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Quarterly Insight: The Independent Payment Advisory Board Brought to you by Jeffrey J. Kimbell & Associates OVERVIEW The Independent Payment Advisory Board (IPAB) is a 15 member government committee created under Section 3403 of the Patient Protection and Affordable Care Act of 2010 (also known as the Affordable Care act or the ACA). IPAB was championed by some Members of Congress as a way to reduce Medicare spending without having an impact on coverage or quality, but the board has been a source of political controversy from the start. Republicans and some Democrats have opposed IPAB as a rationing tool that will ultimately deny patients access to medical care as providers payments are cut. IPAB critics referred to the board as a Death Panel and Rationing Board during the health care reform debate and continue to advocate for its repeal. However, IPAB was enacted as part of the ACA, and understanding its potential impact is critical for providers in the years ahead. IPAB MISSION & MECHANICS The ACA directs IPAB to recommend savings for Medicare beginning in 2014 if the per capita growth in Medicare spending exceeds defined target growth rates in the coming year. From 2015 to 2020, the growth target is based on a measure of inflation; in subsequent years, it is based on the per capita growth in gross domestic product (GDP) plus one percentage point. The Actuary of the Centers for Medicare and Medicaid Services (CMS) is responsible for the projections of Medicare spending which may trigger IPAB. Each year, the CMS Actuary will issue a three-year projection: the determination year where the determination is made on whether IPAB is triggered, the proposal year in which IPAB submits its recommendations to Congress, and the implementation year when IPABs recommendations to reduce costs will be implemented. The CMS Actuary will also determine the size of the cuts IPAB must make to reduce Medicare spending to the targeted levels. If the spending target is breached in the determination year, then IPAB must submit recommendations to Congress by January 15 of the proposal year. If IPAB fails to submit its recommendations by January 15, the Department of Health and Human Services (HHS) Secretary is required to submit recommendations to Congress by January 25 of the proposal year. The recommendations made by IPAB move to Congress for fast-track consideration. If Congress does not act before April 1 of the proposal year, the HHS Secretary is required to implement the Board's recommendations. Overturning IPABs recommendations would require a two-thirds majority vote in both chambers of Congress. The ACA prohibits IPAB from including any recommendation that would: (1) ration health care; (2) raise revenues or increase Medicare beneficiary premiums or cost sharing; or (3) otherwise restrict benefits or modify eligibility criteria. The Board is also prohibited from recommending changes that would reduce payments to certain providers before 2020, including inpatient and outpatient hospital services, inpatient rehabilitation and psychiatric facilities, long-term care hospitals, and hospices.

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BOARD MAKEUP IPAB is established as an independent board in the executive branch, composed of 15 full-time members appointed by the President and confirmed by the Senate. The statute sets out an array of qualifications for Board members, including expertise in health care, economics, research and technology assessment, experience with employers and third-party payers, and consumers. It requires a balance between urban and rural representation. Health care providers cannot make up a majority of the Board. Board members will be full-time federal employees, and thus cannot engage in any other business, vocation or employment. The President is required to consult with Congressional leadership in making 12 of the 15 appointments. He is to consult, concerning three appointments each, with the Majority Leader and Minority Leader of the Senate, and the Speaker and Minority Leader of the House. The IPAB Chair is appointed by the President, with advice and consent of the Senate. The IPAB Vice Chair is elected by the Board annually. Terms are for six years, and members may serve no more than two consecutive terms. IPAB members are paid at a rate prescribed for level III of the Executive Schedule, which has been frozen at $165,300 since 2010. In addition, there are three ex officio, non-voting members: the HHS Secretary, the CMS Administrator, and the Administrator of the Health Resources and Services Administration (HRSA). Currently, these posts are held by Kathleen Sebelius, Marilyn Tavenner, and Mary Wakefield, respectively. LEGISLATIVE HISTORY During the healthcare reform debate, Democrats controlled the House, the Senate and the White House, giving them large power as a party to shape the policies which would eventually become law as the ACA. IPAB was first suggested by Senator Jay Rockefeller (D-WV) essentially as strengthened version of the Medicare Payment Advisory Commission (MedPAC), a body whose recommendations have no legal authority. It was no surprise then, that in 2009 the healthcare reform bill which originated and passed in the Senate Finance Committee, of which Rockefeller was a member, included a provision creating IPAB. The Senate Health Education, Labor and Pensions (HELP) Committee also passed its own health care reform bill. These two bills were merged together to create what we now know as the ACA, which included the IPAB provision. The Senate passed the ACA on December 24, 2009, with all 60 Democrats supporting the bill to overcome a Republican filibuster. Meanwhile, the House had crafted its own version of a healthcare reform bill which did not include the IPAB provision. House Democrats did not support IPAB, because they believed Congress should and could act on its own to reduce Medicare cost growth through the regular legislative process. The House passed its bill, without an IPAB provision, on November 7, 2009. Under the regular legislative process, the House- and Senate-passed bills would then have been considered by a joint conference committee to reconcile the differences between the two pieces of legislation. However, the surprising outcome of a January 2010 special election to fill the seat recently vacated by the death of Senator Ted Kennedy (D-MA) resulted in Democrats losing their 60 seat supermajority in the Senate. Senator Scott Brown (R-MA) was sworn in on February 4, 2010, allowing Republicans to maintain a filibuster against any further healthcare reform votes in the Senate. Thus any hopes for a merged House and Senate bill were eliminated, 1008 Upper Gulph Road Wayne, PA 19087

