March 13, 2019

Proposed Budget Would Reduce HHS Spending

Holland & Knight Healthcare Blog
Miranda A. Franco

President Trump's budget was released yesterday as the fiscal year (FY) 2020 appropriations process ramps up. The FY 2020 budget requests $87.1 billion in discretionary funding for the U.S. Health and Human Services Department (HHS), down 11.9 percent from fiscal year (FY) 2019.

HHS Secretary Alex Azar and Acting Office of Management and Budget (OMB) Director Russell Vought testified on March 12, 2019 before the health subcommittee of the House Committee on Energy and Commerce and will testify on March 13 before a subcommittee of the House Committee on Appropriations to justify the President's request. A budget resolution doesn't have the force of law, so it traditionally serves as an aspirational document. The budget is unlikely to advance in Congress. However, it does provide a blueprint on how the administration seeks to handle healthcare issues. Notably, it is likely; the administration will seek to advance some of these proposals through rulemaking, e.g., site neutrality.

Regarding Medicare, the budget proposal calls for significant cuts in federal Medicare spending over ten years. These cuts would in part stem from lower payments to hospitals and a renewed focus on targeting fraud and abuse in the program. Also, the budget proposal calls for reducing Medicare's uncompensated care payments for services provided to non-Medicare beneficiaries beginning in FY 2021. Medicare typically reimburses 65 percent of hospital providers' bad debts that come from beneficiaries' deductibles and coinsurance that go unpaid. The budget includes a proposal to reduce that reimbursement over three years to 25 percent. Rural hospitals with fewer than 50 beds, critical access hospitals, rural health clinics and Federally Qualified Health Centers (FQHCs) would be exempt.

The budget proposal also calls for "realigning incentives through site-neutral payment reform," including removing current exemptions for site-neutral payments implanted under the Bipartisan Budget Act of 2015. The budget-in-brief contains a proposal to pay all off-campus hospital outpatient facilities under the physician fee schedule in 2020 for services also performed in a doctor's office -- including emergency departments, cancer hospitals and those exempted from current site neutrality requirements.

Meanwhile, the budget proposes increasing Medicare payments for certain primary care services through a risk-adjusted Medicare Priority Care payment beginning in FY 2021. The payment would be funded by a 5 percent annual cut to all non-E/M services and procedures in the physician fee schedule.

Regarding Medicaid, the budget would eliminate $1.5 trillion in funding for Medicaid expansions under the Affordable Care Act (ACA) and redirect a portion of those funds to provide Medicaid funding to states via block grants beginning in 2021. The proposal requires states to spend at least ten percent of their Medicaid and other block grant funding on ensuring protections for high-cost individuals in the healthcare marketplace. According to the budget- in-brief, policies on work requirements, non-emergency medical transportation (NEMT), and ER copays have all been approved in some states. The administration is now pushing to expand all three of those policies significantly. The administration proposes to alter non-emergency transportation benefits through regulations alone. The budget states CMS will rewrite the regulations so that NEMT will be an optional rather than mandatory benefit. Also, the budget proposes to give states the option to amend their state Medicaid plans to charge higher copays for the non-emergency use of hospital EDs.

Regarding drug pricing, the budget contains some proposals to lower prescription drug costs. These proposals will likely require additional rulemaking or legislative changes before being effective. Proposals include: modernizing the Part D benefit by increasing formulary flexibility, eliminating cost-sharing on generic drugs for low-income subsidy (LIS) beneficiaries, applying rebates at the point of sale and establishing an out-of-pocket max in the catastrophic phase. The proposal also recommends modifying Part B by limiting Medicare drug payment increases to inflation, reducing payment for new drugs from 106 percent to 103 percent WAC, moving certain drugs from Part B to D and requiring all manufacturers to report Average Sales Price (ASP) data.

The budget also requests new demonstration authority for state drug coverage and payment reforms in five states, as well as proposals to make the development of generic drugs faster.

Regarding opioids, the budget contains an additional $4 million to increase the number of providers who can supply medication-assisted treatment.

Regarding the Veteran's Administration, the budget proposal calls for $80.2 billion in FY 2020 discretionary funding for the VA's health system to fund implementation of the VA MISSION Act of 2018.

The budget also includes $500 million in funding devoted to childhood cancer research, $291 million to eliminate most new HIV infections within five years and 90 percent within ten years.

Additional proposals include:

  • Allowing beneficiary assignment to ACOs, starting in 2020, based on a broader set of primary care providers such as nurse practitioners, physician assistants, and clinical nurse specialists;
  • Merging the Inpatient Quality Reporting Programs, Hospital Value-Based Purchasing Program, Hospital-Acquired Condition Reduction Program, and Hospital Readmissions Reduction Program into one program;
  • Setting up a value-based purchasing program for outpatient hospitals and ambulatory surgical centers and risk adjusting payments to those providers;
  • Medicare flexibility to cover non-durable medical equipment for the treatment of diabetes;
  • Significant reduction in the Public Health Service Commissioned Corps staffing levels and creation of a Reserve Corps; and
  • A new user fee on e-cigarettes to address the "vaping" epidemic.

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