The Pitfalls of PPACA #5 - The Effectiveness of IPAB - Maybe?

For the first time, the Department of Health and Human Services may be able to sidestep Congress and impose its own Medicare cost-containment policies. At least, that’s what Section 3403 of the Patient Protection and Affordable Care Act promises in creating the Independent Payment Advisory Board.

The action, so far as the public is concerned, will begin in 2014. On January 15, 2014, and annually thereafter, IPAB will make recommendations to Congress for cutting Medicare spending growth if the CMS Chief Actuary projects that per capita spending will grow faster than the average of the medical services CPI and the overall urban consumer CPI (or, after 2019, the GDP growth rate plus one percent). If Congress doesn’t pass either IPAB’s or its own legislation to meet the IPAB spending reductions within six months, HHS must implement the recommendations. IPAB may also make non-binding recommendations relating to other aspects of Medicare and to overall national health care costs.

The IPAB process for recommending and imposing changes to Medicare straddles three years. A determination in the first year (starting in 2013) by the Chief Actuary that growth will exceed the CPI targets is followed, in the second year, by IPAB submitting recommendations—which must reflect specific spending reduction targets—to Congress, and, in the third year, by HHS’s implementation of the recommendations (assuming they have not been blocked by Congress passing its own legislation).

At first sight, the IPAB process, in depoliticizing much of the authority for payment policy, seems like a huge step towards controlling the cost growth of Medicare (and of overall national health care, of which Medicare is a large component). However, IPAB’s ability to constrain spending may be limited by factors beyond its control, including:

1. Hospitals and hospices are placed “off limits” for IPAB cost cutting recommendations (other than via changes to Medicare Advantage) until 2020.
2. Changes that might raise revenues or premiums, increase beneficiary cost-sharing, restrict benefits, modify eligibility criteria, or “ration healthcare” are also excluded from IPAB’s purview.
3. The growth rate reduction percentages that will be invoked are less—at least in the earlier years—than the expected rate by which Medicare growth will exceed CPI targets.
4. Some providers may take a “first strike” approach to the threat of IPAB spending cuts (for example, by increasing utilization) in the period before the first determination by the Chief Actuary that target rates have been exceeded.
5. There is no guarantee that IPAB recommendations will succeed in reducing growth by the required amount, especially in later years when few “low-hanging fruit” remain. There could be a significant “bubble effect” as cuts in one area are balanced by increased growth elsewhere.
6. In election years, Congress may be particularly unwilling to approve IPAB recommendations, especially if they can be characterized by lobbyists as threats to beneficiary care.
7. Congress may, at any time, make changes to Medicare that increase spending growth.

One big unknown is the resolution of the “doc fix.” If Congress fails to permanently resolve the SGR issue, and physician payments are slashed by 20 percent or more, medical service costs will increase more rapidly in following years as physicians attempt to recoup lost income by driving up utilization (and intensity, too, through some diligent upcoding).

A New England Journal of Medicine article by Timothy Jost raises additional concerns. Jost notes the contradiction between PPACA’s emphasis on IPAB members being nationally recognized experts and the executive grade salaries they will receive. Certainly it’s hard to see a major league health care expert giving up speaking and writing fees to become one of a panel of eighteen that emerges once a year. Although IPAB should attract competent individuals, it will be weakened in dealing with Congress by the lack of big name credibility.

Jost also worries that the annual growth reduction targets will lead to short-term fixes, rather than longer-term changes that would bend the cost curve. Given that Medicare cost growth in the next few years is likely to exceed the CPI rates, almost regardless of policy changes, a series of one-off reductions is more likely to comply with the targets than more far-reaching changes in payment methodology.

What’s likely to be the result of IPAB’s efforts? The CBO—assuming that reduction targets would be hit—estimated Medicare spending reductions of $15.5 billion over ten years, approximately 0.3 percent of projected costs . The CMS Chief Actuary, however, has expressed skepticism, noting that history suggests that the target growth rates may be unachievable. Conservative economist (and former CBO director) Douglas Holtz-Eakin, writing in Health Affairs, dismisses IPAB’s impact out of hand on the grounds that Congress will find its recommendations politically infeasible.

A more probable result than that forecast by the CBO or Holtz-Eakin is that IPAB will be optimistic in its forecasts of spending reductions, and that Congress will turn a blind eye to this optimism while also occasionally loosening payment restrictions as beneficiaries find access to care increasingly difficult—a scenario that might produce some fraction of the CBO savings estimate.

Roger Collier blogs regularly at Health Care Reform Update.