Continuous Policy Improvement and the Inflation Reduction Act

Back in the late 1980s, Dr. Donald Berwick led a revolution in how the US medical care sector addressed quality by advocating the adoption of “continuous quality improvement” (CQI) as a tool to make medical care better.¹ Most of today’s essential quality tools, from Six Sigma to Lean Process Improvement and beyond, are parts of CQI’s heritage.

As a young state representative in the 1980s and 1990s with a deep interest in health policy, I embraced CQI and adapted its central idea: plan→do→study→act (the PDSA improvement cycle) to the process of making public policy, referring to it as “continuous policy improvement” or CPI.² The steps are: 1. Plan a process improvement intervention. 2. Do it. 3. Study the results, using rigorous data. 4. Act on learnings and do the cycle again. Just as CQI helps to improve medical care delivery, CPI can help to understand and improve public policy.

The newly signed Inflation Reduction Act (IRA) can be seen as an exercise in continuous policy improvement involving two key parts of federal health law: Medicare and the Affordable Care Act (ACA). Applying CPI to the new IRA offers both good and bad news. The good news is that many worthy provisions left out of the IRA may still happen, and eventually will. The bad news is that the process takes so terribly long, even for obviously needed reforms.

Medicare and the IRA

Many popular ideas, such as adding dental, vision, and hearing benefits to Medicare, were left on the cutting room floor in crafting the final IRA. Others, such as lowering the age of eligibility to 60, were abandoned early. Addressing excess spending and insurer manipulation in the Medicare Advantage (Part C) program, big potential cost-savers that could have financed the above listed improvements, were too controversial with a Congress so narrowly divided.

Involving Medicare, the IRA mostly addresses prescription drug cost control. Back in 1965, Medicare’s creators worried that outpatient drug coverage would be too expensive and inflationary, and so omitted that benefit. In 2003, President George W. Bush and Republican Senate and House majorities finally created an outpatient drug benefit in the Medicare Modernization Act, including statutory prohibitions on price negotiations and other spending controls. In the ACA of 2010, Obama Administration officials and Senate leaders negotiated a deal with drug industry leaders to leave price regulations out in exchange for $90 billion in price concessions and political support for the bill’s passage.

Since 2010, drug costs have increased markedly for the federal and state governments, employer health plan sponsors, and most consumers. Slowly, Democrats solidified a united front to confront drug industry spending, while Republicans embraced industry opposition as well as their ultra-generous campaign donations. Donald Trump, first as a candidate and later as President, repeatedly lambasted the drug industry but failed to deliver any meaningful reforms.

The window of opportunity for price controls opened in January 2021 with a razor-thin Democratic “trifecta”—simultaneous one-party control of the White House, Senate, and House. From the start, drug price controls were included in every version of President Joe Biden’s “Build Back Better” legislation, even as the entire package was left for dead as recently as this past June. When Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) announced their surprise deal in late July, drug spending and price controls survived. Stark warnings of political retaliation from the Pharmaceutical Research and Manufacturers of America’s (PhRMA) President Steve Ubl were unable to block final passage this month.

The legislation signed by President Biden includes several unprecedented Medicare policies:

• The US Department of Health and Human Services will negotiate prices for 10 expensive drugs beginning in 2026, increasing to 15 and then 20 drugs annually by 2029. New drugs are exempt for the first nine years, and new biologic drugs for 12 years ($99 billion savings).
• Pharmaceutical companies will reimburse the federal government for price increases on existing drugs above the rate of inflation ($62 billion savings).
• Consumer prices for Medicare insulin users will be capped at $35 per month.
• Out-of-pocket (OOP) drug spending for Medicare enrollees will be capped at $2,000 annually, versus the current uncapped OOP spending.

And there’s lots more in the fine print. In their initial final version, Senate Democrats applied the $35 insulin cap and the $2,000 OOP cap to commercially insured persons. Senate Republicans raised parliamentary objections to both, which were upheld by the Senate parliamentarian for violating the Senate’s strict budget reconciliation rules. Had Republicans not objected, both provisions would have been included in the final legislation sent to President Biden’s desk. A major opportunity for comprehensive drug pricing control, public and private, was missed.

PhRMA’s Ubl has relevant experience here. During the 2010 ACA process, Ubl led AdvaMed, the medical device industry’s trade association, which fiercely opposed the ACA’s medical device tax. The tax ultimately was repealed by Congress in 2019. We should expect him to replay that fighting stance now, including court challenges, big donations to the IRA’s Republican opponents, and more. The Medicare drug pricing components are a major public policy achievement, and the fighting is far from over. PhRMA has never lost a major federal policy battle until now.

