Background on the Independent Payment Advisory Board (IPAB)

Last week the House Energy and Commerce Committee held a hearing on one important aspect of the Affordable Care Act (ACA or health care reform) the Independent Payment Advisory Board (IPAB).  But many wonder what is IPAB and why is it so concerning to so many people.

Background

One of the largest—and also most controversial—pieces of the Affordable Care Act is the Independent Payment Advisory Board which was created in an effort to help restrain growth in Medicare expenditures and the purpose of the Board is to reduce the per capita rate of growth in Medicare spending.  This is where the $500 billion in savings for the Affordable Care Act was going to come from.

IPAB has the authority to develop proposals to save costs in the Medicare program that become law unless Congress acts to adopt alternative cost saving proposals that would save at least as much as the IPAB proposals. IPAB is required to consult with the Medicare Payment Advisory Commission (MedPAC) and with the Department of Health and Human Services (HHS) when making such proposals, and is required to submit its proposals to the President and Congress.  They will also develop advisory reports and issue recommendations pertaining to Medicare payments to providers and suppliers not subject to “proposals” and also pertaining to private or public/non-federal health care programs.

After the November 2010 elections, “the drug industry, hospitals and doctors’ groups set their sights on the elimination of IPAB that some experts identify as the biggest cost-cutter of all,” according to the New York Times.  Consequently, in an effort to sell the plan to Americans, HHS Secretary Kathleen Sebelius penned an article in POLITICO to “set the record straight” about IPAB.

Sebelius first laid out the two plans she sees that address Medicare’s future finances.  One approach is IPAB, which she claimed will bring down underlying costs in the health care system by improving care.  The other approach, supported by congressional Republicans, shifts the cost burden to seniors and Americans with disabilities, while allowing health care costs to continue spiraling out of control.

The Secretary pointed out that critics of IPAB believe the Board will “ration care and put bureaucrats in charge of the health care system.”  However, Sebelius asserted that “nothing could be further from the truth.”

She explained how IPAB is made up of 15 health experts, appointed to six-year terms by the President, including doctors, other health care professionals, employers, economists and consumer representatives. She noted that members will be recommended by Congress, appointed by the president and confirmed by the Senate. Contrary to critics’ contentions, “the board’s work will be transparent, independent and accountable to Congress and the president.”

The Chair of the IPAB is appointed by the President, and the Secretary of HHS, the Administrator of CMS, and the Administrator of the Health Resources and Services Administration (HRSA) are specified as ex-officio members of the Board.  The Chair is authorized to appoint an Executive Director and staff for the IPAB.

In addition, there will be a 10-member Advisory Committee appointed by the Comptroller General to advise the IPAB.  The Advisory Committee will comprise one member for each of the 10 HHS geographic regions.  The Advisory Committee must meet at least twice per year.

IPAB is also required to issue an annual report—beginning July 2015—on system-wide health care costs, patient access to care, utilization and quality-of-care that compared by region, services and providers, across both private payers and Medicare. 

The Government Accountability Office (GAO) is required to issue reports studying the effect of changes recommended by IPAB on access, affordability, quality and on payers other than Medicare beginning July 2015, and periodically thereafter.

Sebelius noted that each year, board members will recommend improvements to Medicare. IPAB proposals affecting providers (e.g., hospitals, skilled nursing facilities) will not be implemented before 2020.  IPAB proposals affecting other suppliers (e.g., physicians) may commence in 2015. Proposals from IPAB must include:

–       A recommendation for savings;

–       The rationale for believing the proposal will achieve the target savings;

–       Legislative language to implement the proposal; and

–       An actuarial opinion to support the belief that the targeted savings are   expected to be achieved with the proposal. 

The health reform law instructs the IPAB to develop proposals that:

–       Improve the health care delivery system and health outcomes;

–       Protect and improve Medicare beneficiaries’ access to necessary and evidence-based items and services; and

–       Target reductions in Medicare program spending to sources of excess cost growth.

IPAB proposals cannot recommend:

–       Rationing health care;

–       Raising revenues and Medicare beneficiary premiums;

–       Increasing Medicare beneficiary cost-sharing (including deductibles, coinsurance and copayments); or

–       Otherwise restrict or reduce benefits or modify eligibility criteria

Moreover, Congress will still have some input on the final decision on any changes. Starting in 2014, Medicare will have specific spending benchmarks. If Congress keeps Medicare spending growth low, nothing will happen with the board’s recommendations. If spending growth is too high, and Congress acts to slow it, nothing will happen with the board recommendations.

