Introduction

IPAB is an acronym for the Independent Payment Advisory Board, a powerful component of the President's healthcare reform law. It has the authority to issue recommendations to reduce the growth in Medicare spending and to provide recommendations to Congress for fast-track implementation.1–3 Certain components of the Patient Protection and Affordable Care Act (ACA) are expected to tackle Medicare fraud and excessive payments for prescription drugs, to propose a stronger federal–state partnership in Medicaid and to include a series of healthcare reforms that would save $340 billion by 2021, $480 billion by 2023 and at least an additional $1 trillion in the following decade. One of the keys to these savings is the proposal to strengthen the IPAB, which works by recommending policies to Congress to help Medicare provide better care at lower costs, including ideas on coordinating care, getting rid of waste in the system, providing incentives for best practices and prioritizing primary care. Congress then has the power to accept or reject these recommendations. If Congress rejects the recommendations and Medicare spending exceeds specific targets, Congress must either enact policies that achieve equivalent savings or let the Secretary of Health and Human Services (HHS) follow the IPAB's recommendations.

Historical aspects

A major impetus for healthcare reform has been the rising cost of healthcare programs.4 The growth of healthcare spending has been exceeding the country's gross domestic product (GDP) growth, resulting in a healthcare sector that makes up a significant share of the overall economy. Healthcare employs 14.3 million; it comprises more than 595 000 separate establishments, including physician offices with 616 000 physicians, over 6000 hospitals with almost 1 million beds, plus clinical laboratories, nursing homes and home health providers.5 Total national health spending was $2.5 trillion in 2009, which corresponds to 17.6% of GDP (figure 1). Of this total, 32% was from private health insurance, 20% from Medicare and 15% from Medicaid.5 In addition, health spending is estimated to grow 6.3% between 2009 and 2019, rising from 17.6% of GDP in 2009 to 19.6% of GDP in 2019.6 Consequently, under the present scenario, Medicare and other federal health spending will consume nearly 60% of federal revenues by 2084.7

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Figure 1

National health spending by payer.

It has been postulated that the major drivers of the growth in healthcare spending are technology advances and rising prices, followed by health insurance coverage, reimbursement and market power. Finally, a change in demographics is also expected to drive future spending growth.8

The historic patterns of growth in overall healthcare spending, and Medicare in particular, are viewed as not being sustainable.8 Several proposals have been advanced over the years to create an independent policy-making entity that would be charged with limiting the further growth in Medicare expenditures9 and be insulated from special interest and lobbyist influences since these entities would be appointed, rather than elected. Members would serve for extended terms and would be able to make the ‘hard decisions’ needed to control rising costs.

The Medicare Payment Advisory Commission (MedPAC) was enacted as part of the Balanced Budget Act of 1997 by merging the Prospective Payment Assessment Commission (ProPAC) and the Physician Payment Review Commission as a legislative branch.10 The authority of this commission continues to be advisory with 15 appointed members and an annual expenditure of $13 million in fiscal year 2011.4

However, with all the enthusiasm about reducing the growth of Medicare, Medicare trustees have presented the data that, under the policies of ACA, by 2019 Medicare payment rates will be lower than under Medicaid.11 In addition, Rick Foster, Chief Actuary of Medicare, noted that by the end of the 25-year projection period, utilizing the older data, Medicare payment rates will be one-third of what will be paid by private insurance and only half of what is paid by Medicaid. However, this may change where private payers are paying less than Medicare. Consequently, all the changes may translate into a reimbursement reduction of one-half to two-thirds.

The IPAB was established to reduce the per capita rate of growth in Medicare spending with authority for the Secretary of HHS to implement its recommendations unless Congress acts either by formulating its own proposal to achieve the same savings or by discontinuing the automatic implementation process defined in the statute. In fact, the President has commented that the IPAB is MedPAC on steroids; thus it may bear substantial similarity to MedPAC.

Structure and operation of the IPAB

The structure and operations of the IPAB are somewhat similar to—yet different from—MedPAC. Table 1 illustrates the differences between MedPAC and the IPAB.

The IPAB Medicare proposal process

The scope of proposals involves mandatory recommendations and advisory recommendations. Further, there are reporting requirements.12

Congressional consideration of IPAB proposals

Issues related to the IPAB

1. The IPAB is required to submit mandatory recommendations only if Medicare spending is in excess of its statutory target and the medical care component of the consumer price index for all urban consumers (CPI-U) exceeds the CPI-U.

