Power over prices

Herbert Pardes, CEO of the New York-Presbyterian Healthcare System, sees the writing on the wall.

The New York-based hospital system has been creating a health information technology network in northern Manhattan where it will be connecting hundreds of primary-care physicians to better coordinate care of patients in and out of the hospital, Pardes said. For this network to work, “we need fair payment for primary-care doctors,” he said.

That may not happen if a new independent advisory board, created under the new health reform law and scheduled to start making recommendations in 2014, possibly explores cuts to the various healthcare sectors, he said.

Appointed by President Barack Obama with the advice and consent of the Senate, Independent Payment Advisory Board members will determine new payment formulas under Medicare, subject to scrutiny from Congress and the Medicare Payment Advisory Commission. Although initially exempted from IPAB's decisions under a deal crafted with the White House and Senate leaders, hospitals are concerned about cuts coming from a variety of directions to healthcare, including this new board, Pardes said.

“Hospitals made the deal with Sen. Max Baucus to take $155 billion in cuts, which is the reason why we were exempted” for 10 years, Pardes said. Nevertheless, hospitals shouldn't just take IPAB off their radar, especially in this era of accountable care, where hospitals and physicians are being asked to take joint responsibility for the care they provide, he said.

To accomplish Obama's goal of reducing hospital readmissions, doctors and home health and other providers all need to be fairly reimbursed, so they'll be able to function reasonably—and provide patients with a place to go, post-hospital. This is why IPAB needs to think carefully about how it does any kind of rate setting or price setting, “whether it's doctor's fees or anyone else's,” to come up with fair recommendations, Pardes said.

But many providers in the industry are wary and watchful of the progression of this independent board, which comes with a Pandora's box of unknowns—and, as some sources predict, the potential to spiral Congress into a yearly healthcare reform debate over provider reimbursement.

The seed for the independent board had been planted just as the healthcare reform debate heated up last year, when the White House issued draft legislation that explored the idea of using such an advisory panel to make recommendations on annual Medicare payment rates, in an effort to contain and control costs. Peter Orszag, director of the White House Office of Management and Budget, who is expected to leave his post next month (See story, p. 10), was the engine driving this proposal, asserting it would “represent a critical step forward in creating a healthcare system that rewards quality, restrains unnecessary costs and provides better care to more Americans.”

The Congressional Budget Office estimates IPAB will reduce Medicare spending by $28 billion over five years from 2010 to 2019, with significant savings continuing beyond 2019.

Not everyone in Congress supported the idea, however. Although a version of this proposal ended up in the Senate's health reform bill, which ultimately became law, the House chose not to include it in its version.

IPAB is bound to be controversial because the House and Senate never resolved their differences over its existence, said Alexander Vachon, a Washington-based healthcare consultant.

Even among the Democratic majority, rifts exist over IPAB's charter. Sen. Jay Rockefeller (D-W.Va.), who proposed elevating MedPAC to an executive branch agency, with commissioners nominated by the president, has been among IPAB's biggest advocates.

To date, MedPAC has been the primary advisory board Congress has looked to for guidance on payment reforms, but Rockefeller's view has been that Congress has never looked at payments in a critical manner, and that its decisions have been influenced by lobbyists.

“It remains to be seen how the new IPAB payment proposals will compare to those developed by MedPAC,” said Jean Haynes, CEO of Geisinger Health Plan, in an e-mail. “Because of the authority granted to IPAB, some have said that it eliminates the need for MedPAC, or that it overshadows it. I believe that MedPAC provides additional value beyond payment recommendations since they also make recommendations on issues related to care access and care quality.”

Rockefeller has argued that politics should not be part of the process of determining Medicare payments to providers. At an event hosted by Premier several weeks ago, the West Virginia lawmaker reiterated his support for IPAB, saying it will “create new hope, perhaps our only hope, for keeping Medicare stable and solvent for the long term.”

But some House Democrats such as Rep. Pete Stark (D-Calif.), who chairs the Health Subcommittee of the influential Ways and Means Committee, despise IPAB, although it gained enough support in the Senate to remain in the Senate's healthcare reform bill, Vachon said.

Stark has panned IPAB for a variety of reasons, claiming it would tip the balance of power too far in favor of the White House, and that it would have the potential to make additional cuts on top of those set by Medicare's physician payment formula.

Stark isn't the only lawmaker who opposes its existence. The independent board “has become one of the most toxic aspects of the landscape” of the health reform law, Rep. Mike Burgess (R-Texas), chairman of the Congressional Health Care Caucus, said at a healthcare forum this month.

