#281: IPAB’s Bane

Published July 18, 2011

Heartland Senior Fellow Avik Roy’s testimony before the House Energy and Commerce Subcommittee on Health last week was part of a thorough and interesting hearing on IPAB with several notable moments, which he covers thoroughly at his Forbes blog.

As for the rather amusing outburst from Rep. Schakowsky, should she like to actually test the open bar/third-party payer comparison she found so objectionable, I have a suggestion: Allow me to purchase a vacation with my credit card, and then purchase one again with yours. We’ll see who ends up paying for Gstaad.

One of the moments Avik leaves unmentioned came near the end, when the panel was asked whether its members had discussed with the White House the possibility of serving on the rationing board. Two of the members, including Judith Feder, said they had. This brought to mind this NPR piece last week, which probed the rather sensitive question of who exactly these unelected board members would be

Rather, says Rockefeller, it would be better not only to insulate Congress from all those lobbyists, but to get people with more expertise on deciding how medical providers should be paid. “You want to have the Gail Wilenskys … and the Bruce Vladecks,” he said, referring to former heads of the agency that runs Medicare. “People who have broad health care policy experience making those decisions.”

But there’s a problem. Both Wilensky and Vladeck – the former a Republican and the latter a Democrat – think the IPAB is a bad idea. [Ed. – Uh oh!]

Wilensky, who oversaw Medicare for the first President Bush, says she’s sympathetic to Congress’s desire to insulate itself from the lobbying onslaught. But she worries that the board is limited to looking only at payments to health providers, which she says “could fundamentally alter the incentives involved in physicians and providers participating in Medicare.”

In other words, it could end up driving Medicare payments so low that providers will simply leave the program, or else go bankrupt if they can’t.

Vladeck, meanwhile, who headed Medicare under President Clinton, has a different problem with the board. He worries that eventually the lobbyists who are now so influential with members of Congress will become equally influential with the unelected members of the board.

“In the short term, it might theoretically work,” he said. But the history with other independent regulatory agencies, like the Interstate Commerce Commission and the Civil Aeronautics Board, is that over time “the regulated industries tend to capture them; and they tend to do more to protect the regulated industries than they do to protect consumers.”

How horrifying. But how unsurprising. It turns out that the real experts on health policy – not the political hacks, but the people who really understand what’s going on – don’t want to be put in the position of mandating such things. This is likely to result in a board stacked with people like Ms. Feder – those who will carry water for anything the Obama White House suggests, a problem that becomes all the more problematic when they owe little to anyone but their political masters.

And this, in the end, is IPAB’s bane: It removes so much authority from Congress without giving Congress any confidence that it will recommend politically palatable changes. Congressmen hang around a lot longer than presidents. (Indeed, from 2000 to 2008, 12 House incumbents lost primaries, while 13 died – meaning that yes, you’re more likely to die in office than lose a primary election.) The simple fact is that IPAB’s decision-making power will last only so long as Congress allows it to last, and no longer. The instant they run afoul of the political realities, the already sizable portion of members opposed to the board’s existence will rise up and strip its scalpel away. But that requires waiting until 2017 – and until then, this will remain a lightning rod for criticism as an embodiment of the top-down, rationing-based approach the radical left overwhelmingly supports.

One last note: For more on this subject, read this handy printout from the Independent Women’s Forum. And if you saw the testimony and were curious about the National Affairs piece Avik referenced, you can read it here.

— Benjamin Domenech



Another public radio report delves into the changed position of Minnesota doctors on IPAB:

When the proposal for the advisory board first surfaced during the federal health care law, a number of Minnesota’s doctors were open to the concept, said Dave Renner of the Minnesota Medical Association.

“There were some of our own physician members who thought maybe there’s some merit to this idea of depoliticizing decisions that are made on how we fund Medicare,” Renner said.

Welcome changed to worry when details of how the board would work were revealed, Renner said. The board couldn’t touch most hospital payments for several years, or scale back Medicare coverage. However, payments to doctors got no such protections.

“The concern is that this is going to be focusing on about the only big area of spending and that’s physician payments,” Renner said.

Renner added that tying the activities of the advisory board to the existing Medicare physician formula could result in cuts of 30 percent to physician payments.

Now the Minnesota Medical Association wants Congress to repeal IPAB as a result.

SOURCE: Minnesota Public Radio News


Merrill Goozner of the Fiscal Times writes:

A forthcoming report from the Congressional Budget Office shows that more than two dozen demonstration projects launched by Medicare and Medicaid over the past decade have failed to stop the upward march of health care costs, CBO director Doug Elmendorf said Tuesday. But health care policy experts say the findings paint too gloomy a picture.

The CBO pronouncement will heighten pressure on politicians from both political parties to come up with new health care cost savings beyond those contained in the health care reform bill, whether as part of the current debt ceiling talks or in separate legislation. Federal spending on Medicare and Medicaid totaled $739 billion in 2010, making health care the single largest budget item in the federal budget. Those costs are expected to nearly double in the next decade.

Goozner’s story outlines why IPAB alone is unlikely to achieve the kinds of reductions Obama has set as a target.