The target rate of growth is set out in the law, for years prior to 2018, as the average of the consumer price index for all urban consumers (CPI-U) and the medical care component of the CPI-U.  For years 2018 and thereafter, the target rate of growth is set as the Gross Domestic Product plus 1.0 percent. 

If these growth targets are exceeded, the proposals developed by the IPAB must be designed to achieve savings targets, which Congress specified as the lesser of the excess growth rate (projected growth minus target growth) or a defined percentage of program spending (0.5 percent in 2015, 1.0 percent in 2016, 1.25 percent in 2017 and 1.5 percent in 2018 and beyond). The three-year time horizon for IPAB proposals is set forth below:

–       Year 1 – Determination Year: Beginning in 2013, IPAB determines that estimated expenditures looking over 5 year period ending with the Implementation Year (Year 3) will exceed target rate of growth

–       Year 2 – Proposal Year: Beginning in 2014, IPAB issues proposal to reduce expenditures to achieve target savings; and

–       Year 3 – Implementation Year: Beginning in 2015, IPAB proposal goes into effect unless Congress passes law with greater savings

IPAB’s recommendations would take effect only if Medicare spending growth is out of the set boundaries and Congress chooses not to act.  “But given the difficulty of enacting changes to Medicare,” Sebelius asserted that, IPAB “provides a backstop to ensure that rising costs don’t accelerate out of control, threatening Medicare’s stability.” 

She pointed out that “economists and the Congressional Budget Office believe this approach will work” and that “the president’s deficit reduction framework strengthens the advisory board, to ensure that we protect Medicare’s future without resorting to radical changes — like those proposed by House Republicans.”

Sebelius asserted that the Republican “plan would end Medicare as we know it, turning it into a voucher program starting in 2022. People who join Medicare would have no guaranteed benefits, just a guaranteed amount of money to spend with a private insurance company that would be free to ration care.”

Under the Republican plan, Sebelius noted that “a typical senior would pay $6,400 more starting the first year of the voucher program — an amount that would rise until year 10, when seniors would pay 70 percent of their own health care bills.”  She argued that the “Republican plan represents the bluntest approach possible: shifting the costs onto seniors without tackling the underlying causes of the rising cost of care.”

Instead, she maintained that IPAB will slow rising costs of care for all Americans and will promote quality, care coordination, prevention and lower prices for prescription drugs.

Discussion

Some of the concern about IPAB comes from the fact that if the Actuary of the Centers for Medicare and Medicaid Services (CMS) determines that Medicare expenditures will exceed a target rate of growth, the IPAB is required to develop proposals to save costs to achieve a minimum reduction in excess expenditures.  In other words, IPAB “could cut payments to health care providers.”

Senator John Cornyn, (R-TX), introduced legislation last July to eliminate the board, called the Health Care Bureaucrats Elimination Act. The American Hospital Association has endorsed the legislation, but PhRMA has not taken a position on it, although Wes Metheny, senior vice president of PhRMA told the Times that IPAB was “definitely a priority.”

To reduce Medicare expenditures while maintaining quality and access and without raising out-of-pocket costs for Medicare beneficiaries, IPAB will be forced to propose reductions in provider and supplier payments, as McDermott Will & Emery noted. 

As a result, they predicted that reductions will be targeted in areas considered to be drivers of cost growth, such as high-volume and high-cost services.  Accordingly, they recommended that Medicare providers and suppliers—as well as vendors who sell items and services to them—monitor carefully MedPAC reports and reports by other organizations looking at drivers of Medicare utilization and cost, as items and services identified in those reports as cost drivers are likely to be early targets of the IPAB. 

Their newsletter also anticipates that the IPAB will target providers and suppliers under payment methods that are structured in ways that more easily allow for program savings (e.g., items and services under national fee schedules). 

Consequently, the fact that Sebelius is resorting to press and media to convince the public of IPAB portrays a understanding that this part of ACA may be in serious trouble.  As more health care stakeholders are made aware of the potential impact IPAB could have on reimbursement and the trickle down effects payment issues have in health care, it is likely that opposition will only continue to grow, and public sentiment will be easily charged against this board given it’s clear potential to appear as if it ration’s care and makes decisions about what not to cover.