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As health care expenditures continue to rise, the Obama administration and Congress are looking at avenues to contain costs and ensure a sustainable health care system. To date, three separate proposals have been offered that would turn decision-making about major aspects of the Medicare program over to non-elected bodies of providers, economists and other experts – presumably in order to make tough cost-savings decisions. This Alert examines some of the concepts behind these proposals and identifies a set of principles that the Center for Medicare Advocacy believes should undergird considerations of any such avenue of activity.

The Proposals

1. The Independent Medicare Advisory Council (IMAC)

At his televised press conference on Wednesday, July 22, President Obama spoke of "an independent group of doctors and medical experts who are empowered to eliminate waste and inefficiency" and therefore hold down Medicare costs.[1] The President was referring to his proposal to establish a new Independent Medicare Advisory Council (IMAC), based on the current Medicare Payment Advisory Commission (MedPAC).[2]  The IMAC would be tasked with making recommendations to the President on annual Medicare payment rates as well as other reforms in the program. Any recommendations by the IMAC would be prohibited from increasing the overall spending of the Medicare program.[3]  Peter Orzag, Director of the Office of Management and Budget (OMB), said that, "[T]his approach would free Congress from the burdens of dealing with highly technical issues such as Medicare reimbursement rates…"[4] For more information, see Robert Pear's August 14, 2009 New York Times article "Obama Proposal to Create Medicare Panel Meets With Resistance."

2. The Medicare Payment Advisory Commission (MedPAC) Reform Act of 2009 (S. 1380)

In June, Senator Jay Rockefeller (D. W.Va.) introduced S. 1380, the Medicare Payment Advisory Commission (MedPAC) Reform Act of 2009.  Like the IMAC proposal, Senator Rockefeller's bill would create an independent executive branch agency to develop payment policy and other Medicare reforms.  The Rockefeller bill would provide greater authority to the current Medicare Payment Advisory Commission, including the authority to make the national coverage decisions (NCDs) currently developed by the federal Centers for Medicare & Medicare Services (CMS).  The bill also requires MedPAC to implement payment methodologies that reduce Medicare expenditures by not less than 1.5% annually.

3. Institute of Medicine (IOM)

On Monday, July 27, news stories reported a third, more limited proposal to address Medicare payment reform.  Under the new proposal from some Democrats in the House of Representatives, the Institute of Medicine (IOM) would conduct studies and issue recommendations to Congress and the Secretary of Health and Human Services (HHS) on geographic payment disparities in Medicare.  The IOM would be required to develop new data on geographic costs that would form the basis for Medicare reimbursement to doctors and hospitals. The IOM would also conduct studies and issue recommendations concerning the development of a quality-based payment system for Medicare.

Common Elements of the Proposals

While the details of the proposals are in flux, common elements remain.  All rely on an independent, non-elected entity to make Medicare payment policy decisions that are currently made by Congress.  The IMAC and MedPAC proposals create an Executive Branch agency made up of individuals who are appointed by the President and confirmed by the Senate.  The IOM is a non-governmental organization affiliated with the federally-chartered National Academy of Sciences. The IOM chooses its own volunteer panel to conduct studies requested by the federal government.[5]  All are intended to save money and make hard decisions.

The three proposals require a new entity to make decisions affecting all Medicare payment policies, including payment to doctors and other providers, Medicare Advantage Plans such as HMOs, and Part D prescription drug plans.  The IOM studies would be the most limited in their scope, addressing only payment based on quality issues and payment disparities among different geographic regions of the country.  The MedPAC reform proposal is the broadest, addressing coverage as well as payment decisions.

All of the proposals would give Congress and the President limited authority as described below to overturn the recommendations.  Congress is considering the various mechanisms for Presidential and or Congressional review included in the bills.  The processes include requiring that the recommendations made by the new entity go into effect automatically unless rejected by Congress or the President; requiring that the President and/or Congress act within a very short time frame; requiring that a Congressional vote to reject recommendations be by a supermajority; and requiring that the President and/or Congress accept or reject the recommendations as a package. The proposals also limit judicial review of recommendations and actions taken by the new entity.

