The "Other" Medicare Pilot Program

Everyone involved in healthcare knows about ACOs.  Every healthcare publication contains at least one article about them.  Every seminar has a session describing them.  They're on every consultant's lips.  Google "ACO" and you'll find dozens of references to them (along with "ant colony optimization" and the American Cornhole Organization, which presumably have nothing to do with health reform). 
 
Yet look past Section 3022 of PPACA that describes ACOs and you'll see Section 3023: "National Pilot Program on Payment Bundling".  Almost nobody is talking about it, yet it may provide significant opportunities for certain hospitals to create cost savings and facilitate physician integration at the same time.
 
On the surface the two programs may appear similar, but they're very different.  ACOs focus on managing the health of a covered population; bundled payment organizations concentrate on reducing costs of certain inpatient stays.  ACOs focus on primary care physicians; bundled payment organizations are mostly involved with specialists.  ACOs have both upside and downside risk (with timing dependent on which model the ACO selects), and share their savings with CMS; bundled payment organizations have upside and downside risk but keep all of their savings.  ACOs may receive a bonus payment from CMS that's based on a risk-adjusted target; bundled payment organizations' savings accrue strictly from reducing hospital costs and other costs that would be paid by Medicare for inpatient services.  While it appears that hospitals hospitals and physician organizations could participate in both programs, they may not have sufficient resources to do so and should therefore consider both options before committing to either of them.
 
Singletrack Analytics has prepared a white paper on Evaluating the Medicare Pilot Programs  that may be of interest.  Also review numerous blog postings that deal with the bundled payment initiative.
(This post was revised subsequent to the issuance of the proposed ACO regulations on March 31 2011.)