One final point on Medicare. In its 58-year history, the program has achieved access expansions followed later by cost controls. In its initial form, the program had no effective spending controls on any providers. That ended in 1983 when Congress and President Ronald Reagan established the Medicare Prospective Payment System, followed in subsequent years by financial controls on physicians, home health providers, and so on. It took 18 years for the federal government to impose hospital cost controls. It also took 19 years for the government to begin reining in prescription drug costs following the 2003 creation of the Part D drug benefit. Some patterns just don’t change.

The ACA and the IRA

In the late 1940s, expanding health insurance to all or many uninsured Americans was a priority for President Harry Truman, as it was for subsequent presidents – Lyndon Johnson, Richard Nixon, Bill Clinton, Barack Obama, and now Joe Biden. Over the past 72 years, attempts by Presidents Truman, Nixon, and Clinton to achieve comprehensive universal coverage all failed, while incremental attempts by Presidents Johnson, Clinton (the Children’s Health Insurance Program—CHIP), Obama, and Biden all succeeded. Like it or not, US history teaches that attempts at comprehensive health reform have always failed, and incremental coverage efforts, despite their flaws, have succeeded—up to now and including the IRA.

Both LBJ’s 1965 establishment of Medicare and Obama’s 2010 ACA were doggedly incremental and transformational at the same time. The ACA’s most original component established health insurance “exchanges” or marketplaces in each state to enable consumers and small businesses to purchase guaranteed coverage including 10 “essential” benefits. While the ACA empowered low-income consumers to obtain Medicaid (except in 12 rejecting states—see Sarah Rosenbaum’s essay), consumers with incomes between 100% and 400% of the federal poverty line (FPL) were enabled to purchase private coverage helped by sliding scale federal subsidies based on household income.

Because of legislative spending targets, the ACA lacked sufficient funding to make private coverage sufficiently affordable, a shortfall that left millions of eligible enrollees uncovered. ACA crafters had hoped that Congress would enhance the subsidies prior to a full launch in 2014. However, the Republican takeover of the House in 2011 ended that aspiration, as the Republicans focused on full ACA repeal. In 2017, with a comfortable Republican trifecta, President Donald Trump strenuously pushed to “repeal and replace” the ACA and achieved nothing from that effort beyond mobilizing the American public to defend and protect the law.

In 2021, President Biden led his own narrow trifecta to pass the American Rescue Plan Act (ARPA) that, with zero Republican support, expanded ACA subsidies to genuinely affordable levels, though only for 2021 and 2022. The expanded subsidies, which included financial assistance for households with incomes over 400% of the FPL, brought an additional 3 million enrollees into ACA coverage. The chart shows the subsidy structure under the ACA (“Prior Law”) and as amended by ARPA. ³

ACA vs. ARPA Required Contributions as % of Household Incomes

Source: Kaiser Family Foundation, 2021

Extending the enhanced subsidies beyond 2022 became an early, lasting priority in Biden’s “Build Back Better” legislation. The IRA includes a 3-year extension through the end of 2025, at a cost of $62.3 billion. Once again, we have good and bad news. The good news is the avoidance of an affordability cliff that could have wiped out affordable coverage for 3 million vulnerable Americans. The new ACA cost structure now has 3 more years to become embedded. The bad news is that this support will end in December 2025 unless further extended. To embed this structure permanently would have required 10 years of continuation at a cost of $300 billion, an amount infeasible in the scaled back IRA.

Berwick’s 1989 article was titled “Continuous Improvement as an Ideal in Health Care.” Some 33 years later, it is still an ideal. This is also true in health policy. The IRA will advance continuous policy improvement in American health policy, enabling millions of ordinary Americans to realize enhanced health security. Still, nothing is guaranteed beyond the certainty of rewards and risks, as well as advances and setbacks, on the road to a more secure future. We still have so much more work to do.

References

1. Berwick, D. “Continuous Improvement as an Ideal in Health Care.” New England Journal of Medicine. January 5, 1989; 320:53-56
2. See McDonough, JE. “Health System Reform in the United States.” Int J Health Policy Management. 2014 Jan; 2(1): 5–8.
3. Pollitz, K. “How the American Rescue Plan Will Improve Affordability of Private Health Coverage.” Kaiser Family Foundation. March 17 2021.

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