The Critics Are Wrong About IPAB

For Medicare, this has been a summer of good and bad news. On one hand, the program’s costs continue to rise remarkably slowly. So far this fiscal year, they have gone up by only 2.7 percent in nominal terms, the Congressional Budget Office reports.

On the other hand, opposition to the Independent Payment Advisory Board — created as part of the Affordable Care Act — continues to mount. And opponents continue to mischaracterize the whole point of the board.

What they seem not to understand is that the board is needed mostly so that that Medicare can continue to encourage slower growth in costs.

One reason costs have been rising so slowly is that systems for paying hospitals and doctors are changing. We’re moving away from the old fee-for-service plan and toward paying for value in health care — and we’re making the shift more rapidly than expected.

Redesigning the payment system is a fundamentally different approach to containing costs. The old way was to simply slash the amounts that Medicare pays for services. And here is where the criticism of the Independent Payment Advisory Board becomes somewhat Orwellian.

The point of having such a board — and here I can perhaps speak with some authority, as I was present at the creation — is to create a process for tweaking our evolving payment system in response to incoming data and experience, a process that is more facile and dynamic than turning to Congress for legislation.

Medicare Experiments
In particular, as Medicare experiments with accountable care organizations, bundled payments and other new strategies, the agency will inevitably need to make adjustments. Questions will come up, such as: How should the payments to doctors, hospitals and other providers be changed to reflect what is learned about the quality of care they provide? How much should the penalties or bonuses be? Is it better to have hospitals face all the costs associated with patient (as in an accountable care organization) or only the costs incurred during a specific episode of care (as in bundled payments)?

As even preliminary answers come in, the Independent Payment Advisory Board is supposed to make the adjustments, allowing Medicare to move as smoothly and quickly as possible toward an improved system for rewarding value in health care. Congress could never act so nimbly.

With that in mind, consider the recent attack on the Independent Payment Advisory Board in the Wall Street Journal by Howard Dean, the former chairman of the Democratic National Committee. His critique begins by claiming that the board “is essentially a health-care rationing body,” even though the legislation specifically states that the board is not allowed to make any recommendations that would ration care.

He goes on to argue that the board would use a bureaucratic rate-setting process to bluntly lower payments. Which is exactly what Congress does today. The board, in contrast, is mostly meant to navigate — outside the political realm — the two-steps-forward and one-step-back process of testing new payment structures.

Dean correctly notes that the board is not expected to save money over the medium term. This is not, as he implies, because it would engage in ham-fisted rate-setting. It is because the board is not meant to act until Medicare costs grow more rapidly than certain thresholds. The present slowdown makes it increasingly unlikely that cost growth will exceed those thresholds over the coming decade.

Care Rationale
Next, Dean argues that “If Medicare is to have a secure future, we have to move away from fee-for-service medicine, which is all about incentives to spend more, and has no incentives in the system to keep patients healthy.” Bravo! But what he fails to grasp is that the core rationale for the board is exactly to accomplish this shift.

Dean seems to think that Congress will be perfectly able to fine-tune Medicare’s shift away from fee-for-service payment, despite there being nothing in its 50-year record of legislating on Medicare to support such a belief.

The slowdown in health-care costs is a promising sign that efforts to move away from fee-for-service are working. But it’s still early in the game, and the next steps, taken in response to lessons learned, will need to be careful ones. That’s why the Independent Payment Advisory Board was created, and why it should not be eliminated.

Peter Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. This post originally appeared at Bloomberg.

21 replies »

  1. Some things are more amenable to being fixed than others. The ACA has effectively zeroed in on the low-hanging fruit of those things that are driving our insanely high health-care costs — approx 17% of GDP, when no other country exceeds 12% of their GDP. The first low-hanging fruit is our hospitals — they charge whatever they want, Then it’s big-pharma, who does the same, and the medical device industry which follows suit. Finally, the insurance companies have always charged too much for administrative costs.
    Joseph in Missoula

  2. The cost burden has actually shifted AWAY from the patient, as co-pays are reduced (catastrophic insurance isn’t legal anymore) and denials are much, much less — e.g. no more pre-existing conditions. Premiums have also been reduced because of the extremely high government subsidies which average $5,000 per year.
    In other words, you don’t know what you’re talking about.
    Joseph in Missoula

  3. It behooves those who are against the IPAB to show how we can get a handle on Medicare costs without anyone having the power to limit them. And if it’s not a panel, would they prefer one person, as we have in corporations? And if it’s the latter, wouldn’t they be the first to holler “dictatorship!”? After that, what is it about the wording of the ACA, that the critics don’t understand? The legislation states that rationing, cuts in benefits, and quality of care are all illegal. This is about getting a handle on costs — should we not regulate healthcare providers when that segment costs us 18% of GDP and continues to rise?

