Medicare Cost Control: A Panel of Paper Tigers
Policy + Politics

Medicare Cost Control: A Panel of Paper Tigers

Medicare’s 15-member Independent Payments Advisory Board (IPAB) , a key component of President Obama’s health care reform law is coming under attack from both ends of the political spectrum.

To Paul Ryan, the conservative Republican chairman of the House Budget Committee, the IPAB is “15 unelected bureaucrats who will ration Medicare."  To Max Richtman, chief executive officer of the National Committee to Preserve Social Security and Medicare, an organization which lobbies for no changes in the two big entitle programs, IPAB “turns Medicare into a scapegoat.”

Last year, in their continuing effort to discredit Obama's health care reform law, Republican attack ads convinced millions of seniors that a proposed provision to pay physicians to help seniors write advanced directives for end-of-life health care planning, which are already quite common, was actually a government plot to pull the plug on granny.

In similar fashion, the IPAB has been lampooned by critics.  The actual significance of the new board may prove to be much less than its political opponents claim, since health care experts on both the left and right say the prospective body has very little chance of blunting the upward march of health care costs. “The IPAB has both hands tied behind its back with one finger loose, which it can shake,” said Joseph Antos, a health policy expert at the conservative American Enterprise Institute.

“The IPAB is limited to dealing with the payment side as opposed to limiting benefit or increasing premiums,” agreed Timothy Jost, a professor of law at Washington and Lee University, who writes frequently on the Affordable Care Act for the pro-reform New England Journal of Medicine. “It’s a real problem.”

The independent advisory board was given the explicit task of trying to reduce the rate of growth in Medicare, the national health insurance program for seniors, without affecting coverage or quality. Unlike MedPAC, which makes recommendations for changes in Medicare reimbursement rates that Congress can ignore, the new system requires Congress to either accept IPAB cost-cutting proposals or come up with its own package of similarly-sized reductions in spending.

Critics say the IPAB would be granted far too much power , and several House Democrats have joined Republicans in support of a bill to repeal the panel.  But opponents of the new agency may be greatly overstating its potential impact on health care costs.

The Congressional Budget Office’s projection for IPAB savings gives one clue to its ineffectuality. CBO expects the cuts that result from IPAB’s work will result in less than $16 billion of savings between 2015, when its first recommendations would go into effect, and 2019. That’s less than four percent of the more than $400 billion in overall Medicare savings identified in the law, most of which will come from reduced payments to hospitals, reduced payments for drugs, and bringing payments for private insurers serving Medicare patients in line with the rest of the program. That level of savings hardly qualifies as rationing.

The viciousness of the attacks is curious given IPAB’s pedigree. The idea of creating an independent board that would come up with ways of holding down Medicare spending had been banging around Washington for more than a decade before being taken up during the last session of Congress. The idea behind it was to insulate Medicare decision-making from stakeholder pressure, whether patient and senior advocacy groups on the one side or hospitals, doctors and other providers on the other. All of those groups deploy powerful lobbyists in Washington and seem to have near unstoppable powers to influence Congress.

To get around that opposition to cost control, the Medicare commission of the late 1990s headed by then Sen. John Breaux, D-La., and then House Ways and Means Committee chairman Bill Thomas, R-Calif., proposed putting teeth in the annual recommendations made by the Medicare Payments Advisory Commission (MedPAC). The moniker given IPAB during last year’s health care reform debate was “MedPAC on steroids.”

But by the time Congress got through with it, the IPAB lacked steroidal muscle. The final bill required the president to consult with Congress before making 12 of 15 appointments to the new board. It also allowed people who previously worked for consumer and provider groups and insurers to serve, and every appointee would face Senate confirmation.

The board would make recommendations to Congress unless health care spending rose faster than the average of the consumer price index (CPI) and the medical component of CPI in any year between 2015 and 2019. After that, the ceiling growth rate for health care spending would change to the annual rate of economic growth plus one percent. Congress could vote down IPAB’s recommendations to bring spending down as long as it substituted its own recommendations for achieving similar savings.

Most observers predict this congressional role will fatally undermine IPAB’s ability to hold down costs. They point to the reduction in physician payments that were passed in 1997. Those cuts assumed there would be huge productivity gains in the delivery of physician services. Every year, when those gains fail to materialize, Congress postpones the physician pay cuts.

In addition, the arenas of health care spending where IPAB could recommend cuts were severely circumscribed. The final bill prohibited IPAB from making any proposal that would “ration health care,” increase premiums or cost-sharing for beneficiaries, or cut payments to hospitals or hospices, at least until 2020.

“The general idea of having experts look at the health care system is a good one,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, which represents the insurance industry. “But the problem is that they’re prohibited from looking at the biggest drivers of medical spending.”

An analysis of IPAB by the Kaiser Family Foundation also said it was not clear if the board could even recommend limits on Medigap policies, privately-sold insurance that supplement Medicare. Most seniors buy these policies to pick up first-dollar coverage, which further insulates them from experiencing the actual cost of care. CBO has estimated that limiting Medigap’s ability to cover Medicare cost-sharing could save over $40 billion in the next decade.

The one area where the IPAB could have a major impact would be to order different payment policies, moving, say, from a fee-for-service model, where Medicare reimburses physicians and hospitals for each service rendered, to bundled payments, where coordinated care teams, perhaps organized in new accountable care organizations, receive a single flat payment for each disease episode. The reform law set up demonstrations projects, but stopped short of ordering a wholesale change in the system.

“It could conceivably impose a whole new pricing mechanism, but it’s unlikely,” said AEI’s Antos, pointing to the prohibition on limiting payments to hospitals. “It can’t really deal with spending because it isn’t given enough tools.”

His solution? “I would want to put Medicare on a budget,” he said.

There’s a word for that, of course. It’s rationing.

Related links:
Republicans Throw the Gauntlet on Health Care Reform (The Fiscal Times) 
Health Care Vouchers vs. Program Cuts by Experts (The Fiscal Times) 
Consumers Face Higher Health Care Costs (The Fiscal Times)