House Repeals IPAB, Passes Malpractice Damages Cap

March 22, 2012

March 22, 2012 — Much to the applause of organized medicine, the GOP-controlled House today passed a bill repealing a controversial Medicare cost-control mechanism in the Affordable Care Act (ACA) and instituting tough medical liability reforms such as capping noneconomic damages at $250,000. The vote was 223-181.

Once the applause dies down, however, the bill faces bleak prospects in a Democrat-controlled Senate, and President Barack Obama has threatened to veto it if necessary. At the very least, House Republicans set off a symbolic cannonade of opposition to the ACA on the eve of Supreme Court hearings to be held next week on the law's constitutionality.

The cost-control mechanism that Republicans and organized medicine seek to eliminate is the Independent Payment Advisory Board (IPAB), which will consist of 15 healthcare experts, including physicians. Under the ACA, the IPAB would advise Congress on ways to curb the per capita growth of Medicare spending if it exceeds growth rate targets set by the law. The growth rate target initially will be the average of the consumer price index for urban residents and the consumer price index for medical costs. In 2018, it changes to growth in the gross domestic product (GDP) plus 1%.

The American Medical Association (AMA) and other medical societies say the IPAB could cut already parsimonious Medicare rates along the lines of the program's sustainable growth rate (SGR) formula, which links reimbursement to spending growth. The SGR formula will trigger a Medicare pay cut of roughly 30% on January 1, 2013, unless Congress acts to avert it. The AMA complains that potential IPAB cuts represent a "double whammy." Furthermore, the IPAB would wield too much power as a collection of unelected officials with little accountability to Congress, according to the AMA.

House Republicans share those concerns, and they also warn that the IPAB might ration healthcare, although the ACA expressly prohibits the board from doing that.

In contrast, the Obama administration has proposed strengthening the IPAB for the sake of reducing Medicare outlays while improving care in the process. In February, Obama released a deficit reduction plan that would lower the spending target in 2018 to GDP growth plus 0.5%.

In a statement released today by the AMA, Jeremy Lazarus, MD, the organization's president-elect, praised the repeal of the IPAB.

"While the AMA continues to support the ACA...elimination of the IPAB is an important change that must be made," Dr. Lazarus said. "This new, arbitrary system is not what we need when patients and physicians are already struggling with a looming cut of nearly 30% from the broken Medicare physician payment formula."

Tort Reforms Offset Cost of IPAB Repeal

Dr. Lazarus said the AMA also is "very pleased" with the other prong of the bill passed in the House today that institutes tort reforms designed to discourage frivolous malpractice suits and reduce costly defensive medicine. The centerpiece of these reforms, a $250,000 limit on noneconomic or pain and suffering damages, has already been enacted in several states, including California and Texas, and is credited with stabilizing malpractice insurance premiums there.

The legislation also would, among other things:

  • cap punitive damages at $250,000 or 2 times the award for economic damages, whichever is greater;

  • replace "joint-and-several" liability, which makes any defendant in a lawsuit liable for all the damages, with a fair-share rule that sets a defendant's damages in proportion to his or her share of responsibility for the injury;

  • allow defendants to inform juries of workers compensation payments and other outside benefits for injured parties that could be subtracted from jury awards;

  • set the statute of limitations for filing a malpractice suit at a maximum of 3 years, with more lenient terms for injured children younger than 6 years; and

  • limit how much of a jury verdict plaintiffs' attorneys can receive in the form of contingency fees.

"The AMA has long supported the comprehensive medical liability reforms contained in [the bill]," said Dr. Lazarus. "We know that these reforms are already working in states such as California and Texas, and implementing them on the federal level will help reduce costs and preserve access to physician care for all patients."

House Republicans have pushed for this set of tort reforms for 10 years. However, they had another motive besides addressing medical liability when they approved them today. The Congressional Budget Office (CBO) estimates that repealing the IPAB with its anticipated savings would increase federal spending by $3.1 billion from 2013 to 2022. To avoid adding $3.1 billion to the federal deficit, House Republicans needed to offset this amount with savings elsewhere in the budget. The tort reform measures accomplish that, reducing the deficit by an estimated $48.6 billion from 2013 to 2022, according to the CBO.

The inclusion of tort reform in the House bill increases the odds of its demise in the Democrat-controlled Senate, which has viewed caps on noneconomic damages and other GOP-favored measures as an encroachment on the jury system.

Taking the same stance, the Obama administration issued a statement earlier this week saying that the bill would "establish inappropriate and harmful restrictions on healthcare lawsuits" and deny injured patients "just compensation." In addition, the bill falls short of meeting such goals as reducing preventable injuries and improving the quality of care, the administration stated.

Plaintiffs' attorneys are quick to note that reducing actual malpractice is the best way to reduce the number of malpractice suits.

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