The Independent Payment Advisory Board: The Stalking Horse of Payment Reform

Written by on September 28, 2012 in Law & Finance - No comments

The healthcare industry and government policymakers are confronting a familiar paradox in healthcare finance. With an aging population, rising healthcare costs and an assortment of new subsidies following healthcare reform, increased spending seems unavoidable for the foreseeable future. On the other hand, with limited revenue growth and other noteworthy burdens on the federal budget, increased spending is no longer an option.

 In a report issued earlier this year, the Congressional Budget Office estimates that federal spending on healthcare programs will double in the next ten years, from $847 billion in 2012 to a staggering $1.8 trillion in 2022.1  With an aging baby-boomer population, the primary culprit in the spending boom is Medicare, which is estimated to account for about one-half of increased spending.

 Under Section 3403 of the Affordable Care Act (ACA), Congress created the Independent Payment Advisory Board (IPAB).2 With a goal of reducing the growth rate in Medicare spending, the IPAB will be responsible for developing payment reform proposals if projected Medicare spending exceeds certain targets.3 Unless Congress enacts its own legislation under a new and expedited legislative procedure, the Secretary of the Department of Health and Human Services (HHS) must implement the IPAB’s proposals.4

 The IPAB’s potential influence over payment reform has served as kindling for an increasingly heated debate.5 As recently as March 22, 2012, the House of Representatives approved the repeal of the IPAB through its passage of H.R. 5, the Protecting Access to Healthcare Act.6 Though it is expected the repeal legislation will die in the Senate, the debate will continue. This article provides health lawyers with a general understanding of the IPAB’s structure, the surrounding controversy, and the likely impact going forward.

 IPAB Structure

 Member Composition/Qualifications

 The IPAB will consist of 15 voting members who will be appointed by the President for a six-year term, subject to the advice and consent of the Senate.7 The President must appoint nationally recognized experts in areas such as healthcare finance, actuarial science, integrated delivery systems and facility management.8 Appointments also must ensure broad geographic participation.9 While the IPAB must include physicians and other healthcare professionals, the majority of IPAB members must be individuals who are not involved in the provision or management of Medicare-covered items or services.10 IPAB members will be subject to federal ethics laws and be required to make public disclosures of potential conflicts of interest.11 Among the most interesting qualifications for IPAB membership, also aimed at preventing conflicts, is the requirement that appointees may not engage in “other business, vocation or employment.12”Accepting the appointment will require a full-time commitment. Once appointed, IPAB members may be removed only in relation to their neglect of duty or malfeasance in office.13

 The Three-Year Cycle

 The IPAB’s goal is to reduce the growth rate in Medicare spending, but only if the projected growth exceeds certain thresholds. Whether the IPAB develops proposals depends upon two annual projections that will be made by the Chief Actuary of the Centers for Medicare & Medicaid Services (CMS).14

 The three-year cycle of the IPAB is composed of a determination year, proposal year and implementation year. The “determination year” is the first year in the cycle, during which the Chief Actuary makes projections about Medicare growth rates that will exist two years into the future, known as the “implementation year.”15 If projected growth exceeds a defined threshold, the IPAB will be required to develop proposals during the second year of the process, known as the “proposal year.”16

 The two key projections include the “Medicare per capita growth rate” and the “Medicare per capita target growth rate.”17 If the projected per capita growth rate exceeds the projected per capita target growth rate, the Chief Actuary must establish a “savings target,” at which point the IPAB must develop proposals.18 The IPAB’s proposals must not include any recommendations to “ration healthcare, raise revenues or Medicare beneficiary premiums . . ., increase Medicare beneficiary cost-sharing . . ., or otherwise restrict benefits or modify eligibility criteria.”19

 The inaugural three-year cycle begins next year. The Chief Actuary must complete the initial round of projections by April 30, 2013. If projected growth exceeds target growth for 2015, the IPAB must develop and submit payment reform proposals by January 15, 2014. Thereafter, the process is repeated annually. The Chief Actuary already estimates that target growth rates will be exceeded in 2015-2019.20

 While IPAB proposals must be designed to achieve target savings, the ACA does not require that IPAB proposals address all excess growth. Instead, the ACA mandates only that IPAB proposals achieve savings equal to the lesser of excess growth or certain minimum percentages.21 The minimum percentages range from 0.5 percent to 1.5 percent depending on the year.22 For example, if the projected Medicare per capita growth rate for 2015 is 10 percent and the projected Medicare per capita target rate is 3 percent, the IPAB’s proposals only need to achieve savings equal to 0.5 percent rather than 7 percent. Although the IPAB could make proposals that achieve savings greater than 0.5 percent in 2015, it will satisfy its legal obligations by developing proposals that are far less drastic.

