A shorter version of this column is featured on CNNMoney.com.
It is often said that the most expensive piece of medical equipment is the doctor’s pen. Unfortunately, after more than two years of intense debate about health care costs in Washington, politicians still seem stuck debating who should pay for the pen instead of focusing on how to make the pen less expensive.
Republicans want private insurers to make health care payments along with substantially higher cost-sharing by individuals. Democrats and the President want retirees to continue in a system where the government is the predominant payer.
However, in either vision of the world, the primary decisions driving the costs of medical care will be made based on what the doctor says to a patient in an office visit or laying on a hospital bed. This is destined to be the case for as long as doctors train and build up extraordinary expertise.
This is why the Independent Payment Advisory Board (IPAB), created by the 2010 Affordable Care Act (ACA), is so important in the effort to control costs. The IPAB will be made up of 15 experts, some suggested by congressional leaders and all confirmed by the Senate, appointed to represent the major participants in the health care system, including patients.
These board members will not be important because they will force doctors to hold back necessary, but expensive treatment, as some critics have charged. Nor will they “ration” care and choose who deserves to be treated. In fact, the IPAB is specifically prohibited from rationing and limiting Medicare benefits, increasing costs for beneficiaries, and raising taxes.
Instead, while Congress retains the ultimate power over Medicare, the IPAB will act as an insurance policy that promising innovations in cost control will get fair trials based on medical expertise rather than political pressure. The board will primarily be empowered to prod change in the financial incentives affecting doctors, hospitals and other providers. Health care experts look to such changes as the most fruitful area for cost control in our health care system because they could alter how doctors use their pens, without harming patients health.
This is best understood by looking at the two most important factors driving health care spending: the amount of treatment prescribed by doctors and the price of those treatments.
Lowering the price of treatment in our fractured health care system is difficult because the payers (insurance companies) generally lack sufficient market power to bargain for lower prices from providers. While the government, through Medicare, is a bit more successful than private insurers at taming prices because of its size, the extent of success is often limited by political forces.
If Medicare threatens to pay providers too little, they can withdraw from Medicare -- a move that would surely send retirees (who tend to be active voters) screaming to their members of Congress. This specter, often mentioned by physicians’ lobbyists, is one of the reasons Congress continually enacts expensive “fixes” to Medicare’s doctor payment formula.
Furthermore, when Medicare lowers payments, doctors can increase the volume of tests and procedures under Medicare’s fee-for-service system. Congress has been reluctant to limit the growth in volume for fear of being accused of “interfering” in medical decisions and harming patient care.
Yet widely read and cited research shows that Medicare expenses vary dramatically across the nation and that high-cost areas have no better health care outcomes than lower-cost areas. This suggests that the volume of medical interventions is not necessarily correlated with better health.
Thus a focus on provider incentives. Instead of paying doctors more for volume, we could pay for quality. Instead of having primary care doctors and specialists work separately, doctors could receive bonuses if integrated care saves costs. Instead of having clinical practices differ based on where a doctor went to medical school, we could create well-designed studies to determine best practices. And finally, instead of patients lacking any meaningful way to compare providers, we could offer incentives for participation in public databases of quality measures in order to facilitate informed consumption.
The ACA sets up experiments and pilot projects to discern how to make this cultural transition. However, because Medicare has had previous pilot projects succeed at controlling costs, only to see more widespread adoption blocked by a determined few in Congress, the ACA delegates some of Congress’s management to a panel of experts -- the IPAB.
As established, the IPABs will review these experiments and recommend which deserve widespread adoption. These are then automatically implemented unless Congress and the President pass a law vetoing them. Furthermore, the recommendations will come annually, beginning in 2013, if the ACA’s savings targets aren’t met, making the recommendations difficult to continually thwart.
Ultimately, the IPAB will attempt to keep health care costs growing at the rate of economic growth plus 1 percent -- well below historic rates. The additional hope is that the board’s recommendations will influence payment policies among private insurers and help slow costs system-wide.
The IPAB is not perfectly designed. There are numerous limitations on its power, especially during its first seven years in operation, and there is some uncertainty about its ability to function as intended. There are also bipartisan efforts in Congress to eliminate it entirely. But it is important to recognize that IPAB critics tend to impute powers to it that it doesn't have in order to scare people about health care reform, or because the critics are simply resentful that Congress turned over some of its power to the board.
Ultimately, in a country struggling mightily with unaffordable health care costs now, and destined to struggle even more in the future, the IPAB is one of the institutions that give some hope that if we figure out how to control costs, we just might be able to put that knowledge to use.