The Treasury Department and HHS released the 2016 Medicare Trustees report earlier today, and to the relief of many, the Independent Payment Advisory Board (IPAB) was not triggered. As a refresher, IPAB was created by the Affordable Care Act to make recommendations to keep Medicare spending growth below specified targets. Under current law, IPAB’s responsibilities are “triggered” when Medicare spending is expected to exceed a certain target. Congress has the ability to override IPAB recommendations, but must reduce Medicare spending to the same degree. In the absence of action by either IPAB or Congress, the Centers for Medicare and Medicaid Services (CMS) has authority to implement payment changes. IPAB members – of which there are currently zero – must be appointed by the President and confirmed by the Senate.

Manufacturers, Providers (and Probably Congress) Breathe a Sigh of Relief – For Now

If you felt a slight breeze around 10:30 am this morning, that could have been the collective sigh of relief from manufacturers, providers, Wall Street, Congress, and health policy wonks that IPAB would not be triggered this year. However, digging down to Table V.B2 on page 182 of the report shows the projection that the relief may be only temporary: next year, Medicare spending growth is projected to be 2.82%, 0.2% higher than the IPAB target growth rate of 2.62%.

So what happens then? IPAB would begin to develop recommendations to reduce Medicare spending, which would be due to the President and Congress by January 15, 2018. If there is no IPAB, or IPAB fails to submit recommendations, HHS would need to submit recommendations by January 25, 2018. Congress would then have the opportunity to overturn the recommendations, which wouldn’t take effect until October 1, 2018 for hospitals and January 1, 2019 for physicians and other providers (including physician-administered drugs).

November Elections Complicate Predictions for Next Steps

Of course, all of this happens after a new President and Congress are sworn in. If Republicans maintain control of Congress and take control of the White House, it is highly unlikely that any action on IPAB is taken. If Democrats maintain control of the White House and win control of the Senate, it is possible that members of IPAB could be nominated and confirmed before June 2017. In the absence of a functioning IPAB, responsibility would fall back on HHS and CMS to determine recommendations. Congress could, of course, overrule any recommendations before they are scheduled to take effect in late 2018 and early 2019.

Finally, IPAB may end up not being “triggered” at all. The projected spending growth is only 0.2% higher than the IPAB target; it is possible that once spending projections are updated with more current data, the target is not exceeded at all.

Prescription Drug Spending Growth Outpaces Other Medicare Expenditures

Per-beneficiary spending growth has averaged 1.4% since 2011, lower than both the growth in per-capita GDP (2.9%) and overall per-capita health expenditures (3.4%) over the same time period. Looking forward, per-beneficiary spending growth is projected to continue to lag per-capita national health expenditures over the next five years, 4.3% to 4.9%.

However, prescription drug spending continues to outpace other Medicare expenditures. Through 2025, the Trustees estimate that per-enrollee Part D expenditures will increase 5.8% annually, while per-enrollee growth rates in other Medicare spending are projected to increase 4% annually. Independent of action by IPAB, this may increase pressure on CMS to look for other ways to reduce spending on prescription drugs: the proposed Part B demo is one possibility.

Part A Trust Fund Estimated Depletion Date is Moved Up to 2028, but Payroll Taxes Would Continue to Cover 86% of Benefits

The report also predicts that the Part A trust fund – which is funded via payroll taxes and pays for inpatient hospital benefits – will be depleted in 2028, two years earlier than last year’s prediction of 2030. Claims that Medicare would be “bankrupt” at that point are somewhat disingenuous: Trustees predict that incoming payroll taxes would be sufficient to cover 86% of scheduled benefits. The report also notes that, in 2009, prior to the passage of the Affordable Care Act, the predicted depletion date of the trust fund was 2017.