NCPA - National Center for Policy Analysis

Why Planned Cost-Saving Measures Will Reduce Your Health Care Options

March 14, 2012

The Independent Payment Advisory Board (IPAB), created under the Patient Protection and Affordable Care Act, was intended to be an independent board with expansive power to slow growth in Medicare spending.  But because of the way it's constructed, IPAB will be able to do little more than tweak the existing payment system, adjusting rates and manipulating codes in an effort to cut costs.  This will merely institutionalize the current payment scheme, with all of its shortcomings and unintended costs, says Scott Gottlieb, a resident scholar at the American Enterprise Institute.

  • A vast lobbying complex now exists for the sole purpose of trying to influence how Medicare assigns its codes and payment rates.
  • Entrepreneurs and providers increasingly design products and services to fit within the billing scheme rather than to optimize what's best for patients.

Now IPAB is going to further embed -- and erode -- these constructs.  IPAB was advanced politically as a way to enforce a cap on how much Medicare spending would grow each year.  The belief was that the only way to manage the growth of Medicare's spending was to control how individual products and services were priced.

  • Since IPAB's mandate is to achieve savings in the near term, it can't pursue longer-term reforms aimed at changing incentives and behavior.
  • Ideas such as payment reforms that try to align reimbursement with outcomes don't generate significant savings in the short run and won't produce the kind of immediate savings that IPAB needs to achieve in the narrow budget windows that it must focus.
  • Ideas for broader payment reform also rely on changes in payment to providers such as hospitals, but under the law, these constituencies remain off limits to IPAB until 2019.

Because IPAB had its purview narrowly targeted to specific slices of the health care industry, it will be forced to implement deep cuts to the limited terrain in which it's permitted to operate in order to achieve the mandated savings.  The cuts could be so deep as to forestall access altogether to certain medical products and services.  The Medicare Actuary estimates that Medicare payment rates will eventually be driven below Medicaid rates under IPAB's budget assumptions.

This shortsighted approach will only serve to put more meaningful payment reforms further out of reach.

Source: Scott Gottlieb, "White Coats and Straightjackets: Why Planned Cost-Saving Measures Will Reduce Your Health Care Options," American Enterprise Institute, March 6, 2012.

For text:


Browse more articles on Health Issues