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and the fate of healthcare reform fell on the House to pass the bill which the Senate had passed on December 24, 2009 before Browns election. On March 21, 2010, the Democrat-controlled House passed the ACA, which contained the IPAB proposal, and President Obama signed it into law on March 23, 2010. CURRENT OUTLOOK IPABs authority to make payment reduction recommendations is somewhat limited under the ACA. Payments for inpatient and outpatient hospital services, inpatient rehabilitation and psychiatric facilities, long-term care hospitals, and hospices are protected from IPABs scrutiny until 2020, and clinical laboratories are exempt until 2016. Providers not exempt from IPAB cuts include physicians, Medicare Advantage plans, Part D prescription drug plans, skilled nursing facilities, home health agencies, dialysis centers, ambulance suppliers and providers, ambulatory surgical centers, and durable medical equipment suppliers. If IPAB is triggered, board members may focus on those areas of medicine that are high-cost, high-volume or expanding most rapidly. Given this dynamic, ophthalmic procedures and treatments could register on IPABs radar. As the U.S. population ages, the amount of cataract surgeries in America will almost certainly increase. Cataract surgery is one of the most common procedures in America, as more than 22 million Americans over the age of 40 are affected. It is unclear how granular IPABs recommendations will be, but ophthalmic procedures could conceivably be targeted as the board seeks to identify payment policies that reduce Medicare spending. However, IPABs authority is also limited in regards to how significant of a reduction they may recommend, expressed as a percentage of total Medicare funding and referred to as the applicable percent. In 2015, the applicable percent will be 0.5%, and will increase gradually until 2018, when it reaches a maximum of 1.5%. Unless a particular area grows at an extreme rate compared to others, it is likely that IPABs recommendations will be distributed across a spectrum of medical disciplines. Therefore, the impact that IPAB stands to have on the reduction of Medicare payment will not likely pose a major threat to any particular field. Currently, Medicare spending projections do not indicate that IPAB will be triggered in the next decade, rendering the agency toothless unless this scenario changes. President Obama has proposed lowering IPABs trigger from GDP + 1% to GDP + 0.5% for 2021 and later, but the idea has failed to gain traction in Congress. Regardless, there has been significant distaste of IPAB among Republican members of Congress since its inception. Recently, there have been bills introduced in both the House and Senate to repeal IPAB. These two bills, known as the Protecting Seniors' Access to Medicare Act of 2013 (S. 351 and H.R. 351, respectively), led by Senators John Cornyn (R-TX) and Orrin Hatch (R-UT) and Congressmen Phil Roe, MD (R-TN) and Allyson Schwartz (D-PA) would repeal the IPAB provision under the chief argument that it is unsuitable for unelected bureaucrats to intrude on the physician-patient relationship by influencing a physicians decision making because of reimbursement cuts made by IPAB. Republicans have also sought to defund IPAB. Beginning in 2012, the board is authorized to spend $15 million annually to conduct its affairs. The recently-passed Continuing Resolution (CR) funding the federal government through September 2013 rescinded $10 million from IPAB. Many outside stakeholders have also joined in the fight to repeal IPAB. The Healthcare Leadership Council (HLC), a coalition of executives representing all sectors within the U.S. 1008 Upper Gulph Road Wayne, PA 19087

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healthcare system, is coordinating a large group letter to members of Congress supporting repeal of IPAB. The letter currently has over 600 signatories from various industry, physician, and patient groups. HLC is planning to submit the letter to Congress during first week of April. Efforts to repeal and/or defund IPAB face an uphill climb, however, as Senate Democrats and the White House view the board as one of the key ACA components capable of controlling the rising cost of Medicare. Meanwhile, the Administration is planning to move forward with nominating IPAB board members in the near future, according to CMS Administrator Marilyn Tavenner in response to questions from her first confirmation hearing on April 9, 2013.