  4. Peter R. Orsag and Ezekiel Emanuel are both Eugenicists. The question for the America people is are they going to Impeach Obama Now or wait for Obama’s Hitler like T4 Healthcare Death Panels to kill millions? And then at someday in the future, there will be a modern day Nuremberg trial, where Obama, Emanuel, and Orsag are brought to justice for their crimes against humanity, and like those of the trials of 1945 to 1949, executed.
    This vision of the future can be stopped by Impeaching Obama Now!

    Obamacare Genocide in Action: What is Already Underway

    On June 24, 2009, Lyndon LaRouche’s Executive Intelligence Review submitted testimony to the House Ways and Means Committee of the U.S. Congress, which argued, in detail, that “ObamaCare is Genocide,” and presented an alternative of what must be done.

    In its upcoming issue, dated Oct. 25, 2013, EIR will present a Fact Sheet that will include its preliminary findings on how this genocide has been carried out over the three and a half years since the implementation of the Affordable Care Act (ACA) in the spring of 2010, and its further projections of how this fascist program is set to be implemented over the immediate future.

    We present part of these findings below:


    The U.S. hospital-centered health care system, already contracting, is now under assault from multiple Obamacare measures.

    Overall, Obamacare specifies cuts of $716 billion through 2020 in Federal health care programs (Medicare, Medicaid and “new”), much of which are cuts to hospitals, directly and indirectly.

    * Penalize readmissions. Financial penalties against hospitals are in effect for their “too-frequent” re-admission of sick patients. Since October, 2012, hospital rates of re-admission are reported quarterly and evaluated. A rate considered too high results in docking Medicare payments to the hospital. The cut is up to 1 percent in FY 2013; up to 2% the next year; and 3% thereafter.

    As of early 2013, of the 3,282 hospitals in the HRRP (Hospital Readmissions Reduction Program), fully 66.7%, or 2,189 facilities suffered a cut in Medicare payments. Teaching hospitals, which tend to have complex cases of elderly patients, and safety-net hospitals serving the poor, predictably have the most need for re-admissions, and they are reeling from the cuts. HRRP will cut Medicare spending by $8.2 billion from 2013 to 2019, say Obamacare statisticians.

    * Cut charity care reimbursement. Obamacare specifies cuts in Federal aid to hospitals, which has defrayed costs of treating the uninsured. Starting in 2014, Obamacare will cut what is called DSP—Disproportionate Share Payments. The hospitals are to get $22 billion less over the current 10 year period, according to the American Association of Medical Colleges and the Commonwealth Fund.

    * Sequester cuts. Some $95 billion in other cuts in Medicare programs are underway, including the impact of the sequester, all of which are slamming hospitals, according to Caroline Steinberg, vice president for analysis at the American Hospital Association. In fact, a specific sequestration automatic cut has taken away $45 billion from hospitals—more than double what the Obamacare DSP charity cut was.

    * Mass threat to rural hospitals. In August, the Obama Administration proposed a rule change to what is called the Critical Access Hospital (CAH) program, which would shut down hospitals in rural areas en masse. There are currently 1,332 CAH hospitals nationwide, with potentially two-thirds in line for shut down. The CAH system was set up in 199x, to act to curb closures of rural hospitals.

    The way it has worked prior to the Obama proposed change, is that, under the CAH system, since 2006, state health officials designate which of their community hospitals—often in low population density areas—are critical to remain open and viable in their localities, in order to provide Medicare residents the physical means to receive care. The criteria include that the facility not have more than 25 beds, it be at least 35 miles distant from other hospitals, and other factors. These CAH facilities then get reimbursed by the Federal CMS (Center for Medicare and Medicaid Services) at 101 percent for their Medicare-related expenses, not at the usual lower Medicare reimbursement rates.

    But in August, Inspector General Daniel Levinson, for the Health and Human Services (DHS) Department, said that hundreds of these CAH hospitals no longer meet the criteria. So states should no longer have the right to designate CAH facilities; the HHS/CMS should do so, and they will disqualify many such hospitals from adequate reimbursement. This will financially ruin the hospitals. Particularly vulnerable are Iowa, with 82, and Kansas with 83, CAH hospitals.


