PharmExec Blog

Questions About the 2013 Implementation of IPAB

by Tom Norton

With the general election behind us, the anticipated avalanche of ObamaCare regulations has begun.  Last week, it was reported that more than 13,000 pages of rules and regulations have been issued by HHS since Nov. 6th.   A huge amount of activity, to be sure, but as stated, not surprising.  That’s because the law is scheduled to go on line January 2, 2014 and there is much left to be done.  It’s obviously time for HHS to move forward at full speed to implement the measure.

In the midst of this massive regulatory action, certainly one of the more interesting aspects of ObamaCare’s implementation is the case of the Independent Payment Advisory Board, or IPAB, as it is called.

Why is IPAB of particular interest?  Of all the new agencies, bureaus, and institutes that ObamaCare is creating, IPAB is really the only entity in the law that is, by definition, responsible for controlling the costs of the new law’s Medicare spending.  That fact, and the powers that IPAB has been given by the law to carry out its mission have made its particular implementation one of the most controversial actions of 2013.

A key question here, however, is whether or not IPAB will actually be brought on line in 2013, or ever?

Before answering that provocative question, let’s take a few moments to review how IPAB is envisioned by the law, how it is supposed to operate in controlling Medicare’s costs, and a few of the pro’s and con’s that exist over each key element of IPAB.

The Key Elements of IPAB

To begin, IPAB is a new concept, unlike anything else the US has previously utilized in attempting to control Medicare spending.  Below, I will briefly detail some of the key, most controversial elements of the law.

(For a broader view, the best overall discussion I have read on this new entity is a report from the Kaiser Family Foundation, April, 2011.  I recommend this to all who want a deeper understanding of how IPAB is intended to work.)

1. The Board

Who will be responsible for causing IPAB to function?  Fifteen appointed members, selected by the President, and approved by the Senate.  These individuals will have to be dedicated to the IPAB, and have no conflicting outside interests or practices.  Pay for Board members will be $165,000 a year and each term shall last for up to two six-year sessions.  Members will rotate through the Board by alternating reappointment years (page five of the Kaiser report).

It should be noted that the HHS Secretary, Administrator of CMS, Administrator of HRSA, and the HHS Actuary serve as ex officio members of the appointed Board.

Why is this Board Controversial?

“Panel of Experts”

Supporters of the law see this panel as an impartial group of medical experts with deep understanding in “health care, economics, research and technology assessment, experience with employers and third-party payers, and consumers.”   Their impartiality will drive dispassionate, rational, non-political decisions — that is how the proponents of the Board see it.

“The Death Panel”

Opponents of the IPAB see this group as an unelected body of powerful bureaucrats with political agendas, professionally insulated from their peers, who will have little choice but to make cost reduction decisions to meet IPAB’s fiscal goals or face removal from the Board. Ultimately these “forced decisions” will reduce access to care and medical innovation.  This situation will create the prospect for current and future lifesaving procedures, medications, and services to not be available to Medicare patients.  Thus, the “death panel” label.

2. Cost Control Function

The key mission of IPAB is controlling cost increases in Medicare.  IPAB will do this, initially, by measuring increases in various aspects of the Consumer Price Index for Urban Consumers; and later by measuring inflation increases that affect the U.S. Gross Domestic Product.  Here is how it lays out:

2015-2020

IPAB is set to operate with a target for Medicare spending per capita that is the average of the projected percentage increase in the consumer price index for all Urban Consumers (CPIU) and the medical care expenditure category of the CPI-U.

2020 and beyond

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.

When does this process start? —  April 30th 2013

Beginning about four months from now, no later than April 30, 2013, the CMS Actuary, Rick Foster, is directed by the law to proceed with setting up an aggregate per capita formula for Medicare’s reported growth in 2014, based on the above measures, and eventually to transition to the 2020 GDP measurements of inflation.

Note: Foster’s first measures, initiated on April 30th of 2013, will be based on his report as to whether the 2014 projected increase in the medical care expenditure component of the CPI-U in 2014 exceeds the general CPI-U.

If the medical care expenditure component of the CPI-U in 2014 exceeds the general CPI-U, then IPAB will swing into action based on this 2014 information for 2015.

3. IPAB Cost Control Mechanisms

As we get to 2015 and beyond, what is it that IPAB may do to bring these costs in line with the various CPI, and later, GDP, measures the CMS Actuary will provide to IPAB to determine whether costs have exceeded the set parameters?   To meet this budget reduction challenge, it is anticipated that IPAB will revert to previously used, historical cost savings approaches, including:

Cut Providers Fees

The first group of focus will be providers, the once and forever favorite target of Medicare.  The question is, of course, how much fee reduction can IPAB demand — and the providers accept — before the providers simply refuse to take anymore Medicare patients?

Reduce Access to Medical Services by Raising Rebates

Second, will be medical services, including instruments and devices, medical supply firms, pharmaceuticals and biologics, diagnostic manufacturers, etc.  Where will savings be found here?  New, aggressive rebates will be demanded from all of these services for the privilege of doing business with Medicare, or not.

Diminish the Offering

The last approach, which some will describe as rationing, is to “diminish the offering.”  That is, simply removing some of the services available to Medicare patients to reduce overall expense.  If the services aren’t there, they won’t be used, and, of course, that is a good way to reduce costs.

Questions about Implementation Based on the Key Elements

Given the pressure to move IPAB implementation forward as fast as possible, at first glance, it would seem impossible for IPAB’s inertia to be stopped or, at least altered.  After all, many argue that IPAB is, in fact, the “heart of ObamaCare.” Without it, cost control for Medicare under ObamaCare would be hard to undertake and measure.   And without that, much of the premise of the bill’s passage would be gone.  It is therefore imperative that IPAB be put into place.

However, as you walk back through the key elements of IPAB, there are those issues that could prove problematic for IPAB’s implementation in 2013.  Let’s take a look at several of these:

1. Senate Approval of IPAB

Not to beg the obvious, but as stated in the law, each member of IPAB must be confirmed by the Senate.  If one Senator, who for whatever reason, does not want a particular IPAB nominee to be seated, that likely ends the candidate’s chances to serve on the panel.

Overall, if those Senators who may be opposed to ObamaCare and who understand the importance of IPAB to the law, were to simply oppose every individual nominated to be members to the IPAB, they would effectively stop the function of the Board.

2. The Formulas for IPAB Forward Action

In March of this year, CBO testified that it is possible that formulas to be applied in estimating Medicare’s growth would likely find that Medicare would not hit the CPI thresholds for fiscal action by IPAB for the next seven years.  The question, of course, is, if indeed CBO is correct, why is there a need for IPAB in ObamaCare? Several Members of Congress are asking the same question.

3. Bending the Cost Curve?

It’s also worth noting that the CMS Actuary, Rick Foster, who is responsible for providing IPAB with information on the formulas that may lead to Medicare cost reductions, is the same Rick Foster who has made many strong statements over the last three years re: the actual lack of savings that ObamaCare will drive in Medicare.

It will be interesting to watch Mr. Foster’s take on the actual savings that ObamaCare is driving for the future, and how the estimated savings the Congress projects for ObamaCare may turn out to be extremely low versus the reality of the American economy over the next 25 years.

All this, starting on April 30th of next year. My advice:  Keep a close eye on the implementation progress of IPAB in 2013.

Tom Norton is Principal, NHD Smart Communications of Illinois, Inc. He can be reached at tnorton@nhdcomm.com

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