Editor’s Note: When Congress passed the budget deal on February 9, it put an end to the Independent Payment Advisory Board (IPAB) that was created in the Affordable Care Act (ACA). In a recent Health Affairs Blog post, summarized below, Manatt Health examines the creation of IPAB—and the reasons behind its demise.

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The Creation of IPAB

Prior to the ACA, there was frustration with both Medicare cost increases and the well-founded belief that Congress lacked the will to make tough decisions related to the program. This led to the concept of delegating the specifics of Medicare to an independent board.

In 2009, Jay Rockefeller (D-WV) introduced legislation that would have converted the Medicare Payment Advisory Commission—the congressional advisory group on Medicare—into an executive branch commission with specific savings targets and more formal authority to implement them.

Later that year, Peter Orzag, the Director of the Office of Management and Budget, wrote to Congress supporting Rockefeller’s idea and advancing a related concept modeled very roughly on the Defense Base Closure and Realignment Commission (BRAC). Created by Congress in 1980, BRAC successfully insulated Congress from the tough decisions to close military bases. Similarly, Orzag’s proposed board—the Independent Medicare Advisory Commission (IMAC)—would present a package of Medicare changes to Congress that it could vote up or down. Presumably, the individual changes were politically unpalatable but together might avoid rejection.

Finance Committee Chairman Max Baucus (D-MT) included the idea that became IPAB in his committee’s version of what became the ACA. The committee’s IPAB was a 15-member body that would create a Medicare plan with enough specific cuts to reduce program spending to growth levels set forth in the law. Congress could accept the plan or create an alternative that achieved equal savings. Absent congressional action, the IPAB plan would become law.

As the ACA moved through the congressional process, IPAB was reshaped and given detail. With estimated savings of $15.5 billion between 2010 and 2019, IPAB was adopted with the rest of the ACA, despite opposition by some health industry advocates.

IPAB’s Failure to Launch

Under the ACA, IPAB could not make recommendations until the Actuary for the Centers for Medicare & Medicaid Services (CMS) certified that projected Medicare spending per capita over a five-year period would exceed targets established in the new law. From 2013 through 2017, the Actuary completed its estimates, which never exceeded the targets. Therefore, IPAB had nothing to do.

Moreover, IPAB had no members. Congressional Republicans, opposing IPAB and the entire ACA, made no recommendations—and the Obama administration made no appointments, citing the lack of need for members, given the Actuary’s estimates.

IPAB’s original goals had appeal. To make any important changes to Medicare, CMS must go through the cumbersome process of seeking approval from the House and Senate, whose members have little healthcare knowledge and a history of bending to powerful constituents. IPAB was an attempt to get around this system and bring an evidence-based process to key Medicare decisions. In that, it failed.

Why IPAB Failed

Some of the reasons for IPAB’s failure can be traced to its design:

  • To control program costs, there is no good reason to wait until arbitrary targets are exceeded. Good management should include regular reviews of where we can improve the value of healthcare.
  • The legislation initially prevented IPAB from recommending cuts to providers already cut by the ACA—raising concerns from those remaining in IPAB’s purview that cuts would focus on them. IPAB also was prevented from making recommendations that might raise revenues, alter beneficiary premiums or cost sharing, limit benefits, modify eligibility criteria, or “ration” healthcare. Therefore, IPAB would have been forced to focus almost exclusively on cutting provider reimbursement.
  • The law’s requirement that IPAB’s recommendations produce specified levels of savings in one year biased it toward short-term goals—and discouraged fundamental changes to healthcare delivery that may have taken years to bear fruit.
  • IPAB’s members had to be full-time government employees with no other “business, vocation or employment”—rules so stringent they would discourage most qualified people from serving.

Even if these design problems had been corrected, IPAB would likely still have failed. Ideas to evade the messiness of the political process in the interest of more efficient governance are felled by the sharp knives of the political process itself. Although IPAB sought to balance apolitical management with political oversight, it could not ultimately survive the reality of healthcare politics in the United States.