By Lara Cartwright-Smith and Elliott Hooper

Background

Section 3403 of the Affordable Care Act (ACA)^[1] established the Independent Payment Advisory Board (IPAB),^[2] a 15-member panel of appointed experts that will recommend cost-saving measures for Medicare. In the face of controversy about its structure and powers, legislation has been introduced in the 112th Congress to repeal its establishment.^[3]

Changes Made by the ACA (P.L. 111- 148; 111-152)

The ACA establishes the structure and funding of the IPAB while also detailing its composition and operating procedures. IPAB’s statutory mandate is to “reduce the per capita rate of growth in Medicare spending.”^[4] If the Medicare spending growth per capita is projected to exceed an established targeted growth rate, the Chief Actuary for CMS must calculate a savings target and the IPAB must propose changes in order to assure that Medicare expenditure growth stays within the targeted range. For years prior to 2018, the ACA sets the Medicare per capita target growth rate at the five-year average percentage increase in the Consumer Price Index (CPI) for All Urban Consumers and the medical care expenditure category of the Consumer Price Index for All Urban Consumers, combined.^[5] For 2018 and beyond, the Medicare per capita target growth rate is the nominal gross domestic product (GDP) per capita plus 1 percentage point.^[6] The Medicare per capita growth rate for an implementation year is calculated as the projected five-year average (ending in the implementation year) of the growth in Medicare program spending per enrollee.^[7] In short, the IPAB will make recommendations to ensure that the Medicare per capita growth rate tracks the CPI in the short term and does not exceed 1% of GDP in the long term.

Although the IPAB is required to make recommendations to reduce spending if the target per capita growth rate is exceeded, the ACA limits the savings IPAB can realize to the “applicable percent.” The applicable percent is set at 0.5% for 2015, 1.0% for 2016, 1.25% for 2017, and 1.5% for 2018 and beyond. Thus, even if Medicare spending would have to be reduced by 5% to meet the target growth rate, IPAB cannot recommend spending reductions beyond 1.5%.^[8]

The IPAB is also constrained in the type of proposals it may make. It may not recommend health care rationing, revenue increases, or increases in Medicare beneficiary premiums or cost-sharing, nor propose to restrict benefits or modify eligibility requirements.^[9] Through 2019, the proposals may not recommend reductions in payment rates for providers and suppliers below the automatic annual productivity adjustment established elsewhere in the ACA.^[10] The IPAB can recommend reductions in Medicare payments under Parts C and D, including reductions in payments to Medicare Advantage plans related to administrative expenses (including profits) and performance bonuses.^[11] IPAB proposals may only include recommendations related to Medicare^[12] and must address administrative funding to carry out the recommendations.^[13] The recommendations must result in a net reduction in total Medicare spending in the implementation year at least equal to the established applicable savings target for that year,^[14] and must not be expected to result in any increase in total Medicare spending over a ten-year period.

The statute includes specific requirements for the composition and operation of the IPAB. The Board is to be comprised of 15 full-time members who are appointed by the President and confirmed by the Senate.^[15] Members are expected to have expertise in areas relevant to the formulation of Medicare policy, such as health care finance and economics, actuarial science, health facility management, health plans and integrated delivery systems, reimbursement of health facilities, and similar matters. The majority of IPAB members must not be providers involved in the delivery or management of Medicare items or services,^[16] though there must be broad geographic representation and an urban/rural balance.^[17] As is customary with governmental advisory boards, IPAB members serve fixed terms (in this case, staggered six-year terms).^[18] The Chair is appointed by the President with the advice and consent of the Senate.^[19] In recognition of the IPAB’s power to affect Medicare, the ACA also creates a consumer advisory council to advise the Board on the impact of payment policies on consumers.^[20]

The work of the IPAB is designed to be cyclical to allow for policy proposals followed by implementation. Thus, every three years, the IPAB will follow a repeating cycle of determination (first year), proposal (second year), and implementation (third year). As described below, beginning in 2013 the Chief Actuary of CMS must determine whether Medicare spending growth per capita in the implementation year (the third year) will exceed an established targeted growth rate. If so, he or she must calculate a savings target and the IPAB must produce by January 15th of the following year a Medicare expenditure reduction proposal in order to assure that Medicare expenditure growth stays within the targeted range. The proposal is then transmitted to the president and Congress for action.

Congressional deliberations are constrained under the law. The IPAB proposal must be considered under expedited procedures that can only be modified by a three-fifths vote in the Senate^[21] and do not allow amendments that would lower the savings or that are not relevant to the legislation.^[22] These rules may only be waived with the consent of three-fifths of the Senate.

The ACA also provides for fast-track consideration of a one-time joint resolution to discontinue the IPAB.^[23] This joint resolution must be drafted, introduced, and considered according to the procedures prescribed in the statute, and can only be introduced between January 1 and February 1 of 2017 and voted upon by August 15, 2017. A three-fifths majority of members in the House and Senate is necessary to terminate the IPAB, and the ACA restricts congressional consideration of “any bill, resolution, amendment, or conference report” other than the prescribed joint resolution procedure, that would repeal or change the provisions in question or “repeal or otherwise change the recommendations of the Board if that change would fail to” realize the required savings targets.^[24]

Aside from the mandatory recommendations detailed above, which have specific procedures and restrictions, IPAB may make advisory recommendations on the broader health care system, beyond Medicare. Beginning in 2014, IPAB must issue an annual public report on total national health care costs, access, use, and quality. Beginning in 2015, and at least every two years thereafter, IPAB must recommendations to slow the growth in national health spending while preserving quality, excluding federal health care programs.^[25]

Implementation

Agency

While the President makes appointments for the IPAB, various administrative agencies and related entities will play a role. The CMS Actuary makes projections to guide IPAB recommendations (which may be different than OMB or CBO projections). The Secretary of HHS is a member of the Board and must implement the IPAB’s recommendations. MedPAC will receive and comment on draft recommendations.