 IPAB Proposals: Development to Implementation

 After the Chief Actuary determines that projected growth will exceed target growth in the determination year, the IPAB must create draft proposals by September 1 of the same year, at which point the draft proposals must be submitted to the Medicare Payment Advisory Commission (MedPAC) and HHS Secretary for review and comment.23 Following consultation, the IPAB will submit final proposals to Congress and the President by January 15 of the following year.24 Each proposal must include:

(1) Recommendations for achieving savings.

(2) An explanation for each recommendation.

(3) An opinion from the Chief Actuary that the recommendations meet the savings target.

(4) Draft legislation that implements the recommendations.

(5) All other information the IPAB deems relevant.25

 Upon receipt, the IPAB proposals are introduced in the Senate and House of Representatives by the respective majority leaders.26 The ACA then provides an expedited legislative procedure with limited committee review, time limitations for debate, and the consideration of only germane amendments that achieve the same savings targets.27 Congress must enact legislation rejecting or amending the IPAB proposals within six months, prior to August 15.28 To change the expedited procedures, an affirmative three-fifths supermajority vote is required.29 If Congress neither enacts alternative proposals by August 15 of the proposal year nor revises the expedited procedures, the HHS Secretary must implement the IPAB’s final proposals to Congress.30 The Secretary’s “implementation” of the IPAB’s proposals is not subject to administrative or judicial review.31


 The Obama Administration touts the IPAB as a panel of experts who will help ensure Medicare’s financial sustainability.32 As explained by one author, the IPAB grew out of concern that “Congress was unable to enforce fiscal discipline on itself.”33 For proponents, many of the fears expressed about the IPAB are believed to be overstated. The IPAB is viewed as nothing more than a pragmatic mechanism for confronting rising costs through experts who will be more insulated from the political pressures that plague Congress.34 Though IPAB members are unelected, supporters argue that Congress itself created the IPAB, that judicial and regulatory positions are regularly filled by appointees upon confirmation by the Senate, and that Congress still has the power to reject or amend the IPAB proposals.35

 Leading the opposition to the IPAB are the American Medical Association (AMA) and other industry stakeholders.36 Hundreds of organizations have called for a full repeal of the IPAB.37 Opponents criticize the IPAB’s scope of authority and lack of flexibility,38 as well as its potential impact on patient access to quality care.39 In relation to IPAB members, the AMA argues that practicing physicians are excluded by virtue of the full-time nature of the position.40 Once the IPAB begins developing recommendations, the AMA also contends that physicians will bear the brunt of any spending cuts, since hospitals, home healthcare, and hospice are specifically exempted.41 Others are less concerned with the substance of proposals than the IPAB’s perceived usurpation of Congress’ authority.42 The belief is that payment reform proposals should be fully vetted and approved by Congress.


 The controversy surrounding the ACA’s enactment is a fitting prelude to the emerging debate over the manner in which healthcare providers and suppliers are reimbursed for services. Given the complexity of payment reform and shallow discourse that saturates national politics, it is tempting to believe that payment reforms will not be adopted in the near future.

 Left unchanged, the IPAB will likely occupy a prominent role in driving reforms. With industry-wide growth regarded as the central malady, notions of shared responsibility will likely permeate IPAB proposals. As constituencies are asked to make sacrifices, the IPAB’s chief vulnerability resides within perceptions of unfairness among those who believe they are being asked to shoulder disproportionately large cuts without a full legislative process. At a minimum, the IPAB will force Congress to have a discussion about controlling healthcare costs, even if abbreviated. It is also possible that Congress will attempt to modify the IPAB to mitigate the perceptions of unfairness. As recent history suggests, modification or even a full repeal of the IPAB are possibilities.

 In the absence of a Republican sweep of the White House and Congress or a Supreme Court ruling striking down the ACA in its entirety, it seems likely the IPAB will have a prominent role in the payment reform debate. With or without the IPAB, however, payment reform will continue to be a problematic regulatory and legislative enigma.

