Congress Likely to Power Down the IPAB


What is the iPAB?  (Small i nod to Apple).  It is a component of the healthcare law, specifically termed the Independent Payment Advisory Board.  A panel of 15 yet-to-be-named people will do the work that the Sustainable Growth Rate formula has been unable to do:  control the growth in Medicare spending.

Since passage of the SGR, Congress has stopped formula-driven cuts from taking place in every year except one.  As a result spending has increased, and the volume of services provided has increased.

On the surface, IPAB looks good; politicians can outsource the dirty work of cutting payments and take that responsibility off their hands.  But the understanding that they would eventually be held responsible for the fallout has led to a bipartisan interest in keeping payment powers in their hands.

As we learned from the recent financial crisis, formula-driven investment policy doesn’t always work.  Sometimes it fails spectacularly.  Similarly, formula-driven payment schemes can work for a while, but are eventually exposed as arbitrary, centrally planned price controls, that do not reflect proper valuation of the services performed.  Such schemes typically result in distortions and market inefficiencies, now being seen across many areas of the healthcare landscape.

Congress has stopped past formula-driven cuts because it understands that they don’t make economic sense.   Widespread physician employment does not change the current limitations to the payment system, although the next-generation payment structures might.  For now those are untested and not likely to be implemented on a large scale basis for at least several years.

Regardless of IPAB’s ultimate fate, eventually Medicare spending will have to be brought into balance with what can be sustained.  Although Paul Ryan’s voucher system was widely panned, he at least acknowledged that there is a limit to what the government can afford to pay for care.  Physician payments are only one component of Medicare’s spending problem, and a small one compared to other segments.  As of 2010, physician payments represented only 13% of overall Medicare spending.

Regulatory efforts are better centered on fostering conditions that will cause market participants to lower costs and increase quality and coordination of their own accord.

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