Biotech Firms Oppose the Independent Payment Advisory Board

Today’s Managing Health Cost Indicator is 3403

Today’s Boston Globe  highlights the full court press the Massachusetts biotechnology industry is making to convince Senator John Kerry to oppose the Independent Payment Advisory Board, Section 3403 of the Affordable Care Act.  The IPAB, which is opposed by drug companies, some physicians, and the biotechnology companies, would create an independent board which would make recommendations for lowering Medicare costs if those costs continued to increase.  Congress would have to vote these recommendations up or down without amendment – like military base closings. 

The current debt ceiling debate shows how hard it is for Congress to lower the cost of the federal government – and many of the necessary solutions to our escalating health care costs will be easily subject to demagoguery like claims of “death panels” and “bureaucratic government throttling private-sector innovation.”

Henry Aaron, in this week’s New England Journal, calls the IPAB “Congress’s Good Deed.”   He says

Among the most important attributes of legislative statesmanship is self-abnegation — the willingness of legislators to abstain from meddling in matters they are poorly equipped to manage.

If the IPAB is effective, it will lower potential profits in biotechnology.  It would be hard otherwise to control burgeoning health care costs.

Kerry’s spokeswoman said

If we’re going to protect taxpayers and control costs, it seems a little bonkers to eliminate something the experts say is our best hope of doing that before we even have a chance to evaluate it

I hope Senator Kerry will stand his ground. 

Freezes and Clawbacks and Cliffs, Oh My!

Today’s Managing Health Care Costs Indicator is 29.4%

The Congressional Budget Office  just released  physician fee schedule that would be required in 2012 under current Medicare rules. The SGR short for sustainable growth rate, mandates that if the increase in total physician costs exceeds an index of practice cost inflation, unit prices will be decreased by up to 7% the following year. The SGR has generated steep physician fee schedule cuts each year since 2002, and Congress has stepped in on multiple occasions to “fix” the SGR and be sure that physician fees would be level, or go up slightly. 

But Congress hasn’t simply appropriated more money for Medicare to account for reversing these fee schedule decreases.  That would have been too transparent!

Instead, Congress has utilized a two accounting maneuvers to maintain a fiction that increased costs in the next year would be recouped at some point in the future.   These accounting maneuvers have been used through Democratic and Republican administrations and legislative majorities. They have allowed our representatives to kick the can forward.     

                                                                                                                                                                            The CBO explains these accounting maneuvers in yesterday’s briefing.

Clawback:   Congress pretends that costs will be decreased  in the ‘out’ years, so that when the CBO is scoring ten year impact, it appears that there is little or no cost to preserving the physician fee schedule.

Cliff: Congress eliminates the floor for payment, and pretends that in subsequent years the SGR could lower fees by more than the initial SGR would have allowed.  Again, the CBO would follow this fiction and project little or no cost to the SGR override over a ten year time horizon.

 

Congress has intermittently also chosen to freeze, rather than decrease physician fees.   A freeze keeps fees at current levels, offering no cost of living increase.  Freezes mean that overall Medicare costs continue to climb, as physicians deliver more and higher intensity services.  A freeze means that no one is happy – Medicare costs go up AND physicians see their office expenses increase without a corresponding increase in their reimbursement.

As I said at the top of the post, a 29.4% decrease in Medicare reimbursement of physicians would be catastrophic.  Most nonprocedural physicians have office expense that approaches or exceeds 50% of revenue – so losing a third of revenue could theoretically cut physician income by 2.3.  Physician access for senior citizens would be severely diminished, and the viability of many physician practices would be threatened.   I don’t think there are any responsible health policy experts who think that’s a good idea.

Click to enlarge. Note "baseline" assumes that SGR is reversed and there is no 29.4% physician fee decrease. 

As you can see in the CBO chart, every option leads to higher provider costs over the next 10 years.   The “baseline” case assumes that the 29.4% decrease is implemented this January.   We’ve had ten years of accounting tricks that obscure the real cost of Medicare.  We need to overturn this potentially devastating cut in physician payment. We also need to support fundamental reform, including bundling payments to limit fee-for-service and implementing  the Independent Payment Advisory Board, bundling payments to address the underlying causes of increasing Medicare costs.

