Tag Archives: IPAB

Will ObamaCare lead to Death Panels?

by

Before you write off this blog post as the ranting of a madman, understand that when confronted with a controversial issue, I carefully consider all the evidence before opining.  The question is actually addressing the role that the Independent Payment Advisory Board (IPAB) will play in implementing the goals of the Affordable Care Act (ObamaCare, the term that the President himself has embraced). 

To begin with we have to understand exactly the powers of the IPAB.  I’ve written about it on several occasions.  This 15-member appointed board will be formed in 2013.  We have been assured by the President that IPAB will not ration medical care.  If we are to believe this statement (by the way the legislation itself reads that way), we have to understand what is meant by rationing.  There are actually three different ways to ration medical care.  One way is to ration explicitly.   For example, establish a rule that says anyone over 70 years of age is not eligible for hip replacement surgery.  That is what most of us think when we consider the meaning of the term.  A second way to ration is to set spending targets for medical care spending.  For example, we could mandate a target growth rate for medical care spending.  Or a third way to ration is to establish a fee schedule that must be followed when providing medical care to seniors. 

So the question is “Will ObamaCare (through the IPAB) ration care in any of these three ways”?  The answer is “Yes.”  The legislation clearly gives the board the authority to set provider fees with the intention of targeting a growth rate in overall medical care spending.  ObamaCare provides IPAB with the legislative authority to ration care.  Setting the fee for hip replacement surgery so low that no surgeon will provide the procedure will accomplish the same result as an outright ban on procedure.  The difference between the two approaches is that the board can say that it doesn’t ration care, that physicians are the bad guys for not providing the care. 

Will IPAB lead to death panels?  Sarah Palin was excoriated by the media when she voiced her concern to the American public during the reform debate.  We were told that the term “death panel” does not appear in the legislation.  True.  But Sarah Palin was considering the mandatory end-of-life counseling in the original legislation, which by the way, did not make it into the final bill.  She did not specifically mention the IPAB, which was called the “Independent Medicare Advisory Board” in the original bill.  The new name better reflects the new powers, not just over Medicare but over all payers. 

That still is not enough evidence to cause alarm, except of course among skeptics like me.  My concern (not voiced publicly until now), is based on what ObamaCare supporters have been writing about the future of medical care delivery.  The first article was in the British medical journal Lancet in 2009 (Principles for evaluating scarce medical interventions) coauthored by Ezekiel Emanuel, an Obama health policy adviser and considered a candidate for one of the positions on IPAB.  The most controversial aspect of the approach described in this article is the notion of the “complete lives system,” which prioritizes younger people who have not lived complete lives to be first in line for scarce medical resources.  Not enough evidence yet to be too alarmed. 

Next, I came across an article written by M. Gregg Bloche, another health care adviser to President Obama.  “Beyond the ‘R Word’? Medicine’s New Frugality” (New England Journal of Medicine, May 24, 2012) addresses the powers of the IPAB “to nudge providers toward more frugal practice by changing Medicare payment policies – and clinician’s incentives.”  There is still no direct mention of a power to ration because “the R word threatens long-term cost containment.”  Supporters are still dancing around the issue, but not embracing it. 

By summer’s end the popular press gets involved.  Eduardo Porter in the August 21, 2012, New York Times wants to ration health care, but do it more fairly.  In his article Porter targets his angst more directly on “older adults in their last year of life.”  Medicare spends six times as much on seniors who die during the year than those who survive.  He then goes on to say that we should follow the lead of the UK in their explicit use of their board, the National Institute for Health and Clinical Excellence (NICE), to set a value on the worth of each year of a person’s life.  Porter adds “rationing is inevitable in a world with finite resources.”  Should I be alarmed yet? 

Two weeks later, on September 6, Ezekiel Emanuel and colleagues published “A Systemic Approach to Containing Health Care Spending” in the New England Journal of Medicine.  This time his suggestion is to set payment rates for medical care to limit spending growth to global targets.  In other words, all payers and providers would be bound by the same government-determined fee schedule in order to keep overall medical care spending at specified levels; i.e., caps on spending growth set at the average growth in wages.  It’s beginning to look a lot like rationing to me. 

Finally, on September 16, Steven Rattner (counselor to the Secretary of the Treasury in the Obama administration) takes us “Beyond ObamaCare” in his New York Times article, providing literally the last nail in the proverbial coffin when he begins his article with “WE need death panels.”  His suggested target is end-of-life care.  “The big money in Medicare is found in reducing the cost of treating people in the last year of life, which consumes a quarter of the program’s budget.”  Well, at least somebody else connected the dots for me. 

