IPAB and Medicare Costs Are Bad Medicine

During the original debate over the Affordable Care Act, I wrote that the proposed law failed to address out-of-control Medicare spending. Two years later, this urgent problem remains.

Medicare is awash in a sea of red ink — $280 billion in cash flow deficits already and getting worse — that is driving the U.S. credit rating south and threatening the very foundations of the U.S. economy. It makes no sense to sit idly by while the social safety net unravels and the promise of our future dims.

Advocates argue the health care law solves this problem. Specifically, it creates the Independent Payment and Advisory Board, which will be formed in 2014 and could make its first recommendations in 2015. This advisory board will consist of 15 officials appointed by the president. Board members will be required to make recommendations to cut Medicare funding in years when spending growth exceeds targeted rates. For Congress to block these recommendations, it must veto the board’s proposal with a 60 percent majority and pass alternative cuts of the same size.

In other words, this board puts Medicare on a budgetary diet. What’s wrong with that?

First, the system is clearly set up so that the advisory board, rather than Congress, makes the policy choices about Medicare. This means that the IPAB is not just an advisory body — despite its name. And policy choices, which should be made by elected representatives, are not.

Second, the advisory board threatens the quality of patient care. It can, in essence, ration the health care available to seniors. While technically prohibited from directly altering Medicare benefits, the IPAB will have no choice but to attempt to ratchet back spending by slashing providers’ reimbursement rates.

We’ve seen this movie before when physicians’ Medicare payment rates have faced cuts. Many physicians have no choice but to limit the number of Medicare patients they see. Others have stopped serving these patients entirely.

Doctors are cutting down on services for Medicare recipients at an alarming rate, according to a recent GMA sustainable growth rate study, because of threats of cuts under the system.

The study shows that 67.2 percent of physician practices are considering limiting the number of new Medicare patients; 49.5 percent are considering the option of refusing new Medicare patients; 56.3 are contemplating whether to reduce the number of appointments for current Medicare patients; and 27.5 percent are debating whether to discontinue service for all Medicare patients.

Keep in mind — this advisory board hasn’t even been formed yet. Once it is formed, expect these numbers to worsen.

A more blatant form of health care rationing could also cut costs. In Britain, the National Institute for Health and Clinical Excellence recommends to the National Institutes of Health which medical treatments the government should cover. Advocates of this approach see the new Patient-Centered Outcomes Research Institute — which is meant to set comparative effectiveness research priorities for the government — as an opportunity to create the U.S. equivalent of NICE.

Defenders of the health care law now argue that the new research institute will just compare similar medical treatments and find those that are most effective — since the statute prohibits the government from using research data as an excuse to dictate coverage decisions. Many fear, however, that the research will eventually be used to cut costs anyway — a fear that could be alleviated by the PCORI itself.

But unfortunately, at a recent research institute forum, when the board discussed its draft of priorities for spending the $1.1 billion in taxpayer money for comparative effectiveness research in the “stimulus” bill (imagine that!), the vague guidelines failed to allay concerns that research data could be used to refuse treatments for patients. That’s the wrong way to cut costs.

Finally, the heart of American health care success has been vigorous medical science and innovation. The new advisory board is a threat to the very innovation that has fostered breakthrough treatments for heart disease, joint failure and many other maladies faced by Medicare beneficiaries.

When faced with the need to cut something — anything — to hit its target, what will IPAB choose? Most likely, it will be looking to the expensive new therapies, drugs and devices that represent the cutting edge of medical advance.

Innovators will not continue to sink billions into research-and-development efforts if the financial rug is regularly pulled from under them.

Medicare does need to be put on a budget. But it should not be done in a way that endangers the very beneficiaries for which it was created — and for whom it should be reformed and preserved.

Douglas Holtz-Eakin is president of the American Action Forum. He served as director of the Congressional Budget Office from 2003 to 2005. This post first appeared at politico.com.