By Larry L. Lanham II, Dinsmore & Shohl LLP, Columbus, OH

(1) Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, available at (last accessed Jan. 2012).
(2) 42 U.S.C. § 1395kkk; Section 1899A of the Social Security Act. For a more in-depth analysis of Section 3403, see Michael H. Cook, Independent Payment Advisory Board: Part of the Solution for Bending the Cost Curve? J. Health & Life Sci. L. (Oct. 2010).
(3) 42 U.S.C. § 1395kkk(c)(B)(i)–(viii).
(4) 42 U.S.C. § 1395kkk(e). It should be noted there are a few limited exceptions to implementation by the Secretary, which are listed in 42 U.S.C. § 1395kkk(e)(3).
(5) Tom Cohen, Health Care Debate Shifts to Medicare Panel, CNN, Mar. 21, 2012, available at (last accessed Apr. 16, 2012).
(6) Ed. O’Keefe, Bill Stripping Parts of Health Care Law Passes House, Wash . Post, Mar. 22, 20120, available at (last accessed Apr. 4, 2012).
(7) 42 U.S.C. § 1395kkk(g)(1)(A), (g)(2). The IPAB also will consist of three nonvoting members, including the HHS Secretary, and the Administrators for Centers for Medicare & Medicaid Services and Health Resources and Services Administration. Id.
(8) 42 U.S.C. § 1395kkk(g)(1)(B).
(9) 42 U.S.C. § 1395kkk(g)(1)(B).
(10) 42 U.S.C. § 1395kkk(g)(1)(B). This is different than saying that health professionals, more generally, may not constitute a majority of IPAB members.
(11) 42 U.S.C. § 1395kkk(g)(1)(C).
(12) 42 U.S.C. § 1395kkk(g)(1)(C).
(13) 42 U.S.C. § 1395kkk(g)(4).
(14) 42 U.S.C. § 1395kkk(c)(6).
(15) 42 U.S.C. § 1395kkk(b)(1).
(16) 42 U.S.C. § 1395kkk(b)(2).
(17) 42 U.S.C. § 1395kkk(c)(6)(A).
(18) 42 U.S.C. § 1395kkk(b)(2), (c)(7)(A).
(19) 42 U.S.C. § 1395kkk(c)(2)(A)(ii). There are several other critical limitations on IPAB proposals that are not covered by this article. For example, IPAB proposals may not include any recommendations that would reduce payments for items or services that, prior to December 31, 2019, are scheduled “to receive a reduction to the inflationary payment updates of. . . in excess of a reduction due to productivity in a year in which such recommendations would take effect.” 42 U.S.C. § 1395kkk(c)(2)(A)(iii). This will preclude the IPAB from “making adjustments during the early years of its existence for . . . hospitals, home health agencies, and hospice.” Cook, supra note 2, at 110.
(20) Richard S. Foster, Estimated Financial Effects of the “Patient Protection and Affordable Care Act” as Amended, April 22, 2010, available at (last accessed Apr. 18, 2012).
(21) 42 U.S.C. § 1395kkk(c)(7)(B).
(22) 42 U.S.C. § 1395kkk(c)(7)(C).
(23) 42 U.S.C. § 1395kkk(c)(2)(D)–(E).
(24) 42 U.S.C. § 1395kkk(c)(3).
(25) 42 U.S.C. § 1395kkk(c)(3).
(26) 42 U.S.C. § 1395kkk(d)(1).
(27) 42 U.S.C. § 1395kkk(d)(4).
(28) 42 U.S.C. § 1395kkk(e)(3)(A)(i).
(29) 42 U.S.C. § 1395kkk(d)(3)(D), (d)(4)(B)(v).
(30) 42 U.S.C. § 1395kkk(e)(1), (3). The ACA also limits implementation if, by February 1, 2017, both the House of Representatives and Senate, by joint resolution, votes to eliminate the IPAB. 42 U.S.C. § 1395kkk(f).
(31) 42 U.S.C. § 1395kkk(e)(5).
(32) Executive Office of the President, Statement of Administration Policy: H.R. 5 – Protecting Access to Healthcare Act, March 20, 2012, available at (last accessed Apr. 17, 2012).
(33) Cook, supra note 2, at 104.
(34) Editorial: Medicare Cost Panel is Common Sense, USA Today, Apr. 9, 2012, available at (last accessed Apr. 17, 2012).
(35) See id.
(36) Group Letter to Congress, available at (last accessed Apr. 18, 2012).
(37) Id. AMA, Independent Payment Advisory Board, available at (last accessed Apr.18, 2012).
(38) See id.
(39) Group Letter, supra note 36.
(40) AMA, Health System Reform Insight – July 14, 2011, available at (last accessed Apr. 18, 2012).
(41) See id.
(42) Cook, supra note 2, at 120.

Reprinted with permission. © 2012 American Health Lawyers Association.

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