The Independent Payment Advisory Board and Medicare Spending: New Research Suggests a Change in Our Medical Culture

Launch of the ACA’s controversial Independent Advisory Board– a  panel charged with  recommending ways to curb Medicare inflation — has been delayed until 2016. Does this means that the IPAB’s critics have won?

No. IPAB was, from the beginning, only meant to serve as a backstop. The law says that the board will be asked to recommend places where we could pare Medicare spending if—and only if—Medicare inflation begins to outstrip inflation in the rest of the consumer economy.

But over the past three years Medicare spending has decelerated; it is no longer growing faster than the economy as a whole. This is why Medicare’s chief actuary has decided to put IPAB on hold.

Some observers argue that as the economy recovers from the Great Recession, the nation’s health care bill is bound to climb. I disagree. Particularly in the case of Medicare, I don’t think that the economic downturn explains most of the slowdown. 

 I believe that reform is already having  an effect on health care inflation:  Four years of debate over the Affordable Care Act has made us more aware of the waste in our health care system. Patients are asking more questions, and providers know that they are going to be held accountable for that waste.

                                 We Still Need IPAB as a Backstop

That said, in the future, spending could pick up–and we may need IPAB. This is why President Obama has made it clear that he will veto any attempt to eliminate the Board.

It is important to know that IPAB exists, as a reminder to drug companies, device makers, nursing homes and others that, one way or another, we can no longer afford a system that is wasting $1 out of $3 of our health care dollars on over-priced, unnecessary tests and treatments that, too often, put patients at risk without benefits.

If, and when, IPAB is asked to recommend cuts it will use medical evidence to decide where to trim. IPAB is likely to recommend lower payments for certain services and products that medical research tells us are now “overvalued”–based, not on cost-benefit analysis, but on patient outcomes. If patients who fit a particular medical profile are not helped, Medicare should not cover the treatment for those patients.

As I have explained in the past, IPAB is not the panel of bean counting bureaucrats that Obamacare’s opponents suggest.  IPAB will not “ration” care; it is charged with making care more rational by letting Science–rather than lobbyists– decide what Medicare should cover.  Moreover, Congress can veto IPAB’s recommendations, if legislators can agree on  ways to achieve equal savings– without rationing care, or shifting costs to seniors.


                                                      Why We Don’t Need IPAB Now

Medicare spending is no longer “out of control.”  In fiscal year 2012 spending per Medicare beneficiary increased by only 0.4%. This followed slow growth in 2010, when spending rose by just 1.8% per beneficiary, and in 2011 when outlays increased by 3.6%.  We cannot be absolutely certain that the trend will continue. But I see signs of changes in our medical culture that suggest we have reached a turning point in how we think about healthcare.  

                           Why Has Medicare Spending Slowed?  New Research       

Some argue that the Great Recession has led seniors to consume less health care. But I’m not convinced.

It’s easy to see how high unemployment would cause Americans under 65 to use less health care. Even if you didn’t lose your job, your neighbor did, and virtually everyone has become more cautious. But it is much harder to argue that the economy explains slower growth for Medicare. 

Most seniors have not been hit by a sudden job loss. They still have health insurance.  Their income—much of which comes from Social Security—has remained relatively stable. In addition, the vast majority of seniors have supplemental insurance (Medicare Advantage or Medigap) that covers out of pocket costs. So why would they cancel a doctor’s visit, or postpone elective surgery?

Meanwhile new research published in this month’s Health Affairs looks at why total health care spending (including both the private sector and Medicare) grew at a record-slow pace of 3.9% in 2009, 2010 and 2011. According to the investigators, hard times, accounted for only about 1/3 (37 percent) of slower growth in the nation’s health care bill.  My guess is that most of the effect was felt in the private sector.

A second paper published in the same issue of Health Affairs  analyzes spending by 150 large employers from 2007 through 2011. They report that larger deductibles, more co-insurance and higher copayments accounted for about 20% of the slowdown.

 But Michael Chernew, a Harvard health policy professor and co-author of the paper, told Modern Healthcare that slower growth was due to more than the weak economy or increases in out-of-pocket spending as employers shifted costs to employees. Instead, “the results appear to underscore a shift in culture among hospital officials and physicians who have grown more focused on greater efficiency in the last five years.”  

