Getting Serious about Cost Containment
Understanding the ACA’s Independent Payment Advisory Board (IPAB)
THE PATIENT PROTECTION AND Affordable Care Act (ACA) brings unprecedented changes to the American health care system. Through the individual mandate, health insurance exchanges, and the expansion of Medicaid, the nation may finally shed its dubious title as the sole Western nation without universal coverage.
A lesser-known piece of the law has the potential to tackle an even greater challenge: the unsustainable growth in health care spending. National health care costs are now an all too familiar problem. In 2009, the U.S. topped $2.5 trillion in health care expenditures, or 17.6 percent of GDP. This equates to $8,086 per person, more than twice the average of the highest spending countries.1,2 The unyielding growth in federal health program costs, most notably Medicare and Medicaid, remains the single greatest threat to our nation’s fiscal health and long-term deficits.
Extended life expectancy and an aging baby boomer population means spending will continue to accelerate, and the CBO projects that direct federal health costs will total 9.7 percent of GDP by 2030 and 13.7 percent by 2050, with national health expenditures nearing 50 percent of GDP by 2080.3
The ACA begins to take important steps to combat these trends and improve the value of the health care dollar through accountable care organizations, comparative effectiveness research, and value-based purchasing. Arguably the most significant effort to contain costs, though, can be found in Section 3403 of the ACA and is known as the Independent Payment Advisory Board (IPAB).4
Consisting of a 15-member panel of presidential appointees, IPAB’s task is to produce recommendations to hold down Medicare spending, if the program’s per capita growth exceeds established limits. Beginning in 2015, IPAB will make recommendations with the spending target tied to the Consumer Price Index (CPI), better known as inflation. After 2020, the target will be tied to GDP plus one percent, a historically less-restricting trend. Most importantly, the IPAB recommendations offered to Congress are binding, for legislators must either approve the proposals or find equally effective alternatives to offset the costs.
As the federal government has an increasing stake in future health care spending through Medicare, Medicaid and the ACA’s low-income subsidies, an effort to address the underlying costs is imperative for public programs, payers, and employers. IPAB is in a unique position to fast-track successful cost-saving models, mobilize the leverage of the nation’s largest purchaser, and truly effect health system change. Yet the IPAB itself is on life support, as both the House and Senate rescind $10 million of the $15 million allocated by the ACA in their proposed FY2013 budgets.
The highly politicized nature of reigning in Medicare costs and the failure of Congress to take action in the last several decades justifies new approaches to real cost containment. Nevertheless, the inability to adopt serious cost control measures has created skepticism and has cast IPAB as a controversial body comprised of unelected bureaucrats who are accountable to few. These concerns are probably overblown, since Congress has the ability to override IPAB recommendations by enacting comparable cost controls. Efforts to repeal IPAB are commonplace in the House, where it is referred to as a “rationing board” and “the real death panel,” yet little is being done to address long term costs containment.5
This picture offers further justification for IPAB’s necessity. The mere presence of the board requires recognition of the need for a Congressional plan to control Medicare costs, something vehemently avoided in the current age of political polarization and special interest influence. Additionally, concerns about restricting access to care are addressed in the ACA itself, as IPAB is unable to make any recommendations that would alter plan benefits or eligibility levels, and has explicit language against the notion of “rationing” care.6
Organizations such as the American Hospital Association (AHA) and the American Medical Association (AMA) fear that IPAB will simply cut provider reimbursements in order to meet spending targets, and are also pushing for its repeal. Their concerns are valid, but too generalized, as IPAB would be able to propose smarter changes than blunt across-the-board payment reductions as seen in the Sequester. Including strategies similar to those offered by organizations like the Medicare Payment Advisory Committee (MedPAC) into IPAB recommendations is a more realistic scenario.
At present, Congress routinely ignores MedPAC recommendations. Examples of MedPAC strategies include targeted reductions to areas of overpayment and high-cost procedures, coupled with a greater investment in primary care. Moreover, IPAB would be able to look at bold new strategies to ensure the future stability of Medicare. For example, given the increasing use of pharmaceutical therapies, recommendations could include Medicare Part D amendments like additional drug manufacturer rebates, negotiated rates, or even a Medicare-operated plan to compete with private drug plans.7
IPAB will indeed have broad-reaching implications, as Medicare arguably sets the bar for health coverage, price, quality measurement, and workforce training and distribution. Not only is IPAB commissioned to make recommendations for Medicare, but is also instructed to produce non-binding advisory recommendations for non-federal programs, national health expenditure, and health policy issues that affect both public and private health care systems.8 Such recommendations could have lasting effects on the health care system, particularly in the federally subsidized state-based health insurance exchanges.
Future challenges will include how best to parallel IPAB’s work with the efforts of the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS). Maximizing collaboration and information flow through public-private partnerships will be vital, as well. Concurrent investigations through ACA-established bodies like the Patient-Centered Outcomes Research Institute (PCORI) and Center for Medicare and Medicaid Innovation (CMMI) will glean novel models of evidence-based health care delivery and financing that IPAB could accelerate.
Pending its survival in the political arena, IPAB will not only be an effective backstop to impose Congressional discipline, but more importantly will be a vehicle to efficiently translate this research into practice.
1 Squires D.A., The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations, The Commonwealth Fund, July 2011.
2 California Health Care Foundation, Health Care Costs 101: US Health Care Spending, 2011 Edition.
3 The Long Term Outlook on Health Care Spending, CBO, November 2007.
4 Public Law 111-148, Section 3403: Independent Payment Advisory Board.
5 HR 452, The “Medicare Decisions Accountability Act of 2011,” House Energy and Commerce Health Subcommittee, Feb. 29, 2012.
6 Aaron H, The Independent Payment Advisory Board — Congress's “Good Deed,” N England Journal of Medicine, June 2011.
7,8 Ebeler J, Neuman T, Cubanski J. The Independent Payment Advisory Board: a new approach to controlling Medicare spending. Kaiser Family Foundation Program on Medicare Policy, April 2011.