The Independent Payment Advisory Board and Health Care Price Controls
James C.
Capretta, Fellow, Ethics and Public Policy Center
May 06, 2010 - Kaiser Health News
White House Budget Director Peter Orszag has speculated that creation of the
new Independent Payment Advisory Board just might be viewed decades from now as
the most important and far-reaching change enacted in the entire health reform
legislation--despite the lack of significant public attention to it before
passage. He might be right.
After all, the IPAB--a 15 member independent panel, to be appointed by the
president and confirmed by the Senate--is now charged with enforcing an upper
limit on annual Medicare spending growth. Thatfs right: Medicare spending
is now officially capped. Even most people who follow health policy
closely donft seem to know this. Perhaps itfs just too hard to believe
that a Democratic Congress, prodded by a Democratic president, actually voted to
cap spending for a cherished entitlement.
But make no mistake: Beginning in 2015, Medicare spending is now supposed to
be limited, on a per capita basis, to a fixed growth rate, initially set at a
mix of general inflation in the economy and inflation in the health
sector. Starting in 2018, the upper limit is set permanently at per capita
gross domestic product growth plus one percentage point.
One might be tempted to think this is an area of the legislation which should
have gotten some bipartisan support. After all, in the past, itfs the
Republicans who have pushed for these kinds of caps on entitlement costs, with
Democrats fighting them every step of the way. Conservatives know that if
they are to have any hope of fighting off a major tax increase to close the
nationfs budget gap, Medicare spending growth has to be slowed, and soon.
But the IPAB provision is actually an indicator of why there is a great
divide in American health policy. To hit its budgetary targets, the IPAB
is strictly limited in what it can recommend and implement. It canft
change cost-sharing for covered Medicare services. Indeed, it canft change
the nature of the Medicare entitlement at all, or any aspect of the
beneficiaryfs relationship to the program. The only thing it can do is cut
Medicare payment rates for those providing services to the beneficiaries.
This wasnft an accident. It reflects the cost-control vision of those
who wrote the bill. They believe the way to cut health care costs is with
stronger federal payment controls. They envision the IPAB coming up with
new payment models which will push hospitals and physicians to emulate todayfs
most efficient delivery models. Call it ggovernment-driven managed
care.h
But the efficient, private sector delivery models in operation today have
been built on a principle of exclusivity. They donft take just any
licensed provider into the fold. They operate highly selective, if not
totally closed, networks. Thatfs the way they get control over the
delivery system. Low quality performers are dropped or avoided altogether,
and tight processes are established to streamline care and eliminate unnecessary
steps.
The federal government has never shown any capacity to exclude otherwise
qualified suppliers of services from Medicare. Indeed, the whole point of
the fee-for-service model which Congress has so jealously protected over the
years is that beneficiaries get to see any licensed provider of their choosing,
to whom Medicare pays a fixed reimbursement rate, no questions
asked.
In the past, to hit budget targets, Congress has always preferred to impose
across-the-board payment rate reductions to provisions which would punish or
reward providers based on some measure of quality or efficient
performance. Tellingly, that was also true in the bill Congress just
passed. The big savings comes from arbitrary cuts in payment updates for
institutional providers of care. The much-touted gdelivery system reformsh
will produce almost no savings according to both the Congressional Budget Office
and the chief actuary of the Medicare program. When push comes to shove,
the IPAB will almost certainly fall into the same trap. To cut spending
fast and with certainty, the preferred solution will always be deeper payment
rate reductions rather than reforms which may or may not lead to more efficient
organizational arrangements.
Even as he has been praising the IPABfs potential, Orszag has also gone out
of his way to attack Wisconsin Congressman Paul Ryanfs proposal to convert the
Medicare entitlement into a fixed, defined contribution toward the purchase of
insurance. Itfs an entirely different way of limiting Medicarefs cost
growth. Beneficiaries would have strong incentives to get the most value
possible from their fixed entitlement. Rep. Ryanfs critics say the plan
would leave seniors holding the bag, contending that the entitlement would
gradually cover a smaller and smaller share of costs. But thatfs only true
if the reform didnft also lead to a more efficient health sector.
Most sectors of the American economy are experiencing profound
transformations as the workforce becomes ever more productive. Whatfs
driving the change is a competitive global marketplace.
The question for health policy is this: What will bring about a similar
transformation in American medicine.
Certainly, more of the same payment rate reductions will not do it.
Medicarefs chief actuary has already said that the payment cuts in the health
reform law are unsustainable because they donft change the cost structure for
those providing care. In a very real sense, seniors will be the ones
holding the bag from these cuts when they canft access care due to a lack of
willing suppliers.
Rep. Ryanfs plan would bring the power of a consumer-driven marketplace to
the health sector, with the government providing oversight and consumer
protection. Therefs plenty of evidence indicating that such a
decentralized approach would work far better than central-planning at weeding
out unnecessary costs while still improving the quality of patient
care.
James C. Capretta is a Fellow at the Ethics and Public Policy Center. He
served as an associate director at the White House Office of Management and
Budget from 2001 to 2004.