    Under various Obamacare measures, physicians are under financial and subjective pressure to acquiesce to the intent of the ACA to cut care and lives. Already, two-thirds of the doctors in the United States no longer practice medicine independently, but they are now in the employ of other entities—groups and hospital systems, to the point where the American Medical Association, in November 2012, issued guidelines on how to cope with the “conflict of interest” involved—namely, where the physician wants to treat his patient according to the Hippocratic Oath, and the Obamacare system does not.

    Only 36% of all U.S. practicing physicians own their own practice (in whole or in part), which is way down from 57% in 2000; and way below 85% or higher in the 1960s.

    Rural areas are desperate for physicians, and the threat to shut down Critical Access Hospitals is a threat to cut off all advanced care in these localities, in particular in the farm states, where counties have a high percent of elderly.

    In addition, new “ratings” for physicians, upon which their pay will be evaluated, are being devised under the title of the “Physician Value-Based Modifier.”


    Screenings for diseases and conditions, and the staff and facilities to conduct them, are being denied and reduced under Obamacare. One of the methods, is the issuance of guidelines to cut back on preventive screening, by the U.S. Preventive Services Task Force (USPSTF), a pre-existing agency in the Department of Health and Human Services.

    * Breast cancer. Within three months of the enactment of Obamacare, new guidelines were issued that women should get less frequent mammograms. This decree was made, despite the national concern for the fact that mammography use was declining in the 2000s, mammography facilities were decreasing, and doctors feared a rise of breast cancer mortality rates. As of 2009, 27% of U.S. counties had no mammography facilities at all, associated with poor and rural areas.

    In May 2010, the U.S. Preventive Services Task Force stated that screening mammography for women aged 50 to 74 should be every two years, not yearly; and for younger and older women, such screening should be less often, and decided on an “individual” basis.

    This went directly against the modern standard, recommended by cancer specialists, for women aged 50 and above to have annual screenings; and every two years for those 40 to 49.

    Since the USPSTF decree, preventive mammography rates in women in their 40s have dropped nearly 6 percent, as of 2012 (Mayo Clinic study).

    * Upper limits on screenings? The Task Force is considering an upper age limit for screening mammography. In The Netherlands, women over 75 are not prohibited from mammograms, but they are no longer reminded to do it, despite the fact that breast cancer for elderly women is still a clinical concern, and treatment can extend their lives.

    * Prostate cancer. In May 2012, the Task Force recommended against prostate-specific antigen (PSA)-based screening for prostate cancer.

  5. Pennsylvania Doctor Releases Statement Against “Murderous Obamacare”
    October 24, 2013 • 11:57AM
    Statement released by Mark Shelley, M.D., D.A.B.F.P. 1 Willow St., Port Allegany PA
    For more information: (267)218-5655 stevekomm@gmail.com


    As a physician and an American, I feel compelled at this time of peril, to address the changes that I see in the process of the actual delivery of health care to the American people.

    From my perspective as a general practitioner of medicine, and from my concern as a citizen for my fellow man, I must speak out to explain the dangers that I see in the implementation of American health care today, as exemplified by Obamacare.

    What I see being done today is chillingly consistent with the findings and warnings of Dr. Leo Alexander, the chief consultant to the U.S. prosecutors at the Nuremberg War crimes Tribunal after World War II. In his famous article entitled, “Medical Science Under Dictatorship,” that was published in the New England Journal of Medicine on July 14, 1949, Dr. Alexander made clear what happens to medicine when it, “becomes subordinated to the guiding philosophy of a dictatorship.”

    That dictatorship today is money.

    Medicine and economics are joined at the hip. But, in real economics, economic considerations, and monetary considerations are not identical. The problem today, is that monetary considerations take priority over all else. The fact that health care is considered synonymous with acquisition of health insurance today, is indicative of this monetary/health care problem.

    Nor is this a government versus private sector problem. Nor is it a Republican versus Democratic Party question. We just suffered a 16-day government shutdown, that almost precipitated financial Armegeddon, courtesy of President Obama, and the Democratic and Republican Party leadership.

    At the same time, USA Today of Oct. 22 reported that the top ten CEOs of the United States made $5.7 billion last year, even as we are at the verge of a financial blow-out, that will dwarf the one of 2008-2009. This is financial madness.

    Are we to dismantle our health care system, based upon the recommendations of these mismanagers and people whose programs for theft would make Jesse James blush?

    To remedy this crisis, we must undertake three important initiatives:

    1. SEPARATE THE PURPOSE AND PRINCIPLE OF MEDICINE FROM A DISEASED ECONOMIC SYSTEM. Restore the essence of the Hippocratic Oath as the philosophical center of the medical professions. The practice of medicine is meant to serve the development of people, not Wall Street financial conglomerates, and “population reduction” agendas.