The President may be denying that his health care plan contains the elements of full-blown European-style rationing, but his surrogates are spreading the word in various media outlets, or as Smokey Robinson wrote in his 1966 MoTown hit:

So get ready, so get ready – cause here I come. 

(Get ready cause here I come).

I’m on my way.

Get ready cause here I come.

The Temptations were talking about a love that’s true.  I’m afraid that in our case, we’re talking about something quite different.

Cheerleaders and Analysts

by

On Tuesday (September 25, 2012) I picked up my Wall Street Journal and like I always do, turned to the Opinion page.  One of the headlines caught my eye, “The Democrats’ Market-Friendly Health-Care Alternative.”   I thought it curious.  The Democrats have a new approach; something other than the Affordable Care Act?   Before I read the article though, I saw the author, Ezekiel J. Emanuel.  For those not familiar with Dr. Emanuel, let me give you some background.  He’s the brother of the mayor of Chicago and former White House Chief of Staff for President Obama, Rahm Emanuel.  He’s a medical doctor and author of dozens of academic journal articles, including an interesting one that introduced the “complete lives system” to the world (Govind Persad et al., “Principles for allocation of scarce medical interventions,” Lancet, 2009). 

The NFL’s recent woes with its replacement referees had me thinking about all things football; not what happens on the field, but on the sidelines and in the broadcast booth.  After reading Emanuel’s piece, it became clear to me that some people are analysts and some people are cheerleaders.  And it’s not that I disagree with Emanuel (though I do), it’s my disappointment that some people are so quick to shed all vestiges of analytical objectivity to push an agenda. 

Take for example, Colin Cowherd, ESPN analyst and sports analyst.  Cowherd is a pretty opinionated guy and pushes his perspective hard; to the point where everybody else is wrong and he’s right.  He’s not a cheerleader though, he’s an analyst.  He uses fact and logic.  He listens to other perspectives.  He may agree or disagree, but he doesn’t come off like a cheerleader.  He leaves his analyst’s hat on and doesn’t trade it for pompoms to join the pep squad. 

I am convinced that Emanuel is behaving more like a cheerleader than an analyst.  Let me give you a few examples from the article to make my point.  In the first paragraph he claims that the ACA encourages “providers to be more efficient, innovative and focused on keeping patients healthy.”  He references a Medicare program, the Acute Care Episode (ACE) Demonstration that is being piloted in 5 hospitals.  In San Antonio’s Baptist Hospital the gain-sharing incentives helped reduce short term costs by more than $2,000 per case for designated episodes.  In addition to the early success in San Antonio, clinically integrated programs such as Geisinger Health Systems have had similar success.  Right now it will be difficult to expand ACE beyond orthopedic and cardiac care because there are no standards for constructing “episodes.” 

There is no also reason that such an integrated program cannot be created outside the ACA.  In fact, Geisinger and Kaiser-Permanente have been providing care in integrated systems for a long time without the help of the ACA.  On the downside, there are very few systems around the country that have the necessary market share to absorb the risk and invest in the technological infrastructure to successfully take advantage of the benefits of integration.  There is also a danger with too much integration.  Efficiency lowers price, but only in competitive markets.  Extensive integration increases concentration and reduces competition.  The results are either higher prices or more regulation to control prices.  Pilot projects are fine, but are they scalable to the larger system? 

According to Emanuel the alternative is nothing more than “shifting the financial burden to patients, businesses and states.”  This statement is an obvious reference to the Ryan premium support plan for Medicare.  Emanuel, showing no faith in market forces, then states that “there is no evidence that competition among insurance plans would do anything to address the underlying costs of health-care providers.”  But David Cutler, Harvard economist and fellow cheerleader, published a study in August 2012 New England Journal of Medicine and found that the competitive bidding process in the existing Medicare Advantage program resulted in 9 private plans that were cheaper than traditional Medicare.  His work mirrors that of Feldman, Coulam, and Down (American Enterprise Institute, “Competitive bidding can help solve Medicare’s fiscal crisis”) that shows a 9.5% savings.  Even Robert Pear writing in the New York Times (“Despite Democrats’ Warnings, Private Medicare Plans Find Success”) concludes that Medicare’s two privately-run programs, Medicare Advantage and the out-patient prescription drug program, Part D, are both quite popular and relatively successful in controlling spending.   Maybe if we say “private plans shift the financial burden” often enough, people will start to believe it. 

