PharmExec Blog

IPAB : An HCR Acronym You Need to Understand

Tom Norton throws some light on the much-vaunted Independent Payment Advisory Board.

Working towards our top issue for the June edition of the HCR Monthly Review, I continue to be struck by the amount of macroeconomic data that will be driving the new HCR law. Indeed, most of the key performance measures in the 2010 statute are directly tied to the nation’s financial performance.  That is, our future healthcare delivery, or at least the provision of service under Medicare, will actually be calibrated and delivered based on our GDP and that, friends, is a new concept in American society.

One of HCR’s most compelling new tools, designed to respond to the results of the GDP, is known as the Independent Payment Advisory Board, or IPAB.  IPAB has attracted my attention lately, if only because of the large number of media reports that suddenly have been generated over this new acronym.  Check these out:

In particular, interest in the IPAB has been heightened since President Obama stated on May 8th that the new IPAB entity is part of the way he believes the Administration can “get at the general deficit issue”…i.e., he would reduce costs in the overall economy by expanding the authority of the IPAB to control health care costs.

Interesting…Ramping up the power of a relatively obscure, untested HCR concept that is not yet even formally in existence–to address the overall budget deficit?…But let’s keep moving here.  Clearly, something significant is going on with this IPAB idea, and so, for June, the HCR Monthly Review will take a shot at discussing the highlights of IPAB and try to understand why this issue has become so “hot.”

The Theory
So, what is the overall theory of IPAB?  Broadly writ, it appears this entity will serve as HCR’s  “enforcement arm.”  Starting in 2014, if, and let’s be honest here, when the costs of Medicare run over a certain prescribed target each year, IPAB will be responsible for staying within the prescribed Medicare budget by making adjustments in Medicare payments.   Essentially, per my above comments on GDP influences in HCR, depending on the data gathered on the pricing of health care, IPAB will have to adjust per capita Medicare reimbursement rates based on the performance of the healthcare sector and the broader GDP.  In short, although currently limited to only Medicare, it appears IPAB is set to become the first national administrator of healthcare price controls in the US.  (If you are really curious about the deeper details of IPAB powers, the best overall summary I have found is Kaiser’s report:

What led to the creation of IPAB?  Since Medicare was established in 1965, there have been many moments when it was clear that Congress either lacked the will and/or understanding of healthcare issues to effectively manage the important decisions that needed to be made in the delivery of Medicare.   A large portion of this, of course, was linked to political considerations; but some of this was clearly due to insufficient healthcare knowledge.  In the end, as is frequently the case when factors like these play into Congressional decisions, Congress simply did nothing…only making a bad situation for Medicare, worse.

And so, not surprisingly, as Congress battled through HCR in 2009 and 2010, one key issue that kept emerging in the debate was the need for an “independent” authority that could “dispassionately” apply deep healthcare insights to tough Medicare questions, and most importantly, make the hard decisions needed to keep Medicare fiscally solvent.  As Congress envisioned it, this entity would be made up of healthcare professionals, and although overseen by Congress, the panel would be given great latitude to rule on all manner of difficult healthcare issues that might wash over Medicare.  And, oh, by the way, ultimately the creation of IPAB would also take Congress completely off the hook in making these difficult Medicare calls…

In the end, primarily championed by Sen. Jay Rockefeller (D-WV), IPAB emerged as a key plank in the new HCR law.  And only lately (per the above noted stories) have we all begun to realize just what Congress created.  Some have described IPAB as “the answer” to dealing with the cost crisis in healthcare for not only for Medicare, but also, potentially, for all US healthcare; while others decry it as the much feared “death panel” that will have the power to determine who lives and who dies in our society.

So, no matter how you come down on the idea, it’s a fairly major, new concept in American healthcare.  I have been mulling over IPAB this past month…and here are a few aspects of the entity that I have found intriguing.

The IPAB Board
First, this will be an appointed board; not elected.  As such, IPAB is tied directly to the Executive branch and all fifteen members of the IPAB will be appointed by the President (So far, no one has been appointed).  Twelve of the fifteen appointees will be seated only after Congressional approval; and three others will be appointed by the President, “in consultation with the Majority and Minority leaders of Congress.”  So, the folks serving on IPAB will not be electorally responsible to the citizens who will experience the medical results of IPAB’s decisions.  Interesting.

Further, these IPAB appointments are to be “real jobs.”  That is, whoever takes one of these positions will not be allowed to “moonlight” as a physician, insurance exec, pharmaceutical rep, nurse, pharmacist, union executive, etc.  It’s gonna be all or nothing to serve on the IPAB…with a set annual salary of $165,300.  Staggered terms of one, three, & five  years will be established so that there is a regular rotation of members, with each member serving no more than two consecutive six year terms.  (This is what is known in Washington, DC…as a “very good government job.”)  However, this “dedicated job” criteria of the position does potentially present some issues.  Logically, you would think that we would want our most qualified health professionals…think doctors, medical researchers, health lawyers, economists, etc., to serve on this panel.  But let’s be honest here.  Frequently those folks are earning considerably more than the federal stipend offered here, and, therefore, will likely not be keen to serve twelve years on this panel.  So, who will?  Hard to say.  However, as a result, it’s easy to understand why some folks are already uneasy about who will actually end up being appointed to this very important panel.