Key Legislative and Regulatory Developments

Congress Passes FY 2013 Continuing Resolution Package Including Device User Fee Fix and Full 2013 Appropriations for FDA This week, President Obama signed a Continuing Resolution (CR) funding the federal government through the remainder of FY 2013. The package contains full FY 2013 funding for the Food and Drug Administration (FDA) and language allowing FDA to access and spend new device user fees authorized by the FDA Safety and Innovation Act (FDASIA) passed last year. The bill funds the federal government at a level equal to the spending cap for 2013 required by the Budget Control Act of 2011. This includes $2.51 billion of FY 2013 funding for FDA, an increase of $24 million from FY 2012 levels. In addition the bill contains $50 million of no-year funds to be used for food safety and human drug supply safety. These no-year funds are not tied to a given fiscal year and can be spent at any time. However, this total amount does not include the effect of the sequester. Rather, the legislation is subject to a sequestration order from the President. The FDA appropriations total in the bill would be reduced by $209 million once sequestered. Other Department of Health and Human Services (HHS) agencies and programs will be funded at FY 2012 levels, denying the department new funds requested by the Administration for programs such as federal health exchanges and fraud and abuse. The bill also rescinded $10 million from the Independent Payment Advisory Board (IPAB) and does not include new funding for the Internal Revenue Service (IRS) to implement various tax provisions of the Affordable Care Act (ACA). The bill, which originated in the House but was amended in the Senate, was passed by both chambers last week. President Obama signed the bill on Tuesday, March 26, avoiding a government shutdown. The previous bill providing funding for the federal government was set to expire on March 27, 2013. Overall, the bill should benefit the ophthalmic community, as FDAs device review process can now utilize the large increase in device user fee funding that was authorized in FDASIA last year. The full text of the bill can be found HERE.

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Supreme Court Hears Arguments in Pay-for-Delay Case On Monday, the Supreme Court heard oral arguments of the case Federal Trade Commission v. Watson Pharmaceuticals, Inc., which is the culmination of nearly ten years worth of litigation in lower courts to determine the legality of pay-for-delay settlements. In these arrangements, a brand name drug company pays a generic company to delay its introduction of the cheaper generic version of the drug. Both branded and generic drug makers have risen in favor of the practice, while consumer groups and the American Medical Association (AMA) have voiced support for the Federal Trade Commission (FTC), which seeks to end these arrangements. During the oral arguments, Deputy Solicitor General Malcolm Stewart, prosecuting on behalf of the FTC, said that such settlements should be considered anti-competitive, and charged the drug industry to prove otherwise. However, Justice Stephen Breyer suggested that courts should consider these arrangements on a case by case basis, and not presume that they are illegal. Jeffrey L. Weinberger, who argued in defense of the drug industry, was met with skepticism from judges such as Justice Elena Kagan, who suggested that such deals present an incentive for brand name and generic companies to split profits to the detriment of consumers. Justice Samuel Alito recused himself from the case, which could create the unusual possibility of a split decision on the final ruling, which is expected in June.

House and Senate Pass FY 2014 Budget Resolutions; Senate Passes Medical Device Tax Repeal and FSA Contribution Limit Repeal Budget Amendments This month, both the House and Senate passed budget resolutions outlining how each chamber would raise and spend federal revenues in FY 2014. Budget resolutions are non-binding pieces of legislation serving as a general framework for spending but not carrying the force of law. On March 20, the House passed the House Republican Budget plan (H. Con. Res. 25) proposed by House Budget Committee Chairman Paul Ryan (R-WI) by a vote of 221-207, largely along party lines. The House Budget would eliminate the deficit by 2023 through spending reductions of $5.7 trillion over the next decade. As in past years, the proposal would also phase in a premium support model for Medicare for beneficiaries age 54 and younger, estimated to save another $129 billion. For Medicaid, the House Budget would block grant federal funds for states. The resolution also repeals most parts of the Affordable Care Act (ACA), including new taxes, insurance exchange subsidies, and the Medicaid expansion. On the revenue side, the House Budget calls for revenue neutral tax reform which lowers rates and eliminates various tax expenditures to broaden the base. The Senate passed its budget resolution (S. Con. Res. 8) crafted by Senate Budget Committee Chairwoman Patty Murray (D-WA) on March 23. During the debate, Senators overwhelmingly supported an amendment offered by Senator Amy Klobuchar (D-MN) and Senate Finance Committee Ranking Member Orrin Hatch (R-UT) to include a repeal of the 2.3% medical device excise tax in the Senate budget plan. The amendment, which did not specify how the cost of repeal would be offset, was agreed to by a vote of 79-20, with 34 Democrats voting in support of the repeal. Although this amendment is non-binding and will not result in the repeal of the 1008 Upper Gulph Road Wayne, PA 19087

