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Repeal and Replace IPAB

July 13, 2011

By Paul Howard

While President Barack Obama and House Speaker John Boehner clash on deficit reduction, here’s a bit of bipartisanship you might have missed: Ultra-liberal Pete Stark and libertarian Ron Paul both want to kill Medicare’s new Independent Payment Advisory Board. And they’re just the leading edge of this bipartisan wave.

House hearings this week underscored growing support for repealing IPAB in Congress: from patients’ groups, doctors, hospitals and drug and device manufacturers. More than 270 groups recently sent an open letter to Congress calling for repeal.

IPAB is fatally flawed, structured to punish innovative health care providers and threaten seniors’ access to care — while leaving the largest sources of Medicare spending untouched. It continues Washington’s obsession with price-fixing in Medicare’s separate “silos” rather than changing the incentives that have led to rampant overspending, fraud and uneven care quality.

But the impulse behind this action — injecting some rationality into how Medicare pays for care for seniors and protecting the program from congressional meddling — makes sense. So instead of just repealing IPAB, Congress should replace it with a bipartisan mechanism for promoting cost control, improving quality and injecting competition into the health care system.

Medicare’s current fee-for-service payment system is dysfunctional. Because it pays for care a la carte, without regard to quality, Medicare providers have powerful incentives to overprescribe, overtest and overhospitalize patients rather than coordinating care and competing to keep costs down. As a result, excess cost growth in Medicare from 1975 to 2007 exceeded spending from all other health care sources — including Medicaid and private payers.

So the IPAB — an unelected, 15-member board of health care “experts” — will be mandated to cut Medicare spending to achieve targeted savings. If Medicare’s per capita growth rate exceeds its target, beginning in 2015 the advisory board will issue binding recommendations. These are to be implemented automatically — unless Congress comes up with its own and passes them with a supermajority vote in the Senate.

Here what’s wrong with this plan. First, by statute, hospitals, nursing homes, hospices and others are exempt from Medicare cuts until 2020. So one-third to one-half of spending is off limits. That means the rest — especially drugs and devices — is likely to suffer disproportionate cuts.

Second, because targets have to be met year by year, IPAB will be forced to focus on “provider cuts” — price fixing — to meet its mandate. Long-term, quality improvements will most likely be ignored.

Third, when a costly, risky but promising drug or device hits the market, it would arrive with an IPAB bull’s-eye on its back. Faced with uncertain returns, innovative companies and their investors could easily decide to put their money elsewhere, choking off development of new drugs.

In addition, IPAB is prohibited from changing Medicare benefits or premiums — meaning anything that might motivate Medicare patients to seek out the most-cost-effective providers and services.

So repealing IPAB can’t happen soon enough. But to better meet the policy objectives, in 2015 Congress should commit to a hard cap for Medicare spending, in tandem with the creation of a true Medicare premium-support program. Seniors could use such a “voucher” to purchase any approved insurance, and the support would be means-tested and adjusted for health status.

If seniors wanted a richer package of benefits than the basic voucher makes possible, they could pay for additional services out of pocket.

Seniors could also stay in traditional Medicare fee-for-service — but not with an open-ended taxpayer checkbook. Over time, both traditional Medicare and the premium-support program would very likely grow at the same rate.

We suggest beginning with Medicare’s historical growth rate — approximately gross domestic product plus 2.5 percent. But we would ratchet down spending over time — to GDP plus 1 percent or 0.5 percent. If that sounds familiar, it is because both the president and Rep. Paul Ryan have proposed similar targets.

Instead of IPAB, the new Center for Medicare and Medicaid Innovation would be empowered to fast-track and implement any reforms in fee-for-service Medicare — allowing progressives to keep their model of health care reform. Outside Medicare, private insurers would have widespread freedom to innovate in both insurance-benefit design and co-insurance, as long as they offer core services — similar to the operation of Medicare Part D and Medicare Advantage today.

This strategy offers several powerful advantages over IPAB. First, all components would be subject to constraints immediately, though providers would have time to adjust to lowered payment rates over time. Competition would be injected into the system, and seniors could choose between traditional Medicare or private insurance, creating healthy competition.

Innovative providers who bundled high-quality services at lower cost would gain market share. Medicare would be shielded from congressional interference. Drug and device manufacturers who focused on better diagnosis, prevention and treatment options for high-cost, chronic illnesses would likely flourish.

Most important, this option could unite good politics and good policy. Democrats get to keep fee-for-service Medicare. Republicans would get a private market and real competition. Seniors would get more choices and better quality care. And Medicare itself would become sustainable.

Could it happen? Well, if Paul and Stark can find common ground — who knows what else is possible?

Original Source: http://www.politico.com/news/stories/0711/58799.html

 

 
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