Franciscan Alliance’s Indianapolis-area hospitals have been named one of the nation’s first 32 accountable care organizations, federal Medicare officials announced Monday.

Accountable care organizations, or ACOs, are one of the key elements of the 2010 health care overhaul designed to rein in galloping increases in health care spending. Hospitals in Indiana have spoken positively about the concept, but only Franciscan Alliance has applied and won admission to the program.

Beginning on Jan. 1, Franciscan will take responsibility for providing high-quality care for 22,000 Medicare patients in central Indiana. If it also spends less money than in the past caring for those patients, Medicare will give some of those savings back to Franciscan as a bonus payment. But if Franciscan spends more money than before, it will have some of its Medicare payments reduced.

The Pioneer ACO program pledges Franciscan to enter similar relationships with other health plans. And in the third year of the program, Medicare could give Franciscan a per-patient payment for a year’s worth of care. Franciscan then would bear the risk of caring for its patients for that amount.

Those methods of payment differ radically from Medicare's current practice, which is simply to pay doctors and hospitals a pre-determined fee for every procedure they perform. That practice is almost universally cited as a reason health care spending rises significantly faster than overall inflation.

“From an industry perspective, the ACO model encourages organizations such as hospitals, physician practices, and other healthcare providers to collaborate closely, thus bringing down the overall costs of medical care,” Jennifer Westfall, executive director of the Franciscan Alliance ACO, said in a prepared statement.

Franciscan’s ACO initially will include hospitals in Beech Grove, Indianapolis and Mooresville, as well as more than 700 physicians. Of those doctors, 180 are employed by Franciscan and the rest, while independent, have agreed to work together to coordinate patient care as part of the ACO.

Some of Franciscan Alliance’s 11 other hospitals may join the ACO effort at a later time, said Joe Stuteville, a spokesman for Mishawaka-based Franciscan Alliance.

The federal Centers for Medicare & Medicaid Services named ACOs in 18 states Monday. Collectively, they will manage care for 860,000 patients. Over five years, CMS estimates, these ACOs could achieve savings of $1.1 billion.

“These Pioneer ACOs represent our nation’s leaders in health systems innovation, providing highly coordinated care for patients at lower costs,” said Marilyn Tavenner, acting administrator of Medicare, in a prepared statement.

Other hospital systems participating in the Pioneer ACO program include Minneapolis-based Allina Hospitals & Clinics, Boston-based Partners Healthcare, and the University of Michigan Health System.

The Pioneer ACO program is distinct from the Medicare Shared Savings program created by the 2010 health law. Rather, it is a test of a particular payment method using the ACO concept. Medicare is trying to work out terms of the ACO and shared savings concepts to entice enough hospitals to participate. Some hospitals have been reluctant to sign up because the program requires significant investments and offers uncertain rewards.