IPAB — The New Punching Bag

Remember death panels? Politicians have found a new way to use health care reform as a punching bag.

The Independent Payments Advisory Board (IPAB) will be a 15-member expert panel appointed by the president and approved by the Senate that is charged with coming up with ways of cutting Medicare spending when payments grow significantly faster than the rest of the economy.

Last week, President Obama, in his speech outlining his long-term plan for cutting the deficit, upped the ante for IPAB by ratcheting up the level of cuts the board could impose if the senior citizen health care program grew too fast. Congress, under the law, would have to substitute comparable cuts of its own, or the IPAB’s plan would go into effect.

It didn’t take long for the fireworks to start. The New York Times reported this morning that politicians from both sides of the aisle are lining up not only to deep-six the president’s latest IPAB proposal, but to get rid of it entirely. Republicans like Paul Ryan of Wisconsin cried rationing. Democrats like Pete Stark of California said such decisions are better left in the hands of Congress.

Reps. Paul Camp, R-Mich., chairman of the House Ways and Means Committee, and Fred Upton, R-Mich., chairman of Energy and Commerce, jumped on the anti-IPAB bandwagon today. In a letter to the president, they demanded to know what the president meant when he said IPAB should be given more tools to improve quality and lower costs by using “value-based insurance design.” “Would this require a statutory change given that IPAB is not currently allowed to consider changes to the Medicare benefit package?” they wrote.

It’s hard to take seriously complaints from politicians that an independent board set up by Congress will usurp the power of Congress. One of the reasons Medicare costs are out of control is that every effort to rein in spending in one Congress is usually overturned by subsequent Congresses. Look at the annual increase to physician fees, which a decade-old law says should be adjusted between specialties so the entire physician tab for seniors stays within the so-called sustainable growth rate. Year after year, Congress votes more money so no doctor gets a pay cut – call it the unsustainable growth rate.

The Camp-Upton complaint about value-based insurance design (VBID) baffled its architect, Dr. Mark Fendrick of the University of Michigan. His Center for Value-Based Insurance Design, located in their home state, briefed both Congressmen on the concept, Fendrick said in an e-mail.

VBID is an insurance payment system that raises co-pays on services of lower medical value. It has been successfully used by many companies to lower drug costs and to send a powerful economic signal about what tests and procedures are considered medically wasteful. In other words, Medicare, if it adopted VBID for the entire program, would still pay for everything in the benefit package. But beneficiaries would pay more for tests, images, procedures and drugs that experts consider of dubious worth.

The rationing charge raised by Ryan and an editorial in today’s Wall Street Journal is more serious and must be addressed if the IPAB is going to survive. “The so far unidentified technocratic reforms of 15 so far unidentified geniuses” will result in Medicare “arbitrarily paying less for the services seniors receive, via fiat pricing,” which would inevitably lead to “political rationing of care for the elderly, as now occurs in Britain,” the editorial said. “Or else the board will drive prices so low that many doctors and hospitals will drop out of Medicare.”

Yet that’s not the position of the health insurance industry, which understands that holding down costs in Medicare is crucial to holding down costs in plans purchased through private employers. Every major insurance company already has its own panel of experts determining what it will pay for, insurance company executives say. “The idea of having experts making recommendations on how to bring down medical costs is a good idea,” said Robert Zirkelbach, the chief spokesman for America’s Health Insurance Plans, the industry trade group. “The question is whether it will do it or not.”

The problem, according to insurers, isn’t in IPAB, but in the way it was set up. The law exempted the hospital sector from its purview in exchange for a limited pledge to cut costs over the next decade to help the president reach reform’s $500 billion goal. “If there’s going to be an entity to look at costs, you can’t exempt the biggest driver, the hospitals,” Zirkelbach said.

The IPAB “can’t order the system transformations that we need like care coordination and a focus on chronic conditions,” said Kenneth Thorpe, a professor of public health at Emory University. “So the only thing they can really do is cut payment rates.”

