Right Problem, Wrong Solution

Last week, 24 medical organizations representing 350,000 doctors urged Congress to repeal Medicare’s new Independent Payment Advisory Board (IPAB). That’s the right prescription for improving American health care and protecting access to innovative treatments for seniors. Unless repealed, IPAB will quash medical innovation and make it even harder to adopt Medicare reforms that can improve quality and lower costs.

An important part of President Obama’s Affordable Care Act, IPAB was designed to address a real problem: the unsustainable growth in Medicare spending. At present, there is a $280 billion gap between the premiums and payroll taxes flowing into federal coffers and the Medicare checks being sent out. As 10,000 more seniors join the roles each day, the red ink will threaten the program’s future.

Medicare’s dysfunction owes much to its antiquated design. Created in 1965, the program mirrored the then-prevalent insurance package: hospital insurance providing fee-for-service reimbursement, with 20 percent co-pay for catastrophic costs. Over time, additional benefits have been layered on top, but the result is a jury-rigged health-insurance program divided into silos for hospital care (Part A), physician services (Part B), HMO-style insurance (Part C or Medicare Advantage), and prescription drug coverage (Part D).

By dividing hospital and physician services – and allowing seniors to choose their own providers regardless of cost or quality – Medicare’s design makes it extraordinarily difficult to make health care more efficient or affordable. No health insurer in America could operate in this fashion and expect to survive. The fractured payment structure also encourages Medicare fraud. Last year, the Government Accounting Office projected that Medicare loses nearly 10 percent of its annual budget ($48 billion) to fraud.

Over time, policymakers have responded to Medicare’s rising costs by imposing price controls on providers, a strategy that hasn’t solved the program’s underlying problems. Indeed, doctors and hospitals responded to price controls by increasing their volume of services, or providing more heavily reimbursed services.

IPAB is the ultimate in government price controls. It consists of a 15- member board selected by the president and empowered to reduce Medicare outlays automatically if spending rises above a target rate (set by legislation). Beginning in 2018, the target rate is set at GDP plus 1 percent.

Ironically, Medicare payment cuts already required by the Affordable Care Act will make many providers "unprofitable", according to Medicare’s own actuary. Although IPAB is prohibited by statute from "rationing" access to care, slashing reimbursements will drive more providers to limit services for Medicare recipients – creating de facto rationing.

Price controls distort health care spending and services. IPAB will only increase the distortion, because it exempts hospitals and hospices from cuts until 2019. During the interim, cuts will fall most heavily on physicians, Medicare Advantage plans, medical device makers, and pharmaceutical companies.

Thus the uneven burden of IPAB’s cost discipline will penalize some of the most innovative and potentially cost-saving technologies – like new (and expensive) drugs for Alzheimer’s, which might save money in the long run by keeping patients out of nursing homes. IPAB’s focus on year-to-year cuts also discourages Medicare from implementing quality and cost-containment programs that might save money over the long term.

Finally, IPAB is nearly unaccountable. Unlike other federal rulemaking bodies, the board faces no obligation to engage in public notice and comment, no judicial review of its decisions, and no appeal of its directives. Even Congress has had its hands tied by IPAB. It must review IPAB’s recommendations on a "fast track", and they can’t be overruled without a three-fifths majority vote in the Senate. Even then, Congress’ only option is to propose its own cuts of the same size or greater.

Without question, Medicare spending poses a tremendous challenge. But creating price controls on steroids, as IPAB does, is no way to create a sustainable health-care program for America’s seniors.

Real Medicare reform should start with a premium-support program for seniors based on the successful competitive-bidding programs now used by Medicare Part D and the Federal Employees Health Benefits Program. Traditional Medicare could remain an option for seniors, but both fee-for-service Medicare spending and premium-support vouchers would rise at the same level, with additional protections for poorer or sicker recipients. The Center for Medicare and Medicaid Innovation should also be given a broader hand to fast-track Medicare reforms. On the market side, insurers should be allowed to create more cost-effective networks of care for seniors that would reward less expensive and more innovative providers.

IPAB’s designers had the right problem, but the wrong solution. Fortunately, Congress has the opportunity to repeal IPAB and make Medicare sustainable for future generations. If we are ever to create a platform for sensible, market-based Medicare reforms, repealing IPAB must be the first step.

This piece originally appeared in RealClearPolitics

This piece originally appeared in RealClearPolitics