Pay him to provide good care.

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Congress Doesn't Understand Health Costs, or Care

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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Health-care costs are starting to accelerate again in the U.S., a sign that more effort is needed to constrain cost growth. Yet the House of Representatives is set to vote this week to do the opposite -- by repealing the Independent Payment Advisory Board. Following a 31-8 vote for repeal in the Ways and Means Committee, the vote in the full House looks to be overwhelming. It's crucial that the Senate not follow suit.

Several years of modest increases in health-care costs have dramatically improved the country's fiscal position, helping to free up resources for more productive purposes. Yet there are worrying signs of increased health spending pressure, especially the higher growth in Medicare outlays this year, even after factoring out one-time payments. (Medicare spending is a more troubling signal even than the Quarterly Services Survey for the first three months of 2015, which also showed an uptick in spending.)

In the face of this pressure, it's crucial to move more forcefully away from fee-for-service payments and toward payments that reflect the value of care. Doing so will require a series of nimble adjustments based on evidence showing which incentives and other strategies work well. It would be foolish to bet the ranch on any one untested approach.

The Independent Payment Advisory Board was created by the Affordable Care Act expressly to help with this. In particular, the IPAB is designed to provide a backstop if health costs grow beyond Congress's control. Presumably, Congress will be more likely to act if members know that failing to do so means the IPAB will step in. Those favoring repeal of the IPAB either oppose a shift away from fee-for-service payment, or believe that Congress is about to become much more adept at complicated payment reform than it has ever been in the past.

Critics of the IPAB make several other claims as well. One is that the IPAB will ration care or simply adopt blunt payment cuts. By law, though, the IPAB is prohibited from rationing care, and it isn't needed for the kind of blunt payment cuts that Congress has often pursued. It's designed to smooth the transition to payment models like accountable care organizations and bundled payments.

Critics also point out that the IPAB's thresholds for action are not currently binding, and that no one has been nominated to serve on the board. The latter concern can be rectified and, in any case, if the board never stands up, its authority would still exist, albeit in the hands of the secretary of Health and Human Services. With regard to the cost thresholds, the whole point of the IPAB is to provide a backstop in the event costs begin rising too fast.

The shift toward paying for value in health care is just beginning. Many doctors, hospitals and other providers feel as if they have one foot on the boat and one still on the dock. Removing the IPAB now would suggest it makes sense to step backward toward fee-for-service payments -- just as costs are rising again.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Peter R. Orszag at porszag3@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net