient care.

Or more likely not, at least in the near term, given the practical and behavioral problems involved. ACO principles of a continuum of care, resource planning, and performance measurement represent huge challenges to all but centrally managed systems. Unless the CMS ACO pilot is to be based on such a system, its deadline seems unlikely to be met, and yet its objective—to use another medieval analogy—of finding a way to turn the leaden dross of health care waste into the gold of high performance care depends on making the ACO concept work in much looser networks —and CMS has shown very little talent for alchemy.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE [reformupdate.blogspot.com].