Burgess, a physician, said he also believes the board will inflict an additional burden on physicians, whose Medicare payment formula is under serious duress, with no permanent solution in sight.

“From a physician standpoint, if we don't fix the sustainable growth rate when the independent Medicare advisory board kicks in … I don't know if anyone will be left practicing medicine. We'll all have insurance, but have nowhere to go to exercise that right,” Burgess said.

That's because starting in 2014, IPAB will be required to recommend Medicare spending reductions, provided that Medicare's per capita growth rate exceeds a target growth rate for that year. These recommendations, issued each January, will become law unless Congress approves an alternative proposal that achieves the same level of budgetary savings. The rub is lawmakers have only a seven-month window to enact any changes to the IPAB recommendations.

There are strict congressional rules on how to consider any time frames for payment changes, said Jay Nawrocki, a healthcare analyst with CCH, a provider of tax, accounting and software services.

“The first report from the board is due Jan. 15, 2014, and if Congress makes no changes to it by Aug. 15, the payment cuts automatically go through as recommended by the board,” depending on the provider in question and whether that provider's payment schedule operates on a fiscal or calendar year.

“The only things the board's proposals cannot include are recommendations to ration healthcare, raise revenues under premiums, increase beneficiary cost-sharing, or restrict benefits, or modify eligibility criteria,” he said.

Even with their reprieve from IPAB, hospitals aren't necessarily free of its influence. Some lingering road blocks remain, among them Rockefeller, who believes all providers should be subject to the recommendations of the board and has adamantly opposed the carve-out for hospitals. He has vowed to amend the provision.

For their part, hospitals are miffed that critical-access hospitals were included under IPAB's jurisdiction, even though other hospitals—acute care, rehab, long-term-care and inpatient psychiatric facilities—were exempted.

The inclusion of critical-access hospitals “needs to be revisited,” said Richard Pollack, executive vice president of the American Hospital Association.

With cuts anticipated every year, it's almost a given that political infighting will erupt among members of Congress on how cuts should be implemented—an ironic twist, given that the board's initial purpose was to take Congress out of the equation.

Based on the way this process is constructed, Medicare payment squabbles will topple right back into Congress' hands, Nawrocki predicted. “All sorts of amendments will be introduced to fight it, even though the intent was to get Congress out of rate setting and budgetary issues. If you cut this amount of money in Medicare, then this is what will happen. There will be too many constituencies with too much power who will be getting involved in this” on Capitol Hill, he said.

Physicians in particular are worried that the bulk of these reductions will fall on their shoulders. With hospitals out of the picture, IPAB's recommendations will affect potentially every other healthcare sector, including the physicians, durable medical equipment, home health, pharmaceutical and medical devices, said Atul Grover, chief advocacy officer with the Association of American Medical Colleges.

The board will have the task of finding savings in some way, Grover said. “When you think about how to achieve those savings, there's not many ways of doing that except to cut payments.”

Other options to reduce Medicare costs may include changing the age of eligibility or making a change to the benefits offered, “but that is likely to bring back public outcry over rationing and death panels,” Grover said.

Provider concerns aside, beneficiaries are also going to feel the impact of the board's decisions, Grover said. “Many Medicare patients we care for are already underserved and many don't have insurance before obtaining Medicare, and these are the very people you don't want to hurt.”

Because so much of the private insurance system is pegged off Medicare rates, “there's the possibility that there will be a ripple effect” where the board's influence could reach the private insurance market, Grover said. The unknowns surrounding the appointment of this board have created a palpable anxiety among the provider community. “We don't know what the makeup of the board will be, whether it will cut payments to physicians further, if there's going to be unfair utilization review processes or efficiency measures to cut physician pay. I don't know how you can do that without jeopardizing patients' access to care.”

The law does state that physicians and other healthcare providers should have representation on the board.

That said, there has to be a balance as far as the board's representation of the different healthcare sectors, Grover said. “You can populate IPAB with the world's best economists, but economists are often wrong,” he said. Something will be lost if enough physicians and hospitals, who see how these decisions affect patients, don't serve on this panel, he said.

Geisinger has been working on the issues of care delivery and payment reform through various programs to improve outcomes and reduce cost for the Medicare population, Haynes said. For that reason, she said, “Geisinger would be willing to consider participation on the IPAB consumer advisory panel, if asked.”