In other words, the problem isn’t that IPAB has too much power. It’s that it doesn’t have enough.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect, The Washington Post and Financial Times. You can read more pieces by Merrill at  GoozNews, where this post first appeared.

4 replies »

  1. A clear show of differences between Dems and Republicans on the remarks above. @ Margalit, yes Congressman Ryan has every right to weigh in on this topic as he is Chairman of the House Budget Committee and first to expose the fraud and theft of $500 billion from Medicare to make Obama’s ill fated plan look as though it wouldn’t break the bank.

    Ryan’s plan doesn’t call for “obliterating care for seniors all together” as you state. He would use free market options put forth in the Republican plan that Nancy Pelosi never allowed to be presented before the house.

    This is not about health care it’s about the federal government grabbing 17% of the private sector’s GDP and eventually replacing it with a single payer system. Suggest you Google Hitler’s T-4 program, “The Useless Food Eaters Program” and how those that were determined to fit that category ultimately fared.

    @Barry do you have a clue that at the moment it is the Sec/of Health that makes these decisions when implemented. The rest of the panel would lead to rationing based on price, age, etc. I agree with the rest of your statement providing the plans are developed and run in the private sector. Factually that is what we have now, and of course it’s time to make responsible market driven changes to improve the system.

  2. “In other words, the problem isn’t that IPAB has too much power. It’s that it doesn’t have enough.”

    I agree with this. I’ve said before that I support a panel of experts making judgments about what to pay for and not pay for based on cost and efficacy just as insurers routinely do. To supplement that effort, however, it might also be useful to team up with a panel of actuaries to expand Medicare from one standard plan to four – Bronze, Silver, Gold, and Platinum, just as the insurance exchanges will do starting in 2014. All would have different beneficiary premiums based on the scope of coverage and the actuarial value. The premium for the plan closest to the current standard Medicare coverage would be set to cover what the existing Part B and Part D premiums cover today, probably somewhere in the range of 10%-15% of total costs including hospital bills which are close to half of Medicare’s claims costs.

    At the low end, the Bronze plan might have a high deductible, a narrow provider network, a limited drug formulary and a comparatively high out-of-pocket maximum exposure coupled with the lowest premium. The Platinum plan would have a relatively low deductible, a lower out-of-pocket maximum, a broad provider network and a more extensive drug formulary. The Silver and Gold plans would be somewhere in between and include tiered networks also known as Value Based Insurance Design (VBID). The Silver plan might be closest in actuarial value to the current standard Medicare package, so beneficiaries could potentially save money vs. current law if they’re willing to trade down to the Bronze plan and their healthcare claims are relatively modest in most years. If they want the Gold or Platinum plans, they would have to pay the entire premium difference. There would also likely be less need for MediGap coverage for those who opt to pay for the Gold or Platinum plans.

    Seniors have done quite well, thank you very much, in choosing from a wide array of Medicare Advantage and Part D plans to find what works best for them. They would probably do just as well if they were offered four choices instead of one within the basic Medicare program. Medicare Advantage, Part D plans and MediGap policies would continue in order to maximize choices for beneficiaries.

  3. First of all Mr. Ryan has no business talking about “rationing” care since his “plan” calls for obliterating care for seniors altogether.

    That said, I wish people would stop talking in grotesque riddles like this one from NYT, quoting the President “the authority to make additional savings by further improving Medicare”. Really?

    And then, what exactly are the folks running CMS supposed to be doing under the IPAB regime? Shouldn’t Medicare have enough experts and visionaries to make these “tough” decisions. Why do we need someone like Dr. Berwick at CMS, if all decisions for “improving Medicare” are to be made by yet another layer of unaccountable experts?

    I agree with Pete Stark, why even have a Congress if everything is run by “boards”? Surely there’s a more cost-effective way to approve board members for various “hard decisions” other than maintaining a full legislative branch of government.