"Truthiness" and the Republican Presidential Debate

Today's Managing Health Care Costs Indicator is

 800,000

The Kaiser Family Foundation  has done us the favor of extracting the health questions from last night’s Republican presidential debate.

My take on the ‘truthiness’ of selected answers:

The Congressional Budget Office has said that Obamacare will kill 800,000 jobs.  -  Michele Bachman

The CBO estimated that the Affordable Care Act would slightly lower the overall cost of health care premiums for large employers, which could create new jobs.   It will be hard to create net new jobs in health care and lower health care costs.  Politifact  calls this “barely true” because the CBO noted that ½% of the workforce that works for health insurance only might choose not to work.

Obamacare….  took away $500 billion, a half-trillion dollars out of Medicare  - Michele Bachman

The Affordable Care Act cut future growth of Medicare by $500 billion over 10 years.  There is no way to cure the deficit without cutting Medicare’s future growth.  It’s not nearly the cut in future Medicare costs envisioned by the Paul Ryan budget plan.  It’s also not taking money from Medicare beneficiaries, but lowering future rate increases for providers.

We didn't raise taxes in Massachusetts. – Mitt Romney

We were lucky in Massachusetts to have over half a billion dollars in federal Medicaid waivers to help support health care reform.  We also did use additonal money from general tax revenue. There was no tax increase simply because the economy was in good shape and we had dollars available in the then-current tax base.

When you get into a mandate, it ultimately ends up with unconstitutional powers. –Newt Gingrich

The courts will ultimately decide.   The individual mandate was initially championed by conservatives.  It’s hard to avoid adverse selection and make insurance inexpensive for all without some penalty for not having insurance.  John McDonough has an excellent commentary reviewing this history.

If you're an average couple and you paid your entire amount into -- into Medicare, you would have put $140,000 into it. And in your lifetime, you will take out more than three times that much.  –Ron Paul

This is true.  Medicare is a good bargain because it costs less than commercial insurance, and a better bargain still for beneficiaries because there is a considerable subsidy.  Medicare is not fully funded by taxes directed to Medicare only.  Paul goes on to say that Medicare is “insolvent.”  It’s not really – it just will require decreasing costs or increasing tax subsidies.

We have to have more competition in medicine.  – Ron Paul

Michael Porter and others argue that we don’t need more competition – we need different competition.  We need competition among providers for meaningful bundles of services, rather than competition among health plans that don’t have enough impact on actual care delivery.

Why can't we opt out of the whole system and take care of ourselves?  - Ron Paul

Works when you’re healthy, can be deadly if you’re sick unless you have huge personal wealth!

My own plan… will feature performance pay rather than just volume pay to hospitals and clinics and providers.  –Tim Pawlenty  

Many agree that fee for service payment is a major problem leading to considerable provider-driven overutilization. This is a good idea, and I’ll await his plan eagerly.

[I] would allow… private contracting so those people who want to voluntarily could contract with their doctor or their hospital in addition to Medicare, and it would be outside the current system and it would relieve the pricing pressure on the current system.  –Newt Gingrich

Individuals contracting with their physician or hospital would have little leverage to lower prices, and the administrative costs of such a system would be hard to imagine.

 We think you can save $70 billion to $120 billion in Medicare and Medicaid annually by not paying crooks... –Newt Gingrich

Many suspect that fraud and abuse could be as much as 10% of medical costs.  Medicare and Medicaid together cost almost $900 billion, so this is possible.  However, it’s not as easy as it looks, and many who oppose regulation have a difficult time accepting the type of oversight that could be required.

I wholeheartedly support…a program that is identical to what seniors already have. It’s called Medicare Part D….[and it] is 41 percent under budget because seniors are involved in controlling costs – Rick Santorum

The Ryan Plan, which Santorum supports, is very different than Medicare Part D.  The Ryan plan would cap government expenditure, whereas Part D allows government costs to rise with medical inflation rate.  Medicare Part D is under budget not because of competition or seniors with “skin  in the game,” but because of generic drugs and much lower senior enrollment than projected.

The Independent Payment Advisory Board [is going to] ration care from top to bottom –Rick Santorum

There is a good thought article yesterday from the Concord Coalition , a center-right anti-deficit group, about why the IPAB is a critical part of health care reform.   We need to make tough decisions, and this approach is much like the way we deal with potential military base closings.