 If Chernew is right we are looking at more than a cyclical change that is tied economic cycles. Though as he stresses, we if we want to support a  long-term structural change in our health care system “we need to build a system with the right incentives and information flow.”

                                                      Looking Ahead

Medicare’s currrent chief actuary, Paul Spitalnic, sees the recent past as prologue– at least to the near future. On April 30, he sent a letter to Marilyn Tavenner, acting Medicare administrator, saying that based on the most recent numbers, the projected 5-year average growth in Medicare per capita spending is 1.15 percent, and the 5-year average growth target is 3.03 percent.” As a result, he advised Tavenner that we won’t need the IPAB until 2016—at the earliest. 

 If Spitalnic’s projections prove true, over the next few years, Medicare won’t be growing faster than GDP. This means that it won’t be adding to the deficit. If the trend continues, over time, we won’t have to worry about Medicare “crowding out” spending on education, infrastructure or the environment.

                                    Looking Ahead 30 Years

Nevertheless over the next three decades, as baby-boomers join the ranks of Medicare recipients, we will have to find new ways to squeeze the waste out of the system. Reining in spending “per beneficiary” will not be enough. There will be so many more beneficiaries.

But the boomers will not turn 65 all at once.  We will have time to make the thoughtful adjustments needed to improve care while simultaneously  reducing costs.  This is something conservatives don’t seem to understand about healthcare: lower bills and better care go hand in hand.  Inefficient care is expensive.  We don’t have to inflict pain—or demand that seniors pay more – in order to make Medicare sustainable.  There is plenty of waste in the system.

I am hopeful—not “confident,” but hopeful—that we can do this. First, some cuts already are  baked into the ACA cake. Over the next decade, the Affordable Care Act restrains the rate of growth of payments to Medicare Advantage plans, shaves the rate of growth in unit payments to hospitals and nursing homes, cuts their annual updates by 1% a year for ten years, and  promotes value-based payment systems  while making major investments to reduce fraud and abuse. The Congressional Budget Office estimates that these provisions will reduce Medicare spending by 1 percent a year over the 10-year budget window.  Rather than rising by 2% to 3% a year, Medicare’s outlays would inch up by 1% to 2%.

                                             A Cultural Change

Moreover, like Chernew, I believe that we are beginning to see changes in our medical culture that could reap far greater savings. As we discuss reform, doctors, patients and hospitals  have begun to look at healthcare in a new way.

For example, in the post below I describe how urologists have done an about-face on the question of PSA testing for prostate cancer. Rather that recommending widespread routine testing of asymptomatic patients, they are cautioning patients that they should ask their doctors about risks as well as benefits.

Urologists are leading the way in putting patients’ interests ahead of not just their own financial interests, but their understandable desire to believe that a test they have relied on for many years was indeed savings lives. Now they are taking a hard look at the medical evidence which suggests that potential benefits may not justify risking life-changing side effects. In other words, the urologists are doing just what IPAB is supposed to do—letting Science rather than custom shape their recommendations. (In 2010,the National Physicians’ Allilance asked a question: “Are Doctors Knights, Knaves or Pawns?”  Urologists, at least, have stood up and identified themselves: they are knights.)

If fewer men are tested, fewer men will be diagnosed with “early-stage prostate cancer”—a slow-moving disease that may well never cause them problems. As a result, fewer will undergo treatments that can cost anywhere from $7,500 to $22,500 while savings few if any lives.


Patients, too, are becoming more aware that “more care is not always better care.” I was struck by the generally positive response to last week’s New York Times Magazine about mammograms.  When I scanned “readers’ comments,” I fully expected to find dozens of outraged readers attacking the writer for questioning whether this annual ritual is best for all women at all ages. Instead, many thanked her for analyzing such a fraught issue in a thoughtful way.

 Reformers have been trying get the message out for year:. We have two problems in this country: while many uninsured and underinsured Americans are undertreated, others, who are well-insured, are over-treated. Today, it seems that more patients are becoming wary. They understand that medicine is shot through with uncertainties, and that they need to be fully informed about side effects and risks when they make  a medical decision.

                             Hospitals Adopt Better Systems

Even though the final phase of health care reform has not yet kicked in, hospitals have been anticipating the effect the ACA will have on them .They know that they will be held accountable for delivering better care at a lower price  They are keenly aware, for example, that in the future, they will face financial penalties if too many Medicare patients bounce back into a hospital bed less than 30 days after discharge.

