Health care reform: Congress creates Independent Payment Advisory Board

As part of the health care reform legislation, and in an effort to help restrain growth in Medicare expenditures, Congress has created the Independent Payment Advisory Board, which has the authority to develop proposals that will become law if Congress fails to enact alternative proposals.

One of the key questions about the implementation of the Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010, is whether and how it will “bend the cost curve” of ever-increasing rates of health care expenditures. One of the novel approaches taken in the legislation was the creation of the Independent Payment Advisory Board (IPAB), which is authorized to make proposals to save costs in the Medicare program. Unlike most other boards or commissions created to address cost or health care quality concerns, the IPAB’s proposals are not merely advisory; they will become law unless Congress acts to adopt alternative cost-saving proposals that would save at least as much as the IPAB proposals.

Spending reductions

Congress made it clear in the legislation that the purpose of the IPAB is to save costs, noting, “It is the purpose of this [board] to ... reduce the per capita rate of growth in Medicare spending.”

Here is how the IPAB will operate: If the actuary of the Centers for Medicare and Medicaid Services determine 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. 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 and the medical care component of that index. For 2018 and thereafter, the target rate of growth is set as the gross domestic product plus 1%. 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% in 2015, 1% in 2016, 1.25% in 2017 and 1.5% in 2018 and beyond).

IPAB proposals

IPAB proposals affecting providers (eg, hospitals and skilled nursing facilities) will not be implemented before 2020. IPAB proposals affecting other suppliers (eg, physicians) may commence in 2015.

An IPAB proposal is required to include a recommendation for savings, based upon the criteria summarized above; the rationale for believing the proposal will achieve the target savings; legislative language to implement the proposal; and an actuarial opinion to support the belief that the targeted savings are expected to be achieved with the proposal. In developing proposals, the IPAB is instructed to give priority to efforts to extend Medicare solvency. The health reform law instructs the IPAB to develop proposals that improve the health care delivery system and 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.

Congress specified that IPAB proposals shall not include any recommendation to ration health care, raise revenues, raise Medicare beneficiary premiums, increase Medicare beneficiary cost-sharing — including deductibles, coinsurance and copayments — or otherwise restrict benefits or modify eligibility criteria.

In developing proposals, the IPAB is required to consult with the Medicare Payment Advisory Commission (MedPAC) and with the Department of Health and Human Services. The IPAB is required to submit its proposals to the president and Congress. Congress may introduce an IPAB proposal as new legislation, but it may only modify an IPAB proposal if doing so would achieve savings at least as great as those expected by the IPAB proposal. A key feature of the IPAB proposals is that they shall be implemented automatically by HHS if Congress does not pass legislation meeting target savings.

Advisory reports

In addition to developing proposals to achieve savings in the Medicare program, the IPAB is also authorized to 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/nonfederal health care programs.

Under PPACA, the IPAB shall comprise 15 members appointed to 6-year terms by the president, with advice and consent of 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 and appoint the IPAB chair. The secretary of HHS, administrator of CMS, and administrator of the Health Resources and Services Administration are specified as ex officio members of the board. The chair is authorized to appoint an executive director and staff for the IPAB.

Implications

The purpose of the IPAB is to reduce Medicare expenditures while maintaining quality and access without raising out-of-pocket costs for Medicare beneficiaries. Realistically, this can be achieved in only one way: through reductions in provider and supplier payments. Payment reductions are likely to target those areas considered to be drivers of cost growth. High-volume and high-cost services are likely to be targets for IPAB proposals. Therefore, Medicare providers and suppliers — as well as vendors who sell items and services to them — should carefully monitor reports by MedPAC and other organizations looking at drivers of Medicare utilization and cost, because items and services identified in those reports as cost drivers are likely to be early targets of the IPAB.

In addition, one would anticipate that the IPAB will target providers and suppliers under payment methods that are structured in ways that more easily allow for program savings — as in items and services under national fee schedules. It will be easier for the IPAB to propose savings by reducing fee schedule updates rather than proposing novel payment structures that might not yield near-term cost savings.

Congress took a very unusual step in creating the IPAB. It essentially tied its own hands to allow for IPAB proposals to become law without congressional action.

Although IPAB proposals will not go into effect before 2015 for physician/supplier services, and even later (2020) for provider services, the first assessments of excessive growth in the Medicare program will be made beginning 2013. In other words, the program is really not that far away.

• Eric Zimmerman and Paul Radensky, MD, are partners in the law firm of McDermott Will & Emery LLP. They can be reached at ezimmerman@mwe.com or pradensky@mwe.com.