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November 12, 2010

PhRMA, Hospitals and Physician Organizations Promote Repeal of Independent Payment Advisory Board (IPAB)

Congress created the Independent Payment Advisory Board (IPAB) within the Affordable Care Act (health care reform), in an effort to help restrain growth in Medicare expenditures. Specifically, as the law states, “It is the purpose of this [Board] 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 last Tuesday’s elections however, “the drug industry, hospitals and doctors’ groups are setting their sights on the elimination of IPAB that some experts identify as the biggest cost-cutter of all,” according to the New York Times.

The Times specifically reported that the “Pharmaceutical Research and Manufacturers’ Association (PhRMA) said that elimination of the payment board was its top priority in next year’s Congress, and the American Hospital Association (AHA) and American Medical Association (AMA) have also spoken out against the board.

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.”

When IPAB was proposed during the health care reform debate, Republicans offered amendments to cut the board, and some Democrats have come out against it, too, “making it possible the new Congress could repeal that section of the law.” It is also possible that the Republican-controlled House “could also try to choke off its funding, although the health care law already appropriated $15 million to set up the board in 2012.”

Senator John Cornyn, (R-TX), introduced legislation in 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.”

While the stars are aligning to take action against IPAB, “the drug industry is generally sticking to the deal it struck with the administration and Senator Max Baucus, chairman of the Finance Committee. This deal included drug makers agreeing to pay $80 billion (later raised to $90 billion) over 10 years in rebates and cost savings in return for the Democrats’ promise not to push for drug price controls or direct negotiation of drug prices by the Medicare system.

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). 

With the creation of IPAB, Congress has given the board the ability to make difficult choices to achieve Medicare program savings to assure program solvency. Since changes will be taking place in 2013, it is important that all stakeholders begin to prepare for the implications IPAB may bring to patient care.

What is important to realize about IPAB is that any decisions to cut payments to providers will result in negative consequences to patients. Doctors, who are already understaffed and barely have fifteen minutes to see patients, and who are already declining to take new patient, including those covered by Medicare or Medicaid, will only continue cutting these kinds of patients if IPAB is to lower reimbursement to doctors. And with the present shortage of physicians likely to be exacerbated by adding 30 million people to the health care system, the last thing patients want is another reason for doctors to stop seeing them and taking new patients.

Summary of IPAB

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.

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 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) A recommendation for savings;

(b) The rationale for believing the proposal will achieve the target savings;

(c) Legislative language to implement the proposal; and

(d) 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 benefits or modify eligibility criteria

IPAB will consist of 15 members appointed to six-year terms by the President, subject to approval by the Senate.  Physicians, health care practitioners, consumer representatives and representatives of the elderly are to be included among the members; the majority of members are to be non-providers.  The President is instructed to nominate 12 of the 15 members after consultation with majority and minority leaders of the Senate and House. 

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.

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