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tax, the large amount of bipartisan support serves as an important marker that could ultimately lead to a binding vote on repeal at a later date. Additionally, an amendment offered by Senator Mike Johanns (R-NE) to include the repeal of two restrictions placed on health savings accounts (HSAs) and flexible spending arrangements (FSAs) by the Affordable Care Act (ACA) in the Senate budget was accepted by voice vote. These restrictions included Section 9003 of the ACA which prohibits individuals from purchasing overthe-counter (OTC) medications with HSA funds without a prescription from a physician and Section 9005 of the ACA which imposed an FSA contribution limit of $2,500 per year. The amendment did not specifically provide an offset for the $8 billion cost to repeal these restrictions, but it did specify that repealing these restrictions should be done in a revenueneutral way.

CMS Clarifies Implementation of Sequester Cuts for Part A and Part B FFS Payments On March 8, the Centers for Medicare and Medicaid Services (CMS) issued a notice outlining how the agency will implement the 2% sequester cuts required by the Budget Control Act (BCA) for Medicare Part A and Part B Fee-for-Service (FFS) payments. CMS stated that, in general, Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013, will incur a 2% reduction in Medicare payment. Claims for durable medical equipment (DME), prosthetics, orthotics, and supplies, including claims under the DME Competitive Bidding Program, will be reduced by 2% based upon whether the date-of-service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013. Furthermore, this 2% payment adjustment will be applied to all FFS claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments.

MedPAC Releases Annual Report to Congress Including Payment Reform Recommendations On March 15, the Medicare Payment Advisory Commission (MedPAC) released its March 2013 report to Congress, which urged repeal of the Sustainable Growth Rate (SGR) and recommended payment cuts to home health agencies and skilled nursing facilities (SNFs). MedPAC is statutorily required to submit an annual report to lawmakers which outlines its recommendations for payment rate adjustments to Congress through the report, including fee-for-service (FFS) Medicare; Medicare Advantage (MA), including MA special needs plans (SNPs); and Part D. Also on March 15, MedPAC Chairman Glenn Hackbarth testified regarding the panels recommendations at a House Ways and Means Committee hearing. MedPACs recommendations for Congress included the following: Increase payment rates for the inpatient and outpatient prospective payment systems in 2014 by 1%. For inpatient services, Congress should also require the Secretary of Health and Human Services (HHS) to use the difference between the statutory update and the recommended 1% update to offset increases in payment rates due to documentation and coding changes and to recover past overpayments.

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Repeal the SGR system and replace it with a 10-year path of statutory fee-schedule updates. This path is comprised of a freeze in current payment levels for primary care and, for all other services, annual payment reductions followed by a freeze. MedPAC is offering a list of options for Congress to consider if it decides to offset the cost of repealing the SGR system within the Medicare program. For ambulatory surgical centers, MedPAC recommends no payment update for 2014 in an effort to maintain financial pressure for ASC providers to constrain costs. Additionally, MedPAC recommends that Congress requires ASCs to submit cost data, in order to more adequately inform future recommendations. MedPAC will assess this data along with quality data which was not required from ASCs until 2012 in making its future payment update recommendations for ASCs. The Ambulatory Surgical Center Association (ASCA) has come out strongly against this recommendation, suggesting that services in the ASC setting are paid at a disproportionate fraction of outpatient payment rates. MedPAC also recommends that HHS implement a value-based purchasing program for ASC services no later than 2016.Direct HHS to regularly collect data including service volume and work timeto establish more accurate work and practice expense values. Direct HHS to identify overprices fee-schedule services and reduce their relative value units (RVUs) accordingly.

The report also included status updates on MA and Part D. Additional recommendations as well as MedPACs rationale behind its recommendations are in the full report, which is available HERE.

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