23 replies »

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  2. When economists and policymakers worry about the long-term fiscal crisis, what they’re mostly worried about is Medicare. That’s why a persistent idea during this fiscal cliff season is raising the Medicare eligibility age from 65 to 67. It’s an idea that appears superficially to have many virtues. Bringing the Medicare retirement age into line with the Social Security retirement age seems logical. The change is simple to describe to journalists and the public. And agreeing to reduce spending by keeping the program the same but limiting eligibility for it allows Democrats and Republicans to come together without resolving their fundamental disagreement over what Medicare should look like. *

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  3. Increased fees for procedures create a huge financial incentive to do procedures. That’s why a cardiologist will choose angioplasty as opposed to intense medical management, which is poorly paid. Pay them about equal (from the cardiologist’s perspective), and you will get fewer unreasonable stents.

  4. I do nto disagree with you. Congress and the insurance industry have tried to solve the problem without directly angering the voter/subscriber. It has not worked. No amount of fee reduction will change the patient behavior, only decrease the supply of providers.

  5. “If there is a God”

    Well, it would seem that YOU would like to play “God.”

    YOU will decide whose life is expendable.

    “there will NOT be many Dick Cheneys in America over 65 getting heart transplants”

    Works for me, in that particular case.

  6. Hell colleague,

    I think you are right saying that patients’ attitudes can be a significant cost driver, resulting in unnecessary medical services benefitting no one …

    … although, thinking of it, the provider side is paid for said services and may be benefitting. Speaking of personal observation, IMHO you must be blind not to see that fee for service (I myself am officially salaried but actually production based) results in tons of unnecessary (or even harmful) stents, hysterectomies, back surgeries etc. It’s not only the patient requesting unnecessary care, it is the (for some services ridiculously well paid) provider supplying this care. And there is good empiric evidence (e.g. a study clearly linking local surgical variation to the providers practicing there) supporting this.

  7. Congress never addressed the behavior of the cost driver…the PATIENT. They also have never been constrained by the lack of money. After the country is officially unable to borrow any more money, the first three things to go are Medicare, Social Security and Medicaid.

    Steve, I have an income derived from my practices. i am not salaried. Salaried docs are unproductive and slow. If Medicare spending is cut, I will be a happy American. The pathological consumption of unearned resources is a disease destroying the fabric of our country.

    No individual can get a loan for financing a senior’s healthcare. Where is the collateral? ( It must be the scooters and lift chairs left after the patient dies.) Why should the government do it for them? The younger set will soon toss the seniors under the bus. Try to be self-sufficient.

  8. It is not as arrogant as you say because contained within that “arrogance” is a certain truth: It clearly is fact that economic disincentives can change behavior. Not always in the way one would anticipate, and not always in a way that saves the system money. But none the less, it is possible that due to the “fact” that medicare patients already spend so much on their healthcare, maybe the incentives/disincentives are not aligned correctly, and one should look at reducing their expenses in one area (premium or deductible or copay) so that their expenses in another area can increase in order to change their behavior. Is that the answer? I don’t know, but I would consider you a fool not to admit that it could be.
    So you see, your answer, while containing true enough facts, didn’t provide an answer that refuted the original claim as well as you thought, and thus the rejection of your answer was not so much a rejection of your facts as it was a rejection of your failure to acknowlede the truth contained within the original statement.

  9. Here is your reality check if IPAB survives: there will NOT be many Dick Cheneys in America over 65 getting heart transplants, unless, god forbid, that unfair two tiered system pops up again!

    If there is a God, what is the point being made extending that man’s life further? I don’t care if that is rude or harsh, he is the real life Darth Sidious of earth.

  10. 1) Congress has had years to cut costs. It has failed. An independent board, functioning like the base closing commission, makes it more difficult for Congress to keep spending in response to special interest groups. The current counter-proposal, the Ryan plan, assumes that Congress will not increase the level of premium support when seniors start to complain. As it will require just a simple majority to do that, and given the Congressional track record, I predict that is inevitable.

    2) If we are going to decrease health care spending, doc salaries are likely going to take a hit. I am not sure why I should care if it is due to the IPAB or some magical market mechanism.


  11. That is the question…and as yet unanswered. What to do with the uninsured?
    The scariest part of this question is that any of us can become
    part of the “uninsured” at any moment.

