IPAB – A Bad Idea That Needs to Go Away

By March 21, 2012Health Care

The Independent Payment Advisory Board (IPAB) was created by Congress during the healthcare reform debate two years ago. As we approach the second year under the Patient Protection and Affordable Care Act (PPACA), the House of Representatives is poised to pass legislation to do away with what was a bad idea disguised as reform.

As conceived, IPAB is a 15-member board charged with the responsibility of making adjustments to Medicare reimbursements, thereby relieving Congress of this messy chore. Congress created a politically useful foil in the board which has the ability to unilaterally make changes to reimbursements unless or until Congress comes up with reductions equaling the amount proffered by the IPAB. Knowing the current environment would not lend itself to such an agreement, Congress effectively abdicates its role in managing the program or reforming it to improve its financial outlook. From the view of manufacturers, this is concerning both as employers who pay for the healthcare of their employees, and as innovators of advanced medical treatments.

All employers should be concerned about IPAB, because it is through this board that Medicare reimbursements will be squeezed, coverage decisions will be questioned or overturned, and cost of providing coverage to their employees will increase due to cost-shifting. Cost-shifting is increasing the price paid by one customer to give a different customer a lower rate. This happens all the time in private commerce, but the unique thing about this situation, which is a problem in the healthcare system already, is the government is not really a customer – with Medicare it is essentially a monopsony. This allows the federal government to set the price it will pay with no regard to what effect it has on the non-Medicare market. In short, Medicare lowers reimbursement and healthcare providers demand more from private payers, which drives up costs for everyone else.

Manufacturers of devices, biologics and pharmaceuticals are innovators of life-saving and life-improving cures and treatments. If left unchecked IPAB will likely threaten access to advanced medical technologies. By limiting access to new therapies, private-sector innovation can stagnate because it is a disincentive to research and development. Clearly, this not a desirable outcome – one Congress can prevent by passing legislation to repeal IPAB this week.

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