SOURCE: Kaiser Health News


Merck CEO Kenneth Frazier writes in The Wall Street Journal on IPAB and the danger of dampening innovation:

There are two big public-policy threats on the horizon for Merck and the biopharmaceutical industry. One is the Independent Payment Advisory Board, or IPAB, which originated in last year’s health-reform law. This board has the power to reduce Medicare payments for innovative products simply because overall Medicare costs exceed certain budget targets in any one year. This effort is inherently designed to focus on reducing short-term costs at the expense of long-term investments.

The other harmful proposal on Washington’s agenda would impose price controls for the first time on the Medicare Part D prescription-drug program. This successful program has allowed nearly 30 million seniors to have comprehensive drug coverage at a cost that is nearly 50% below initial projections. It makes no sense to overlay – as would bills proposed by Rep. Henry Waxman (D., Calif.) and Sen. Jay Rockefeller (D., W.Va.) – a price control onto a program that is already delivering high value at lower-than-projected costs.

The IPAB and the proposed Medicare price controls will dampen incentives for innovation and job-creation, ultimately reducing access to life-saving and cost-saving treatments. A report from the Battelle Memorial Institute estimates that the kind of Medicare Part D policy now being considered in Congress could kill 130,000 or more U.S. jobs in and around the pharmaceutical industry.

SOURCE: The Wall Street Journal


Former HHS Secretary Mike Leavitt was backing exchanges strongly in Utah this week at the National Governors Association meetings. He thinks it’s very important that states dive in headfirst in creating these entities, and he “urged the governors not defend their ‘partisan flags’ over the interests of their states”:

Speaking to a bipartisan group of governors at the National Governors Association, the former Republican governor who served as secretary of health and human services in the Bush administration called the exchanges where individuals and small businesses can purchase health plans “a very practical solution to a problem that needs to be solved.” He warned governors who are reluctant to move forward with their state-level exchanges that their intransigence will only empower federal regulators.

And he said the health care law that passed is a compromise that gives the states the flexibility they need.

“This is a profoundly important time for the states,” said Mr. Leavitt. “States need to lead.”

Left out of Leavitt’s remarks, or the Washington Wire post, is any mention of Leavitt’s financial stake in the creation of these exchanges, which Michael Cannon has noted, pointing out that “Leavitt Partners (among other consultants) is helping states create the law’s health insurance ‘Exchanges.'”

Some of my colleagues respect Mr. Leavitt a great deal. I’m sure this fact just slipped his mind.

For more on the new exchange regulations released by HHS, which only serve to undercut Mr. Leavitt’s pro-collaboration message, read this editorial, and watch for my Research & Commentary this week.

SOURCE: The Wall Street Journal


As the debt ceiling talks continue in Washington, President Obama has given voice to two possible areas where he could see fit to make cutbacks in Medicare: increasing the retirement age, and means-testing in some form. (No mention of whether he’d back the bipartisan Lieberman-Coburn bill in the Senate, which does both of these.) These are, incidentally, the only aspects of Medicare reform that consistently receive a plurality of popular support according to polls cited in this NEJM piece:

About half of Americans favor gradually raising the age of eligibility for Medicare from 65 to 67 for future retirees (47%) and requiring higher-income seniors to pay higher Medicare premiums (54%) (KFF, April 2011).

House Majority Leader Eric Cantor outlined some of these positions in his recent proposal:

Cantor outlined $16 billion in savings by increasing Medicare co-payments for clinical laboratory tests, and another $50 billion from either reducing home health payments or increasing co-pays under Medicare.

Cantor would also means-test some Medicare benefits – a core component of the plan introduced by Sens. Joe Lieberman (I-Conn.) and Tom Coburn (R-Okla.). High-income beneficiaries would pay 10 percent more of the cost of hospital stays and prescription drugs, which Cantor estimated would save the government $38 billion.

Lost in the discussion to some degree is whether Medicaid will reappear as an issue, which remains a possibility from my perspective despite previous efforts from Senate Democrats to take cuts or block grant reforms off the table. Of note: In this letter from Washington Democrat Gov. Chris Gregoire, the NGA opposes the so-called “blended rate” and proposes that President Obama allow for a repeal of portions of PPACA which prevent states from adjusting eligibility for Medicaid prior to 2014. For more on this, read this Kaiser Health News article.

SOURCE: The Hill


The real news from this update from ABC News, which notes the Obama administration has granted a total of 1,471 waivers from PPACA, is Wyoming Republican Sen. John Barrasso’s announcement of a bill to offer every American an individual avenue to applying for waivers:

Wyoming Republican John Barrasso said today that he plans to introduce a bill next week that “will deliver choice to Americans who want to get the care they need, from the doctor they want, at a price they can afford” by allowing all Americans to apply for a waiver from the president’s health care law.

“If the law worked well, companies and unions would not demand a way out of its expensive mandates. Each waiver demonstrates that the President’s health care law is a complete failure. The law continues to crush jobs, increase premiums and encourage government controlled health care,” Barrasso said in a written statement. “It’s not fair that a particular group of Americans, including union employees, don’t have to abide by the law. Millions of other Americans across the country deserve the same freedom,” he said.

The folks in processing at HHS are going to love this one.