Much has been written about the dangers of President Obama’s Independent Payment Advisory Board (IPAB). The IPAB tasks 15 unelected bureaucrats with reducing the per capita rate of growth in Medicare if such spending exceeds certain economic growth targets. The IPAB’s primary goal is to meet a budget, not to improve the quality and efficiency of patient care. Additionally, the language outlined in the health care law severely limits the IPAB’s cost cutting tools, only allowing the board to recommend reductions in provider reimbursements, rather than pursue long-term solutions. The board’s recommendations will be implemented unless Congress passes alternative legislation that meets the same fiscal targets. While the majority of IPAB analysis has focused on how it will restrict treatment options and deny seniors access to care, a recent American Action Forum policy analysis by former CBO director Douglas Holtz-Eakin looks at how the IPAB’s reimbursement cuts may reduce American medical innovation.
The IPAB will control access to treatment by determining reimbursement rates. In developing proposals, the board is directed to “include recommendations that target reductions in Medicare program spending to sources of excess cost growth.” As Holtz-Eakin writes, “This is especially troubling because it may choose to disproportionately make cuts to expensive new treatments. New medicines for conditions like Alzheimer’s or Parkinson’s will likely have rapid cost growth, especially early after their introduction on the market. This will make them targets…”
The price of a new drug reflects not only the cost of its production, but also the millions of dollars invested during research and development. The expectation of future revenue provides the incentive for current and future investment. Even the Office of the Assistant Secretary for Planning and Evaluation (ASPE) at the Department of Health and Human Services (HHS) stated in a March 2012 report, “Developers seek profits and so are attracted to industries and innovate where they believe profits can be made. Policies that reduce health care costs and, in turn, developer’s profits may have a dampening impact on innovation.” Similarly, Eli Lily and Company CEO John Lechleiter noted in a May 2012 article in Forbes, “Short-term cost-control decisions can undermine—even destroy— the long-term investments needed to generate biopharmaceutical innovation. The Independent Payment Advisory Board is a case in point.“
Further, as Holtz-Eakin points out, “the ACA substantially increases the cost of innovation via industry taxes, and in addition, IPAB creates a level of uncertainty that will have a detrimental impact on venture capital investment in start-up firms and research and development investments from established firms.”
While it is imperative that we reduce health care costs for government, employer and household budgets, the IPAB’s structural flaws will result in greater damage caused by reduced access to care and decreased American innovation. This is why repealing the IPAB has bipartisan support—24 Democrats cosponsored H.R. 452, the Medicare Decisions Accountability Act of 2011. This legislation was included in H.R. 5, the Protecting Access to Healthcare (PATH) Act, which passed the House in March. President Obama has yet to nominate any appointees to the board.
Staff Contact: For questions or further information contact Lisa Collins.