IPAB’s Power
Second, as alluded to earlier, this outfit will have substantial regulatory power to control and enforce the budgets of Medicare.  IPAB’s bottom line for cost controls will be based on per capita spending in Medicare, driven by the broader performance of the US economy.  To put this in context, the 2010 statute establishes a very clear formula for determining target growth rates for Medicare spending that IPAB is responsible for executing and controlling, starting in 2014.  Check this out:

“For 2015 through 2019, the target for Medicare spending per capita is the average of general and medical inflation: Specifically, the average of the projected percentage increase in the consumer price index for all Urban Consumers (CPI-U) and the medical care expenditure category of the CPI-U. For 2020 and later years, the target for Medicare spending per capita is the increase in the gross domestic product (GDP) plus one percentage point, which historically has increased at a higher rate than the CPI-based measures.” (p. 6)

So, there is really no doubt about it.  Pertaining to Medicare cost controls, these guys are locked in and will have full authority to hit their fiscal goals.

IPAB Cost Control Mechanisms
Third, there are obviously only so many ways to control costs in Medicare and that is what really has everyone up in arms.  What are the likely approaches IPAB will take to accomplish this?

Well, obviously, healthcare providers are a great cost control target.  If their fees can be cut or otherwise controlled, it will reduce Medicare’s costs.  However, that approach is clearly one of the major sore spots in the IPAB concept.  Since 1997, physicians practicing in Medicare have been subjected to a concept created by Congress called the Sustainable Growth Rate (SGR) provision of Medicare. SGR was designed to systematically reduce and control physician payments under Medicare and it is fair to say that Congressional administration of the concept has been a disaster.  Year after year, Congress has been forced to patch up the law, and to date, no one is happy with it, least of all, the doctors.  (Are you now beginning to understand why Congress wants out from under this Medicare responsibility?)  In fact, the SGR “Fix” became a major issue during the HCR debate and in the end, Congress was not able to resolve the problem.  So, as you can imagine, doctors, and really all providers, are not sold on a broader, more comprehensive version of SGR as envisioned in the IPAB.  It seems to me that this alone presents a huge prospective problem for the IPAB panel in terms of controlling provider costs.

Medical Services
The second area for potential cost controls would include entities that deliver healthcare products or services to Medicare.  Pharmaceutical and biotech firms, instrument & device medical supply manufacturers, home health suppliers, insurers, diagnostic centers, etc, make up this group.

How will IPAB obtain cost savings from this group?  Let’s take the example of the pharmaceutical industry…Currently, the industry is subjected to significant rebate mandates under HCR.  On May 8th, however, the President made it clear that IPAB “could look” for more savings in the Rx area.  His suggestion?  Aggressively extending the use of a mandatory generic, as well as perhaps a therapeutic substitution policy, in all Medicare services, while demanding more rebates from Rx manufacturers for their brand name drugs in order for them to participate in the Medicare program.

The take away?  We can anticipate that the same sort of mandated cost savings approach is in store for all other medical services.  Needless to say, none of the medical services group, to date, seem to be enthusiastically endorsing this line of cost control thinking for Medicare.  Again, I would anticipate tough sledding for IPAB as they go down this cost control road…

The third obvious way to cut Medicare costs is to simply reduce those medical services available to Medicare patients, i.e., rationing care.  This, of all the inflammatory terms thrown around in the HCR debate, is certainly the most volatile.  Indeed, the application of “rationing” is actually prohibited in the law. (p. 10)   That said, given the options available to IPAB, it is also the one concept most likely to be utilized as they struggle to control costs under the mandates of the HCR law.  Why?  It is the most direct way to get at the problem of cost overruns that they are mandated to control.

Thus, when pundits and opposition politicians accuse IPAB of potentially being little more than a US-version of the much reviled British National Health System’s “National Institute for Health and Clinical Excellence” (NICE), — the NHS entity that brings the hammer down on British patients by deciding what care they can and cannot have — they may well be right.  Certainly, however, the Administration does not want to talk about Medicare rationing as a viable cost control approach, and understandably does not want to compare IPAB to NICE.

So, where do we come out on cost control options for IPAB?  As discussed, anyone of these concepts has the potential to be politically explosive, and, thus, difficult to execute.  In fact, I must say that the idea of being asked to serve on a panel of citizens, charged with “controlling” Medicare’s costs, and being faced with the prospect of implementing cost control options such as those just described is somewhat unsettling.  Frankly, who would want this assignment?

To begin to wrap up this brief discussion, there is obviously much more that needs to be said about the IPAB.  My mission today, however, is only to scratch the surface of some of the more interesting aspects of this new panel.  To say that this concept is incredibly important and that its healthcare impact will be profound is to understate the obvious.   Frankly, it appears that IPAB will be the lynch pin of the entire cost control theory that is being advanced under HCR, and that is clearly why the concept has become so controversial.

And, to put it plainly, if IPAB does not work, it is hard to see how the broader cascade of ideas presented in HCR will hang together.  Just too much depending on these cost controls.  And if IPAB fails, then what?  Perhaps we go back to having Congress make the decisions on Medicare?  I don’t think so.  Congress won’t allow it…

That’s my point of view on IPAB, the Independent Payment Advisory Board, as a key aspect of HCR…and an acronym that you need to understand.  I would appreciate hearing your thoughts on this important cost control entity.

Tom Norton

This entry was posted in healthcare, Regulatory and tagged , , , , , , . Bookmark the permalink. Trackbacks are closed, but you can post a comment.


  1. Medicare Questions
    Posted April 10, 2012 at 8:58 am | Permalink

    Thanks for the article – appreciate it! Very informative…

  2. Posted April 24, 2012 at 12:29 pm | Permalink

    Great article – but adding more people onto the Federal payroll to police law is only making the problem worse. It must be up to the beneficiaries who receive the benefits to help with the fraud & waste.

Post a Comment

Your email is never published nor shared. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

  • Categories

  • Meta