New Gov't Health Board Hinders Long-Term Health Care

A series of hearings were concluded on Thursday in which Health and Human Services Secretary Kathleen Sebelius was called to defend the Independent Payment Advisory Board (IPAB) created by last year’s health care reform legislation. The board, which fast tracks recommendations to keep Medicare spending from exceeding certain targets, has been the subject of intense discussion of late, with repeal legislation in the House garnering 150 bipartisan co-sponsors and an open letter to Congress from more than 270 groups demanding its rescission. The ire is not without good reason: IPAB’s design is fatally flawed, and it will invariably lead to access problems for our seniors, stymied innovation and neglect of the long-term systemic improvements that patients deserve.

Medicare spending has outpaced projections for as long as the program has existed. Created in 1965, the program had already increased hospital spending by almost 40% by 1970, and actuaries in 1965 estimated that by 1990, the program costs would be a mere $9.1 billion. Instead, they were $67 billion. 

Medicare utilization is roughly 50% higher than that of private health insurance – even after adjusting for age and medical conditions – due in large part to incentives. Simply put, when people are insulated from the cost of a desirable good or service, they use more of it. When your out-of-pocket cost for something nears zero, your marginal utilization is virtually unchecked, save the time-price of acquiring the service.

IPAB will not change this. In fact, it is prohibited from even trying to.  

The 2010 Affordable Care Act (ACA) stipulates that IPAB be prohibited from recommending changes to either the benefit structure or premium and cost-sharing arrangements of Medicare Parts A and B, meaning that those things capable of making long-term improvements to the program are off-limits. Combined with a statutory restriction on cuts to hospitals, nursing homes and hospices until 2020, as well as year to year spending targets, there is not much more that the IPAB can do to meet its mandate, save for cuts to physician services.

This may sound familiar to some, as Medicare already has a trigger mechanism should spending outpace targets. Actually, it has several. Price fixes on inpatient hospital expenses were imposed in 1983, on physicians’ services in 1992 and on outpatient hospital expenses in 2000. In 2003, the Medicare Modernization Act (MMA) required the president to submit a cost-saving plan to Congress on an expedited basis should more than 45% of Medicare outlays be needed from the general treasury.

The most familiar trigger mechanism, the sustainable growth rate (SGR), was created in 1997. If spending in one year exceeds the limit set by the SGR then an automatic cut in provider reimbursements will take place, unless Congress overrides it. For the last nine years it has done so with the knowledge that severe cuts to provider reimbursements will significantly impact seniors’ access to needed care. This year the cut is 29.5%, though we are still waiting for a congressional fix.

The rules surrounding IPAB will make a congressional override of the SGR more difficult in the future, making it almost certain that provider fees will be on the chopping block and that seniors’ access to care will hang in the balance.

IPAB recommendations will be given fast track privilege. It will be treated as if it has already received a cloture vote in the Senate, and a supermajority will be needed to override it, a task much more difficult than the simple majority needed to override the SGR. However, even a supermajority cannot override the will of IPAB outright. While it can negate the cuts made by the board, it must come up with equivalent savings for its will to carry the force of law. In short, this means that the cuts Congress overrides every year due to bipartisan concerns over access will be made unless Congress makes those cuts.

None of this should be interpreted to mean that significant savings in the Medicare system are not needed, or even that they are impossible. The IPAB is, however, ill suited to make the necessary changes, as is the ACA. A fundamental realignment of incentives is ultimately necessary to ensure that providers, payers and patients are all working towards the same goals: improved access, improved quality and reduced cost. However, none of these things can be achieved as long as simplistic notions of price-fixing remain the de facto Washington policy.

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