Editorial Board

Road to Affordable Care Runs Through Medicare Pay Panel

Nothing in the debate over health-care reform is more depressing than the verbal attacks each party lobs against the other for attempting to cut costs.

Republicans denounce President Barack Obama’s Affordable Care Act for seeking to trim a few percentage points from Medicare spending over the next decade -- out of $5 trillion. In turn, Democrats deride Representative Paul Ryan’s plan, which would create a voucher-like program enabling seniors to shop among competing health plans, for ending Medicare as we know it.

Truth is, congressional inertia is the single-biggest impediment to controlling health-care costs, which, in turn, are the biggest driver of federal budget deficits. An existing Medicare commission repeatedly offers , and Congress repeatedly ignores them.

But tucked away in the Affordable Care Act is a promising remedy, the Independent Payment Advisory Board. It resembles the existing Medicare commission, except its proposals for changing the delivery of health-care services can’t be waved off so easily. Unfortunately, Republicans and even some influential Democrats are gunning for the board; the House voted last week to abolish it. So much for countless hours of rhetoric about trillion-dollar deficits.

The need for something akin to the IPAB will become even more clear in 2014, when millions more Americans obtain health insurance (unless, of course, the Supreme Court strikes down the individual mandate). Economics 101 teaches us that sudden increases in demand for doctor visits and procedures such as MRIs and outpatient surgery will cause prices to jump, too.

State Experience

That was the experience in Massachusetts, which adopted an individual mandate under then-Governor Mitt Romney in 2006. The state government’s annual health-care bill zoomed to $406 million last year from $33 million in 2005.

To avoid a similar escalation, the Affordable Care Act calls for a full-time, 15-member panel of health experts to find cost savings. Congressional Democrats and Republicans would propose six members each, and the president would nominate the other three. All would be subject to Senate confirmation.

Starting in 2015, the board would devise reforms to bring Medicare, which is expected to cost $500 billion this year, in line with spending targets. From 2015 to 2019, the target would be based on inflation, measured by a blend of Consumer Price Index and health-cost increases. After that, the formula would tighten to economic growth plus one percentage point.

The panel can’t increase beneficiary copayments or premiums, change eligibility rules, increase payroll taxes or alter existing benefits. Instead, it must focus on reforming the way health care is delivered and the incentives that drive doctors and hospitals to pursue quantity over quality.

For example, when patients acquire in-hospital infections, extending their stays and requiring additional treatments, IPAB could reduce payments to the hospital. It could reward providers for bundling care and billings, making it easier to coordinate care for patients with, say, diabetes. And the board could align reimbursement rates with health outcomes rather than paying fees for service.

Although the board’s remit is to control Medicare costs, whatever treatment practices become accepted in Medicare will probably spread through the entire system. After all, one in every $5 spent on health care in the U.S. is spent by Medicare.

Effective Automatically

IPAB proposals would take effect automatically, unless Congress produced alternatives to save an equal amount or passed a law of disapproval that the president signed. Ultimately, inertia would play to IPAB’s advantage, with medical experts taking action that lawmakers lack the expertise and political will to take now. The board also would remove special-interest lobbying from the picture -- no small achievement when more than a half-trillion in spending is at stake.

It’s a big job, so it’s crucial that it be done right. Over time, the independent board could become too powerful and unaccountable. To reclaim some of its prerogative, Congress should amend the act so that a simple majority in each chamber could reject IPAB proposals. The act also prohibits IPAB members from outside employment. Lawmakers should drop that requirement to widen the circle of experts willing to commit to serving six years.

The biggest challenge to IPAB could be more doctors abandoning the Medicare program. Many physicians already refuse to see Medicare patients because reimbursement rates are often below those of private payers. The result could be rationing, which the law expressly forbids, but which could result indirectly if patients can’t find a doctor to see them.

Controlling costs will require a devilish balancing act among practitioners who resist change, consumer demand and best practices, and IPAB should experiment before imposing radical changes systemwide. But given the devastating, and growing, effects of Medicare spending on the federal debt, the U.S. can’t afford not to have an IPAB. The board should be embraced, not feared. It puts the affordable in the Affordable Care Act.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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