    As Hippocrates said, “It is the duty of the physician, not only to do that which immediately belongs to him, but likewise to secure the cooperation of the sick, of those who are in attendance, and of all the external agents.”

    2. RESTORE THE GLASS-STEAGALL ACT OF 1933. The same Wall Street debt bubble which is crushing the Federal government is crushing the medical profession, as well as the rest of the economy. The only way to liberate ourselves from its destructive effects, is to restore the Glass-Steagall Act of 1933. Its repeal in 1999 opened the door to the growth of the biggest financial bubble in history. We must separate commercial banking from investment banking, and let Wall Street sink under the weight of its own bad investments.

    No more bailouts, or bail-ins, for Wall Street.

    3. IMPEACH PRESIDENT OBAMA. He has repeatedly demonstrated that he is incapable of performing the job for which we hired him. Multiple legal authorities have already assembled articles for impeachment. This man has failed you, and will allow you to die, with his inept and undeniably lethal policies that masquerade as “health care reform.”

    It is time for the American people and their medical community to wake up, before it is too late.

    See Dr. Shelley’s presentation “The Commoditization of the U.S. Health-care System” at the Schiller Institute “New Paradigm” conference in New York.

  6. Too much red tape to get care. Patients with unique diseases will suffer. IPAB will be like Congress, making laws about which they know nothing and are educated by those who stand to gain the most $$$$ and contribute the most, eg HIM$$.

  7. Both Howard Dean and Peter Orzag have much to bring to the US health care reform issue. However on the need for an IPAB I must side with Mr.Orzag

    I agree with my friend Vik Khanna that the IPAB must be as transparant as possible but disagree with Vik that the IPAB would not “touch” the “obviation” of death issue. Vik- Americans are ready for a long overdue serious dialogue on the death and dying and resultant humane policies and practices. Surely the IPAB can be of assistance on that very ripe issue.

    Dr. Rick Lippin

  8. Many would agree that among other things, clinicians should help families discuss these issues. Changing clinician behavior is hard though (as is changing patient/family behavior).

    Speaking of change, Atul Gawande’s recent New Yorker article on the diffusion of ideas and change in medicine is very relevant, and he esp mentions “unsexy” work that “demands painstaking effort without immediate reward.”

    His new think tank/lab wants to improve end-of-life care; should be interesting to see what they come up with.

  9. This article is from someone living in a different world than mine. I don’t even know how to respond. The whole thing is translucent spin…please…I know better…I do the work.

  10. Leslie: I don’t know that I have an answer to the problem you raise. Speaking from personal experience, I can only attest to how important it is for families to have this dialogue openly. I knew exactly what my parents wanted and my family and close friends know exactly what I want, and it’s all documented in writing. I guess that makes our family an exception and that’s unfortunate. I think more physicians need to take the approach you take of helping patients and families talk about mortality. Would be better if more patients and families started the conversation, I think.

  11. I do not agree with Orszag that Obamacare, the shift away from fee-for-service, the emphasis on value-based care, and changes in hospital behavior are responsible for the slow growth in Medicare. Rather I attribute this decline in health care inflation to slow economic growth due to Obamacare and other Obama policies and to cost-sensitivity of middle-class health consumers whose incomes are declining by 5% in recent years. The 25% annual rise in health savings accounts with high deductible is another factor. Nor do I agree with Orszag’s position on the IPAB, But since he “was present at the creation” he is entitled to his opinion. I look at these various things through the eyes of a bottom-up medical system than through the eyes of to-down government, which accounts in large part with my fundamental disagreements with Orszag.

  12. Interesting issue and thought-provoking comments!

    Vik, you mention that “‘The US health care system in unfixable because each American views it as his or her own personal tool to obviate death, and they each expect that obviation to take place on someone else’s time and dime.’ That’s what needs to be fixed.”

    What do you think are the most promising avenues for fixing this issue? I do a fair amount of counseling patients and families re facing mortality and reassessing benefits/burdens of medical care…do we need to find a way to massive scale up these types of conversations? Or put things on people’s own dime? Or otherwise somehow change expectations? (how??)

  13. Not only have vendors in the dialysis space been one step ahead of the government for, oh, about 20 years, they’ve helped determine which way the government will move, the size of the stride, and the shoe size that the bureaucrats will wear. Al is right that this would be a great place to demonstrate value.

  14. Whatsen Williams is right on, and the other major additive factor has been the lingering impact of the recession. While it is possible that some systemic changes are taking place in response to, and anticipation of, full implementation of the ACA, it is sheer fantasy to think that they’ve percolated throughout the system so deeply as to have already had a lasting impact.