2. Starting with determination year 2018, the CMS actuary must also project the growth in national health spending per capita (for implementation years starting with 2020).

3. The specific statutory targets on per capita growth in Medicare that trigger the IPAB's savings recommendations have been subject to relatively little discussion, but are a central feature of the IPAB's role and authority and the savings attributed to it. Several questions have been raised about these growth targets.12

   It is well known that any statutory target on Medicare growth, whether imposed by the IPAB or other means, could have negative consequences on the long-term effects of coverage provided to beneficiaries, the adequacy of provider payments, provider participation and beneficiaries' access to needed services. This has been reiterated by the experience with the sustainable growth rate (SGR) formula under Medicare for physician payment, resulting in unintended and negative consequences that were not anticipated when Congress created the formula to limit the volume of physician services.13 There is concern that similar problems could emerge in the future if Medicare spending is constrained by a formula set forth in the law that the IPAB is required to recommend and the Secretary to implement.

   Importantly for IPAB purposes, the SGR has been considered to yield a budget ‘baseline’ for physician payments in Medicare that is artificially low, because the Congress is highly likely to continue to prevent such deep cuts.14 To account for the baseline problem with the SGR, the law sets an assumption that, in computing the Medicare projection on which IPAB action would be based, the actuary is to assume a 0% increase in physician payment rates rather than the cuts called for in the statute. This complicates whether and how the IPAB is to deal with physician payments. The actual baseline is whatever is in law, including the negative updates, but the IPAB baseline assumes a freeze. As a technical matter, it is unclear what would happen if the IPAB makes a statutory recommendation to enact a freeze for several years. From the board's baseline perspective, this has no cost, but it clearly has a Congressional Budget Office (CBO) scorable cost.

4. At the enactment of the ACA in March 2010, the CBO estimated that the IPAB would achieve savings of $15.5 billion in fiscal years 2015–19. The CBO's most recent Medicare baseline states that the CBO's projections of the rates of growth in spending per beneficiary in the March 2011 baseline are below the target rates of growth for fiscal years 2015–21. As a result, the CBO projects that, under current law, the IPAB mechanism will not affect Medicare spending during the 2011–21 period.15

5. While the requirement to achieve Medicare savings for the implementation year provides a clear direction and target for the board, it may discourage the type of longer-term policy change that could be most important for Medicare and the underlying growth in healthcare costs, including delivery reforms that MedPAC and others have recommended which are included in the ACA—and which generally require several years to achieve savings.12

6. There are a number of open questions and debate continues about the IPAB's scope of authority that affects providers, plans and other health industry stakeholders. In addition, even with constraints imposed in the law, questions remain as to the reach of the IPAB with respect to beneficiaries.

7. With the limitations that appear to be imposed on recommendations that would more directly affect beneficiaries, these constraints mean that reductions achieved by the IPAB by 2020 are likely to affect payments related to Medicare Advantage, the Part D prescription drug program and skilled nursing facility services.12

8. The Medicare physician payment policy issue under the SGR formula complicates the scope of the IPAB's review of provider payments. Given the artificially low current baseline for physician services and the pattern of annual extensions of the SGR policy for physician payment, it would appear to be very difficult for the IPAB to make mandatory recommendations in this critical area of Medicare payment policy.

9. It is not clear whether the IPAB could adopt a recommendation that would prohibit Medicare supplemental policies from offering first-dollar coverage, as has been suggested by some in the context of current deficit reduction discussions.

10. No one is clear about how the broad prohibition on administrative or judicial review of the Secretary's implementation of IPAB proposals will be interpreted. Congress has on occasion waived judicial review under the Medicare statute for the Secretary's implementation of various components of, for example, a new or revised payment methodology. The waivers tend to apply to specific technical components of that methodology.

Implementation of board Medicare proposals

In the absence of limited exceptions, the Secretary implements the board's proposals that relate to payment rate changes on August 15 of the proposal year, which take effect on October 1 and January 1 for Parts C and D payment rate changes.4

Two general exceptions have been described to implementing a board proposal: if federal legislation was enacted by August 15 of the proposal year that superseded the board's recommendations and beginning with implementation year 2020, and beyond, if a joint resolution was enacted prior to August 15, 2017 to discontinue the board.