In the third paragraph Emanuel states that the CBO “found that administrative costs of private insurance are higher than such costs in Medicare.”  Well, the CBO (and many other cheerleaders) may have come up with such a finding, but that doesn’t make it so.  The estimated administrative costs of Medicare are between 2.8 and 3.4%; adding Medicare costs that are paid by other government agencies to support Medicare raises the estimate to 5.7 to 6.4%.  Using the same metric, the administrative expense of private insurance is estimated to be between 14 and 22%, but this includes non-administrative costs such as the cost of disease management services provided by the insurance company and premium taxes charged by some states that amount to an estimated 11.4 to 13.2%.  A more accurate accounting of private administrative costs would be between 2.6 and 8.8%.  Using a different metric, administrative costs measured on a per beneficiary basis (rather than per dollar spent) show that private insurance is actually more efficient.  Relative efficiency depends on how you measure it.  Cheerleaders always use the one that is most favorable to their side. 

Further, Emanuel argues that the Ryan approach will result in too much competition and “no single insurer would have sufficient market share to catalyze changes in the way health care is paid for and delivered.”  If the truth were known, the Obama approach will result in too much concentration with large, vertically integrated health care systems dominating the landscape.  The emphasis on accountable care organizations (ACO) has led to a flurry of merger activity with hospitals acquiring physicians’ practices at record levels.  These systems will integrate 5 levels of provision: general practitioners, specialists (and the clinics they both work in), hospitals, rehabilitation centers, and health plans.  We’ll see their geographic influence stretching for hundreds of miles covering tens of thousands of lives.  Emanuel voices concern that the Ryan plan will lead to “return to the managed care days of the 1990s.”  The Obama plan will lead to massive closed-panel HMOs with their limited access to providers and services. 

Finally, Emanuel extols the benefits of the Independent Payment Advisory Board (IPAB) with its powers to set prices, raise taxes, and do just about anything that Congress can do.  The 15-member board is accountable to no one.  Quorums are one-half of the appointed members with no minimum number.  If the Senate only confirms one person, then that person performs the duties of the board.  If no one is confirmed, then the Secretary of HHS is responsible.  Don’t put it past the president to use recess appointments to fill the positions, even if the Senate is in session.  IPAB is not required to hold hearings or accept public comment, and its decisions are not subject to judicial review.  Now that’s something to cheer about. 

I agree with Emanuel “Americans face a clear choice between two competing visions.”  I also disagree with his depiction of those competing visions.  Calling Obama’s plan a market-friendly health-care alternative doesn’t make it market friendly.  Pointing out a few beauty marks and ignoring all the warts is not analysis. 

I expect Baylor’s cheerleaders to rabidly support their team, emphasizing 9 touchdowns scored and 700 yards total offense.   But I doubt if Colin Cowherd will feel the same way.  He’ll likely point out that Baylor’s defense gave up 10 touchdowns and 800 yards total offense, resulting in a 70-63 loss.  But that’s the difference between a cheerleader and an analyst.

Fact Checking Paul Ryan’s Speech

by

I received an email this morning from Jim Messina, the President’s campaign manager, accusing Paul Ryan of lying in his acceptance speech last night.  “He lied about Medicare.  He lied about the Recovery Act.  He lied about the deficit and debt.  He even dishonestly attacked Barack Obama for the closing of a GM plant in his hometown of Janesville, Wisconsin — a plant that closed in December 2008 under George W. Bush.”

I write about health policy, so I’m not going to comment on all the accusations, but I will say this about the Janesville plant closing.  President Obama visited that plant during his 2008 campaign.  During that visit the President said: “I believe that if our government is there to support you. . . this plant will be here for another hundred years.”  Ryan’s comment:  “Well, as it turned out, that plant didn’t last another year.  It is locked up and empty to this day.”  Yes, the plant was scheduled for closure during the Bush administration, but I believe the point was not to blame President Obama for its closure, but to point out that promises are easy to make, but hard to keep.   And one of the themes of the speech was that we shouldn’t judge someone by their promises, but by their actions.  By the way, the Wikipedia account of the plant closing has already been edited to clarify the actual sequence of events.

Now let’s focus on the Medicare “lie.”  Ryan referred to the Affordable Care Act (out of concern for all those leftist pundits who are stroking out because they see racism in certain code words, I’ll refrain from calling the ACA, Obamacare) as the “coldest power play of all [coming] at the expense of the elderly.”  He went on to explain that “the planners in Washington … didn’t have enough money…. So, they just took it all away from Medicare.”  Ryan is referring to estimated $716 billion that is removed from Medicare to fund the expansion of Medicaid and the state exchange subsidies in the new law.  He concludes the Medicare portion of his speech by saying, “The greatest threat to Medicare is Obamacare.”

