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Orszag: IPAB Will Promote Higher-Value Health Care

Former White House budget director Peter Orszag provides an important perspective on the new Independent Payment Advisory Board (IPAB), a presidentially appointed commission that health reform created to help slow the growth of Medicare costs if they are projected to exceed a specified target level.

We previously explained why criticisms of IPAB are off-base and why repealing it is a bad idea.  Orszag, former director of both the White House Office of Management and Budget and the Congressional Budget Office, offers his own take in a new Bloomberg column.

Virtually everyone agrees, he says, that the health care system needs to move toward paying providers based on the quality of care they provide, not the quantity of services they perform.  IPAB will play a key role in promoting that transition.

Orszag writes:

Given that changing provider behavior is the single most important step in moving toward higher-value health care, and that Medicare has to play a vital role in that shift, the question becomes whether Congress can direct that change by itself.  Perhaps it can, but there is a good chance it cannot, when you consider how lobbyists work to protect their narrow interests and the relative lack of medical knowledge in Congress.  The large number of sensible payment-reform proposals from the Medicare Payment Advisory Commission that Congress has not acted on in the past illustrates the risk.

The IPAB was designed to be a backstop in case Congress is unable to overcome its inherent challenges.  The board has the legal authority — if the growth in health-care costs exceeds specific thresholds — to propose measures that take effect automatically unless Congress enacts alternatives.

The board’s critics claim that the IPAB will either ration care or simply cut payment rates. By law, though, it is not allowed to ration care. And Congress itself has proved capable of reducing payment rates in a blunt fashion — that doesn’t require a panel of experts.

In the future, the board may be needed to gradually push Medicare away from fee-for-service, if Congress is unable to do so.  Employers, payers and providers who are interested in shifting the health care system toward value should therefore take a second look at the IPAB.  Paying for quality will probably turn out to be much harder without it.

Orszag, Princeton economist Uwe Reinhardt, and I discussed IPAB’s potential to rein in cost growth in a podcast earlier this year.