This month the fifteen members of the Independent Payment Advisory Board (IPAB) will convene for the purpose of making recommendations to reduce Medicare expenses, provided Medicare’s spending exceeds a predetermined limit.

Before the Patient Protection and Affordable Care Act (PPACA), the Medicare Payment Advisory Commission (MedPAC) recommendations, in addition to an act of Congress, were necessary to effectuate changes in Medicare reimbursement. MedPAC is an independent Congressional agency established by the Balanced Budget Act of 1997 (P.L. 105-33). MedPAC must advise Congress on issues affecting the nation’s Medicare program, and it must also analyze access to care, quality of care, and other issues affecting Medicare.

MedPAC issues two reports each year (March and June).  These report include key recommendations by the Commission to Congress.  MedPAC also advises Congress through various comments on other reports and proposed regulations issued by the Secretary of the Department of Health and Human Services, and MedPAC provides testimony and briefings for the legislative branch.  MedPAC’s June 2011 report can be found here.

Under PPACA, Congress only has the authority to overrule the decisions of the unelected IPAB, and absent such affirmative steps by Congress, the Secretary of Health and Human Services must implement IPAB recommendations. IPAB is scheduled to implement changes in 2015, with a first report due by July 2014.

IPAB’s historical origins date back more than a decade. In 2000 and 2001 Senators Breaux and Frist championed reform proposals designed in part to create separate federal agencies under the Centers for Medicare & Medicaid Services (CMS) to oversee certain parts of the Medicare program. There was also some interest in establishing a Medicare Board to oversee and coordinate traditional Medicare and private plans.

Senator Tom Daschle  also supported a Federal Health Board, similar in design to the Federal Reserve Board, to oversee health care in the public and private markets. In mid-2009, Senator Rockefeller introduced the Medicare Payment Advisory Commission Reform Act of 2009. Senator Rockefeller’s proposed legislation would have modified MedPAC from its present state of 15 advisory members to an agency within the executive branch consisting of 11 members, including expanded authority over coverage and payment issues.

IPAB action is required only when Medicare spending exceeds certain thresholds. The Chief Actuary of CMS is responsible for determining when Medicare exceeds its anticipated growth, and thereafter IPAB must determine the appropriate reductions in Medicare spending. Under PPACA, IPAB shall not make decisions that “include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums under section 1818, 1818A, or 1839, increase Medicare beneficiary cost sharing (including deductibles, coinsurance, and co-payments), or otherwise restrict benefits or modify eligibility criteria.”

In November 2010 the Congressional Research Service provided the following explanation:

If the Chief Actuary finds that the growth rate does not exceed the targeted growth rate, the process for the year ends. If the Chief Actuary determines that the growth rate exceeds the target growth rate for any DY [determination year], the Chief Actuary is required to establish an applicable savings target for the IY [implementation year]. The applicable savings target is an amount equal to the product of the total projected Medicare expenditures in the PY  [proposal year] times the applicable percent. The applicable percent is defined as the lesser of either the projected excess for the IY (the amount by which Medicare spending is forecast to exceed the targeted growth in spending expressed as a percent of total Medicare expenditures) or the percent as specified in the statute (0.5% in IY 2015; 1.0% in IY 2016; 1.25% in IY 2017; and 1.5% in 2018 and any subsequent IY). In either event, the percent is converted to a dollar amount by which Medicare program expenditures must be reduced.

Although PPACA precludes IPAB from rationing health care directly, critics fear the board’s decisions may have the same effect.  IPAB has been compared to the National Institute for Health and Clinical Excellence (NICE), the United Kingdom’s mechanism to set quality standards, make recommendations on medicines, treatments and procedures, and cut costs. In March critics of NICE in the UK alleged that 20,000 people died after the agency rejected cancer medications due to cost-effectiveness. The White House disagrees with such a comparison and instead offers the following information on www.WhiteHouse.gov:

PAB is a backstop – it would only take effect if Medicare costs grow too fast.  We’re already implementing a series of reforms that will improve the quality of care and reduce costs. In fact, according to Congressional Budget Office projections, Medicare spending won’t hit the targets that would cause IPAB’s recommendations to take effect in the next decade.

The IPAB has a very specific purpose, although its authority to accomplish such may be subject to interpretation by critics and proponents alike. Absent modification or repeal of PPACA, IPAB will most likely have an opportunity to impact Medicare, and only time will determine IPAB’s success or failure.