I’m assuming that the last statement is the “lie” that Messina is talking about.  So to what extent does the ACA threaten Medicare?  The obvious threat is the one to Medicare Advantage.  About 25% of the cut comes out of the Medicare Advantage program.  As a result the CBO estimates that about half of its enrollees will be forced out of the program and back into traditional Medicare.  It’s fair to ask the seniors who will lose their insurance of choice and are forced back into traditional Medicare whether or not that’s a threat.

Possibly the biggest threat to the program comes as a result of the creation of the Independent Payment Advisory Board (IPAB) and its control over payment rates to providers.  As I said in an earlier post (“The Obama Medicare Reform Plan,”  August 24, 2012) if historical growth rates prevail into the future, using the ACA formula, spending on physicians’ services will have to be reduced by almost 5% annually.  Ignoring the obvious threat to provider incomes, how are these spending cuts a threat to Medicare?  The obvious answer, they will affect patient access to medical services.

The Affordable Care Act was about giving people access to health insurance with little thought to providing access to medical services.  Too many physicians do not accept new Medicare patients now.  How will payment cuts affect future access?  How will the Act affect access to hospitals?  Only about 12% of all community hospitals make enough on Medicare to cover their expenses.  Without the ability to shift costs to privately insured patients, an out-of-date financial model, those who can’t at least break even on Medicare will only accept Medicare patients in emergency situations.  Seniors will simply receive their medical care at hospital emergency rooms.

Is this a threat?  I’ll let you answer that question.

The Obama Medicare Reform Plan

by

I recently had lunch with several of my colleagues and the topic of the Ryan-Wyden plan came up in the conversation.  The question was asked “Is it fair to judge the Ryan plan against traditional Medicare? Shouldn’t we be comparing it with the Obama plan?  Fair question.  But what is the Obama plan for Medicare?  It’s more than simply cutting $716 billion from Medicare and redirecting it to cover Medicaid expansion and the exchange subsidies.  The President’s plan creates the Independent Payment Advisory Board whose 15 members are tasked with reducing the growth in Medicare spending.

Appointed by the President and confirmed by the Senate, IPAB has the power to cut Medicare payments to providers and the private insurers that participate in the Medicare Advantage and prescription drug programs.  Hospitals and hospice payments are exempted from IPAB oversight until 2020.  The board can also change the payment structure from fee-for-service to capitation or some hybrid form to achieve its targets.

Over the period 2013 through 2018 per capita Medicare spending is targeted to grow at a maximum rate equal to the average of the Consumer Price Index (CPI) and the Medical CPI.  Annually the board is responsible to develop a plan to keep Medicare spending below the target.  Not a problem, you say?  Over the past decade the CPI has grown at an annual rate of 2.66% and the Medical CPI 4.53%.  At the same time per capita Medicare spending grew 6.51% annually.  If these results continue into the future, the IPAB would have to cut Medicare spending 2.91%.  But with hospitals and hospices exempt (37% of Medicare spending), spending on physicians’ services and other nonexempt categories would have to be cut 4.62%.

About the only power IPAB has to fulfill its mission is cutting payments to providers.  It may not propose any real reforms to the program (such as a premium support mechanism like the Ryan-Wyden plan).  It also cannot ration care, restrict benefits, modify eligibility rules, or make changes in cost sharing.

Ewe Reinhardt, Princeton economist, says its the “only hope to restrain Medicare spending.”  Peter Orszag, former director of the Congressional Budget Office under Obama, says its the “most important aspect of the Affordable Care Act.”  Regardless of those claims, Paul Ryan calls it a “rationing board” and Jeremy Lazarus, president elect of the American Medical Association says it “would have too little accountability and the power to make indiscriminant cuts that adversely affect access to health care for patients.”

Does the rationing claim stand up to careful scrutiny?  Despite the language of the Act, rationing is inevitable.  The board can set prices for specific services so low that no provider will offer them, or at least fewer will offer them.  Many physicians already refuse to see new Medicare patients and as payment rates fall below those of Medicaid, more will follow.  While hospitals escape the wrath of IPAB until 2020, they too will find it more difficult to remain solvent because of low payment rates.

If economics teaches us anything, it teaches us that price controls create shortages.  And if we refuse to ration via prices, we’ll have to find another mechanism to ration.

Note to self: Another reason to delay retirement.  Keep your job so you can keep your private health insurance.  Delay Medicare’s control over your access to medical care as long as possible.