Both the IMAC and the MedPAC proposals look to achieve cost savings in Medicare.  As noted, the MedPAC bill, S. 1380, includes specific targets for reducing Medicare expenditures every year.  The IMAC proposal that was circulated initially would prohibit the IMAC from issuing recommendations that increase net Medicare expenditures when compared to the net expenditures that would occur if the recommendations were not implemented.  If the CMS Chief Actuary determined that the recommendations did not comply with the no-increase-in-net-expenditures criteria, then they would become null and void and the payment updates would automatically revert to current law.   The Congressional Budget Office (CBO) stated that legislation to establish an IMAC or a revised MedPAC should incorporate "ambitious but feasible savings targets, and create a clear fall-back mechanism for instituting across-the-board reductions in net outlays" in order to generate more savings from Medicare.  CBO indicated that fall-back mechanisms could "specify certain automatic reductions in payment rates and increases in beneficiaries' premiums or copayments" if the savings targets are not met.[6]

Principles to Inform Any Payment Commission

Regardless of which proposal is eventually adopted by Congress and the Administration, the authorizing legislation needs to follow several guiding principles in order to protect Medicare beneficiaries and the integrity of the Medicare program.

• The new entity making the decisions should be independent from the political process and include substantial and meaningful beneficiary representation.

• There should be strict conflict of interest limits on all individuals who are appointed to serve on the entity.

• All deliberations by the entity should be open and transparent, with opportunity for beneficiary input. In addition, the entity should include a specific office or ombudsman to address beneficiary concerns.

• Authority over the basic Medicare benefit structure, including how premiums are calculated and the amount of cost-sharing for Medicare-covered services, should remain with Congress.  The new entity should not have the authority to recommend that Medicare pay a smaller share of premiums or that additional cost-sharing be passed on to beneficiaries.

• The authority of the new entity should be limited to payment policy.  It should not include the authority to make coverage decisions.  The skill set and experts needed to make decisions about what services and items Medicare should cover are very different from the skill set and experts needed to make payment policies.  A conflict of interest may arise if an entity charged with reducing Medicare costs is also charged with determining the items and services to be paid for by Medicare.

• The new entity should not be required to meet arbitrary savings targets.  Such targets are contrary to the need to establish sound payment policy, and might result in problems similar to the problems in the existing payment mechanism for doctors.  The yearly spending targets included in current proposals would require the new entity to seek additional savings before previous recommendations had been implemented, or before their effectiveness could be measured.

• In developing its recommendations on payment policy, the new entity should take into account the existing disparities between Medicare and other payment sources, and not take actions that would exacerbate the disparities.  For example, the value of the current Medicare benefit is less generous than the value of plans offered by large employers and by the federal government.[7] Medicare already pays doctors and hospitals less than private payment rates.[8] Recommendations should seek to improve, rather than worsen, Medicare in relation to other insurance programs.

• In developing its recommendations on payment policy, the new entity should seriously consider and take into account any problems in accessing health care providers and services that may be or may have been caused by payment decisions.

• Existing beneficiary protections, including the right to challenge claims denials and to challenge Medicare policies through the administrative system and into federal court should be retained.

• Strict limitations on the ability of Congress to take action on the recommendations, either through time frames that cannot be met or by the requirement of a supermajority vote, should not be imposed.

• Neither the President nor Congress should be required to approve the entity's recommendations as a package.  Decisions should be made on the merits of each individual recommendation.

Conclusion

In describing his IMAC proposal before the press and the American public, President Obama said this new entity is "…not going to reduce Medicare benefits. What it's going to do is to change how those benefits are delivered so that they're more efficient."[9]

As Congress crafts legislation to make the delivery of Medicare and all health care more efficient, they need to incorporate principles to ensure that this promise regarding Medicare is met.

Express your opinion to Congress at 1-800-828-0498, and blog about it at http://cmahealthpolicy.com/.