  12. “Innovators will not continue to sink billions into research-and-development efforts if the financial rug is regularly pulled from under them.

    Medicare does need to be put on a budget. But it should not be done in a way that endangers the very beneficiaries for which it was created — and for whom it should be reformed and preserved.”

    Where will you get the savings from then? Who do you propose take a reduction in revenue? Tell us.

  13. I understand that medicare cost are rising but what are we as a nation
    supposed to do to provide for our citizens.
    The real question is do we pay for free healthcare for illegal immigrants
    and those without healthcare or do we create a logical system to pay for those costs. Those costs will not go away…they must be dealt with one
    way or another.

  14. JoeFox,
    1. agree with your statement re. physicians overvaluing observation/anecdote vs statistics BUT:
    2. your stats (of copay of medicare patients) do not contradict Hell’s assertion (the worried well are, at least in part, causing medicare’s deficit).
    3. there is good evidence that medically unexplained symptoms/ somatization are an absolutely major cost driver in the US – reference on request.

    The problem is that no one knows how to deal with the worried well, esp. if they are aged and have somatic morbidity.

  15. JoeFox

    point taken – I should have been more precise – I get that I’m going a bit macro – I get what IPAB does and what MedPAC does – but I think the broader question is a valid one. If we can come up with a better approach to regulation, we won’t have to design a political and economic solution to what should be a scientific problem …

  16. MD,
    Thanks for illustrating the real problem with Comparative Effectiveness research.: the arrogance of physicians who think their “experience” is a better guide to practice, than statistically valid evidence.

    If you click on the link I provided you’d see this is based on pretty straight forward analysis of the entirety of Medicare claims data. You on the other hand know better based on what you’ve seen. Excellent.

  17. John,
    Perhaps you should look at what MedPAC does. IPAB is a souped up MedPAC except Congress has the burden to reject their recommendation instead of to accept them as with MedPAC.

    IPAB has very little in common with FDA–it’s mission is payment policy not drugs or devices. You could argue that PCORI might not be necessary if FDA really did it’s job.

  18. As much as it takes for the cost per beneficiary to go down.

    Seeing is believing. I do not believe your numbers.

  19. This whole thing is starting to make my head hurt …

    The more I think about it, the more I’m coming to feel that the real question here is WHY Washington found it necessary to create a new mechanism as weird and unwieldy – and potentially explosive – as the Independent Payment Advisory Board.

    The FDA is supposed to be watching how well drugs and medical devices do their jobs – and yet it doesn’t, for institutional and political reasons that are well known.

    Instead of confronting a highly political problem and making tough choices about how closely government should be watching and what it should do with the information it collects on the treatments we use and the medicines we take, we’ve intentionally (apparently) created a solution that is going to create a new series of ugly little problems ….

  20. It is easy to spend other peoples’ money, isn’t it? God knows Democrats and Republicans illustrate this point so well these past 10 years, eh?

    Also, this culture can’t handle the truth. I would pay good money to have Jack Nicholson walk into a comatose elderly patient’s room with the family all around insisting on full court press care interventions just say his all too familar line to them all: You can’t handle the truth, so stop making your doctors and other care providers live the lie with you all !!!

  21. Like most physicians, MD as HELL is entirely confident evidence from his own experience is more accurate than actual representative data.

    Median out-of-pocket spending by Medicare beneficiaries in 2006 was 16% of income, up from 12% in 2000. Twenty five percent spends more than 30% of income out-of-pocket. And 10% spend over 57% of income. Those shares rise with age, poorer health status and lower incomes. How much more would you have people pay before costs go down?

  22. The law once prohibited the use of one’s Social Security number as identification. So much for actions prohibited by law.

    Medicare is broke because of demand, not price. Everyday I see Medicare beneficiaries robbing the Treasury to pay for unneeded care simply because they can. There is no reason not to do it. Afterall, they are worried and want to be reassured. No better place than the Emergency Room to get that nagging painfull knee checked…again. Or even more expensive, chronic vertigo. Difficult not t get another CT scan. This time may be the stroke….probably not but here they are.

    Make the patient pay something for every visit. Only then will costs go down.