Key Dates

Although the ACA establishes the IPAB and appropriates funding for 2012, and gives January 15, 2014 as the first date it may submit a proposal, there is no deadline given for the appointments to be made and confirmed. To date, no appointments have been made.

2013 is the first determination year. The Chief Actuary must submit a report by April 30, 2013 projecting whether Medicare growth rates will exceed target growth rates in 2015. The IPAB submits draft proposals to MedPAC and the Secretary of HHS.

2014 is the first proposal year. The IPAB must submit a proposal to the president by January 15, unless the Chief Actuary determines that the growth rate will not exceed the target. If IPAB fails to submit the proposal, then on January 25, the Secretary of HHS will submit a proposal to Congress to achieve the required savings. Congressional committees must report legislation by April 1 and if Congress does not act by August 15, the Secretary must implement the IPAB’s proposal.

The IPAB’s first annual public report on national health care costs, access, utilization, and quality must be released by July 1, 2014.

2015 is the first implementation year. Recommendations of the IPAB as implemented by the Secretary will take effect January 1 (or if applicable, on October 1, 2014, for fiscal year 2015).

In 2017, a joint resolution to discontinue the IPAB may be considered by Congress, following specific procedures set forth in the ACA. If the resolution is enacted by August 15, 2017, the IPAB will not submit reports in 2018 and will terminate on August 16, 2018.

Process

Every year by April 31, the Chief Actuary of CMS must determine whether the projected Medicare per capita growth rate for the implementation year (two years later) exceeds the projected Medicare per capita target growth rate for the implementation year. If it does, the Board is required make recommendations regarding program changes to reduce the Medicare per capita growth rate. The Chief Actuary must submit a draft proposal to MedPAC and the Secretary by September 1 of the determination year and then submit a proposal to the President, who forwards it to Congress, in January of the following year (the proposal year). The Secretary must submit comments and a review of the Board’s proposal to Congress by March 1 of the proposal year. If the IPAB fails to submit a proposal by January 15 of the proposal year to the President and Congress, the Secretary must submit a contingent proposal to the President and Congress by January 25 of that year, recommending changes to achieve the required level of savings.^[26]

Congressional consideration follows the expedited procedures prescribed by the ACA. No later than April 1 of the proposal year, the Committee on Ways and Means and the Committee on Energy and Commerce of the House of Representatives and the Committee on Finance of the Senate may report the Board’s proposal with amendments related to the Medicare program. Congress cannot consider any amendment that would change or repeal the Board’s recommendations (although this restriction may be waived in the Senate by a three-fifths vote).

The Secretary is required to implement the IPAB’s recommendations as submitted by the President to Congress by August 15 of the proposal year, unless Congress has enacted legislation superseding those recommendations.

Post-enactment Congressional Action

Several bills have been introduced in Congress to repeal the IPAB legislation. In January 2011, Rep. David Roe, a Republican from Tennessee, introduced a bill in the House to repeal the IPAB.^[27] In March, Sen. John Cornyn, a Republican from Texas, introduced a bill in the Senate to do the same.^[28] Both bills were referred to committees and no further action has been taken. In the House, the appropriations bill that was passed February 19 (but did not pass the Senate) included a section prohibiting funds appropriated under the bill from being used to implement Section 3403 of the ACA (creating the IPAB).^[29]

Key Issues

Appointments: Will the IPAB’s members be appointed and confirmed in time for the Board to complete its first proposal in 2013? The President will have to find members who meet the specific qualifications set forth in the ACA and are willing to serve in these six-year positions,^[30] and they will have to be confirmed by the Senate, all in time for work to begin in 2012 when funding is available. The IPAB requires a quorum (simple majority) in order to act, under the ACA. In the current political climate, there may not be sufficient support in the Senate for appointees to be confirmed.

Scope of authority: Will the IPAB be able to make recommendations that can effectively reduce the growth in spending, given its limited authority? The IPAB cannot make recommendations to raise beneficiary premiums, increase beneficiary cost sharing, ration care, or otherwise restrict benefits or modify eligibility requirements. Through 2019, it cannot recommend reductions in payment rates for providers and suppliers below the automatic annual productivity adjustment. Thus, until 2020, savings will have to come from Medicare Advantage, the Part D prescription drug program, skilled-nursing facilities, home-based health care, dialysis, durable medical equipment, ambulance services, and services of ambulatory surgical centers.^[31]

Capped savings: Similarly, can the IPAB generate sufficient savings to make a difference in Medicare spending given the maximum savings prescribed by the ACA? Maximum savings are capped at 0.5% for the first year (2015, increasing only to 1.5% for 2018 and beyond).

Funding: Given the absolute opposition of most Republicans and at least a few Democrats in Congress to the IPAB,^[32] it is likely that future appropriations legislation will include provisions similar to this year’s appropriations bill, which prohibited funding from being used to implement the IPAB. Will the necessary funding be made available for the IPAB to have sufficient staffing and the resources necessary to accomplish its mission?

Agency Action

None to date.

Authorized Funding Levels

The ACA appropriates $15 million funding for fiscal year 2012 for the IPAB, which was transferred from the Medicare Trust Funds (60% from the Federal Hospital Insurance Trust Fund and 40% from the Federal Supplementary Medical Insurance Trust Fund). For subsequent years, funding for the IPAB will be the amount appropriated from the previous fiscal year plus the annual percentage increase in inflation (Consumer Price Index for All Urban Consumers).