  15. I can think of no topic on which I agree with Howard Dean, but we may have found one. I have never bought into the conservative narrative about the dangers of the IPAB, but I do know a thing or two about coverage and reimbursement policy, and the IPAB does not appear to solve our dilemma, to the extent that it is solvable at all.

    Coverage and reimbursement policy-making (they are two separate decisions), in both the public and private sectors, is, by definition, a politicized process. Biotech/pharma/device companies have for decades hired armies of reimbursement consultants (full disclosure: I once worked in that space but have not for a very long time) to help them package their products for the decision making processes, which are supposed to be discriminating funnels, but are in fact just open conduits that tinker at the margins with the market equivalent of inclusion criteria. Medicare coverage and reimbursement officials, as well as their private sector counterparts, have been persuaded for years to see things a certain way, with appeals to the media and legislators thinly veiled threats held in abeyance. This won’t change with the IPAB.

    It is inconceivable to imagine an IPAB that is either politically immune or insensitive, especially after the first inevitable public outcry over a coverage denial or penurious reimbursement that only the most addled would say is not intended to directly impact (i.e., stifle) care provided in the community. Because the IPAB will spring to life at a time when transparency is supposedly the coin of the realm its members, processes, evidence reviews, witnesses, written submissions, and meetings should be disclosed and picked apart by like no other health care governance process in our country’s history. The good thing about that it is that it will illuminate for Americans just how complex and bloody health care decision making is.

    It may also make people face the fundamental insoluble dilemma in US health care, as expressed to me by a longtime friend who is one of the few wise men left in Washington: “The US health care system in unfixable because each American views it as his or her own personal tool to obviate death, and they each expect that obviation to take place on someone else’s time and dime.” That’s what needs to be fixed, and the IPAB has no hope of touching it.

  16. Mr. Orszag,

    Two thoughts/questions:

    1) Is there a functional difference between the IPAB and MedPAC in the years when spend is lower than the trigger? It seems that the IPAB could issue advisory, non-binding recommendations that couldn’t be fast-tracked, which sounds a lot like what MedPAC does.

    But if that’s the case, then the main benefit of the IPAB you discuss above – of greasing the cogs undergirding the shift from FFS to outcomes-based payment – will be rendered impotent much of the time – maybe even the next decade, when it would theoretically be needed the most.

    In other words: the IPAB doesn’t seem set up to do the things you say it was set up to do. There will likely be a lot of functional issues with the shift, even with costs under the trigger, which the IPAB won’t be empowered to affect. A victim of political wrangling?

    2) How much of the current sound and fury about IPAB – from Republicans and Democrats alike – do you think is just political posturing? Whatever Congresspeople believe of the IPAB’s flaws, it gives them a “Get out of Jail Free” card when it comes to making politically-impossible decisions with respect to Medicare – changes most would likely recognize are needed. They could yell and rail against the body even as it covers them and forces necessary, politically terrible changes.

  17. Pardon me but your judgment and analysis is flawed when you make a statement that moving away from fee for service is the basis for a whimsical decrease in costs of health care.

    Fee for service predominates. However, since the cost burden has shifted to the patient with higher copays and denials, elective care is being shunned.

  18. Remember the Graduate? Well, I have one word for you: dialysis.

    If there is one place where the vendors are always a step ahead of the government in reimbursement, it’s dialysis centers. A global payment for these patients might be the easiest fix relative to the amount of money at stake that IPAB could do, to show its value.

  19. If people looked at Medicare/the government as a healthcare payer and not as “the government”, this would not even come up as a discussion. The functions that IPAB are intended to perform are now performed quietly by insurance companies and self-insured employers every single day without the public controversy. The real challenge and legitimate reason to fear is that decisions might be made without meaningful data about clinical outcome to inform those decisions. This is not good, as decisions about what to cover and in what amount should be informed by medical evidence. But if this piece can be integrated effectively, there is no reason our nation’s largest payer should not run its business to maximize quality while reducing costs. And this standard of an evidence-driven process should be applied to all payers. Fortunately many of the private payers and even public payer CALPERS has shown some evidence this can be done well. Lets hope IPAB can do the same.

  20. I can kind of see why the idea of the Independent Payment Advisory Board appeals to people with your world view.

    The problem is–everything we know about how Washington works tells us that this experiment will now perform in ways we don’t expect. If it could be another way, I think we’d all be on board.

    But how can something like this possibly work given the realities on the ground in the health care system and in Washington?