As a result, today, many hospitals are doing a better job of making sure that patients understand their medications before they leave. At Einstein Medical Center in Philadelphia, for instance, hospital pharmacists meet with patients in their room to discuss doses. Patients  receive a 30 day supply of medications when they leave; and providers call patients to follow-up within three days of discharge and at the end of the month to answer questions about the drugs.  Einstein has reduced readmissions for heart patients by 50%

 Nationwide,hundreds of  hospitals are experimenting with new systems designed not just to cut readmissions, but to reduce the preventable errors that haunt both providers and patients.  For years, hospital CEOs have  focused on growing revenues. Now, the ACA is sending a new message: the hospital’s mission should be to cut costs while delivering safer, more effective patient-centered care.

12 thoughts on “The Independent Payment Advisory Board and Medicare Spending: New Research Suggests a Change in Our Medical Culture

  1. Hi Maggie:

    I was just penning my own version of the slow down in spending which is sustainable.

  2. Run 74551–

    I am very glad.
    More of us must get the story out there.

  3. Regarding “cost-benefit analysis, but on patient outcomes”, wouldn’t patient outcomes comprise a portion of the benefit used in a cost/benefit analysis as well as a determinant of the value?

    • Lloyd–

      No–cost-benefit analysis and analysis of patient outcomes are quite different.

      Analysis of outcomes means that we simply ask: are patients who fit this medical profile helped by this treatment? Do the benefits clearly outweigh the risks? Period.

      What many people don’t understand is that health care reform (a.k.a. Obma acare) is not primarily about reducing the Cost of health care– it is about making health care better. If we do that, costs will come down. Better care and lower costs go hand in hand. Inefficent care is very expensive. Care in a hopital where there are many preventable mistakes is very expensive. Unncessary tests (for example PSA testing that then leads to treatments that proivde little or no benefit) is very expensive.)

      When it comes to “cost-benefit” analysis, in the U.S. we’re not willing to decide that if a treatment is extremely expensive–but will benefit the patient–that we are not willing to cover it.

      For instance, if a 4-year-old is diagnosed with cancer, and over the next 10 years, her treatment might cost tens of thousands of dollars, would we want to do a cost- benefit analysis? She might survive–or she might die.
      I don’t knwo how we would decide how much it is “worth” to spend to keep her alive. We are the wealthiest country in the world. I cannot imagine denying her care that “might” keep her alive–or care that would give her (and her parents) another 5 years.

      At the other end of the spectrum, what about older patients? Some 70-year-olds enjoy a very high quality of life, playing with grandchildren, reading, writing, socializing with friends. Would we want to say that at a certain point in their 70s they shouldn’t be eligible for expensive surgeries?

      • Does the analysis of outcomes include the number of patients who got better after receiving a particular medication or procedure divided by the total number who had received the medication or treatment? Isn’t the resulting quotient a measure of benefit?

  4. It appears that current cost cutting focus is not, presently, on the patients but rather on the providers. That’s a good I expect.

    • Gerald–

      Yes, we don’t want to cut treaments for patients– as long as they are effective treatments

      We do want to reduce (or eliminate) payments for products and services that don’t help patients.

  5. LLoyd–

    When considering benefit, we do look at “number needed to treat” For instance if 10,000 patients have to be treated for just one life to be saved, and 400 of those 10,000 will not be saved, but will instead suffering lasting side effects, we would say that risk outweiged benefits.

    But if 10,000 patients were treated, and 500 benefited we wouldn’t say “paying for 10,000 is too expensive if only 500 benefit.” Instead, we would try to drill down and figure out why those 500 patients benefited. What was different about their medical profile? Then we could target the treatment to the patients who would benefit.
    If we couldn’t figure out why those 500 benefited, we (Medicare) would probably continue to offer the treatment to all 10,000–explaining that the odds of a benefit are only 1 in 20.

  6. I do not have a mastery of these important statistics, but I do remember reading that the odds of helping save a life by diagnostic testing were sometimes a lot lower than 1 in 20.
    An item sticks in my mind that if we treated 10,000 persons for blood pressure then we might prevent only 25 or 50 fatal heart attacks. That seems to me a pretty lavish spending of money on perfectionist medicine.

    But the real point that moves me to write is a study I found from the actual Medicare claim records in one state (Indiana).

    In one year, Medicare paid for 12,000 treatments that had an average reimbursement of $200,000. These were mainly transplants and open heart surgeries and tracheostomies.

    I am sure that many or most of these treatments worked well and would never be called into question as inappropriate medicine.

    My concern is that this might be just too much spending on one person no matter what. Especially a person who has probably had 70-75 good years already.

    In other words, I worry about spending on what we consider legitimate medicine. For the price of a $300,000 transplant, how many seniors could get home nursing visits? Maybe I am turning into a Brit.

    • Bob–

      Re high blood pressure: A recent (2012) study conducted by the widely respected Cochrane Collaboration,shows that patients suffering from mild hypertension do not benefit from blood pressure medication.
      This is just one example of what I see as a growing trend: we’re doing more studies that question benefits of various treatments and drugs. We’ve become increasinglyl aware that, as a nation, we’re over-medicated. And doctors are accepting these studies. In coming years, this is going to bring down health care spending.

      Organ transplants are a separte issue. Very few 75 year olds are getting organ transplants. The notion that we’re wasting millions transplanting elderly Americans is one of those urban myths that fear-mongers use when arguing that we can’t afford Medicare

      There are great many Americans on organ transplant waiting lists–and many will
      die before they receive an organ. Demand greatly exceed supply. Simply put, we’re not doing enough organ transplants because the organs are not available. (Donations are down.

      Doctors are aware of this. Some won’t transplant someone over 65 when 45 year olds
      are waiting for an organ.And by Federal Mandate, patients under 18 always are put at the top fo the list.

      A decade ago, patients over 65 rarely received transplants. Now that we are living longer there are more truly healthy 68 year-olds who could have another good 15 years if they had a transplant.. For that reason, in 2006, the International Society for Heart and Lung Transplantation issued new guidelines saying that heart failure patients should be considered for transplants up to age 70

      The NYT reports: “The new policy has led to a gradual expansion of heart transplants in older patients. But the frequency of these procedures has not risen dramatically, because of an acute shortage of donor hearts, strict eligibility standards for potential recipients and caution at transplant centers that do not want to jeopardize success averages with risky operations.
      In 2006, 243 patients age 65 and older in the United States received new hearts; last year, that number was 332, according to data from the national Organ Procurement and Transplantation Network.”

      The first consideration when deciding who to transplant is health.
      Whether you are 48 or 68, you’re not going to get a transplant if you have other health problems.
      And of course, on average, 68 year olds are more likely to suffer from other chronic conditions.

      Some medical centers are more open to transplanting older patients than others. “Medical centers generally subject people in the 65-plus age bracket to especially rigorous evaluation before approving them as candidates.
      “To qualify, older men and women are supposed to have well-functioning kidneys, lungs, blood vessels, livers and other organs; good nutritional status and muscle strength; no cancer or chronic illnesses like diabetes; and the ability to comply with demanding self-care regimens after a transplant, including a lifetime of taking powerful immunosuppressant drugs, among other requirements.”

  7. If the Indiana percentages are repeated across the USA, then Medicare spent $120 billion of its 2011 total of $545 billion on just 600,000 patients. (out of 48 million in the program that year.)

    I grant that this was not all transplants, and of course some of the most expensive patients in Medicare are not seniors at all but disabled persons.

    So maybe it is a good thing for our cost picture that there is a shortage of organs for transplants!

    However, I will take the position (until someone destroys my position) that many of the procedures which are priced at $300,000 do not really cost that much.

    The drugs and devices may be grotesquely overpriced.
    Hospitals charge what seem to me like grotesque amounts for ‘operating suites’ and ICU’s.

    In other words, if we shrank the cost of these procedures we could afford to do more of them.

    • Bob —

      If you had an 11 year old child who needed a tranplant would you think that a shortage was a good thing?

      What if you 35-year-old daughter– who has just had a baby–needed a transplant– would a shortage be a good thing?

      What if you needed a transplant–would a shortage be a good thing?

      At bottom, medicine is not about money. It is about blood.

      People who think that reform is about saving money are making the same mistake as people who think the goal of
      a hospital is to expand revenues. They are both “money-driven”–preoccupied with $$$.