United States: Trump Administration's Proposed FY 2019 Budget Targets Medicare, Medicaid For Savings, Seeks (Again) To Repeal/Replace ACA

Last Updated: February 20 2018
Article by Debra A. McCurdy

The Trump Administration has released its fiscal year (FY) 2019 budget proposal, which includes extensive health policy provisions. While most of the President's policy proposals for Department of Health and Human Services (HHS) programs would require Congressional approval, others are characterized as administrative proposals that presumably would not involve Congress.

President Trump once again seeks to "repeal and replace" the Affordable Care Act (ACA). This year's budget calls for a "Market-Based Health Care Grant Program" (modeled on pending Graham-Cassidy-Heller-Johnson legislation) as an initial step to help states stabilize their insurance markets during a transition period. The second step of the plan would repeal the ACA's Medicaid expansion and significantly restructure Medicaid by allowing states to choose between a per capita cap or a block grant. The Administration estimates that these provisions would save $679.7 billion over 10 years, although the Medicaid cuts would total almost $1.4 trillion over 10 years. The budget also proposes a mandatory appropriation for cost-sharing reduction payments to plan sponsors for FYs 2018 through the end of calendar year (CY) 2019, and full funding of the Risk Corridors Program, including exempting the program from sequestration (an $812 million spending increase in FY 2018).

The budget proposal also includes numerous Medicare policy reforms that would save $493.7 billion over 10 years. Many of these reforms involve cuts in Medicare provider reimbursement, including the following proposals (budget savings figures are over the 10-year period of FYs 2019-2028):

  • A new process to distribute uncompensated care payments to hospitals based on share of charity care and non-Medicare bad debt [$69.5 billion];
  • A unified post-acute care system for skilled nursing facilities (SNFs), home health agencies (HHAs), inpatient rehabilitation facilities, and long-term care hospitals beginning in 2024 [$80.2 billion].
  • A reduction in Medicare reimbursement of bad debt from 65% to 25% over three years beginning in FY 2019 [$37.0 billion].
  • Elimination of all exemptions to the hospital outpatient site-neutral payment policy effective CY 2019 [$34.0 billion].
  • An expansion of the durable medical equipment (DME) competitive bidding program to all areas of the country. The proposal also would reimburse contract suppliers based on their own bids rather than a single payment amount [$6.5 billion].
  • Establishment of a hospital transfer policy for cases in which Medicare beneficiaries have a shorter-than-average hospital stay prior to being transferred to hospice [$1.3 billion].
  • Implementation of a new HHA patient case-mix classification methodology [$16.7 billion].
  • Consolidation of federal spending for graduate medical education programs [$195.0 billion in Medicare savings, plus additional savings in other HHS program areas].

Other proposals aim to streamline Medicare program rules for providers and suppliers. For instance, the budget calls for: relaxing Medicare meaningful use program requirements for hospitals and physicians; simplifying Merit-based Incentive Payment System (MIPS) rules and Advanced Alternative Payment Model (APM) bonus rules for physicians; authorizing CMS not to impose the requirement for a face-to-face provider visit for all DME orders; authorizing the Secretary to adjust statutorily-required survey frequencies for top-performing SNFs and shift resources to strengthen oversight of poor performing facilities; and various reforms to the Medicare appeals process. The budget also proposes a new exception to the physician self-referral law for arrangements that arise due to participation in Advanced APMs. Furthermore, several provisions are intended to boost accountable care organizations (ACOs), including a proposal to allow ACOs to pay beneficiaries for a primary care visit.

The budget plan calls for various Medicaid program changes impacting providers, including: an extension of Medicaid disproportionate share hospital allotment reductions; a cap on Medicaid reimbursement to health care providers that are operated by a unit of government to an amount that does not exceed the provider's cost of providing services to Medicaid beneficiaries; and various proposals to enhance the flexibility of states in administering their Medicaid programs.

Another area of emphasis in this year's budget proposal is reducing prescription drug prices, although there is debate regarding the potential effectiveness of the Administration's approach. Among other things, the budget would:

  • "Modernize" the Medicare Part D benefit by: requiring Part D sponsors to apply at least one-third of total rebates and price concessions at the point of sale [$42.2 billion in additional spending]; increasing plan sponsor liability for in the catastrophic phase [$7.4 billion in additional spending]; excluding manufacturer discounts from the calculation of beneficiary out-of-pocket costs during the coverage gap [$47.0 billion]; revising formulary standards [$5.5 billion]; and eliminating cost sharing for generic drugs for low-income enrollees [$210 million]. The budget also would permanently authorize a current pilot allowing retroactive Medicare Part D coverage for low-income beneficiaries while their eligibility is processed [$300 million].
  • Modify Medicare Part B drug policy by: limiting Part B payment increases to the consumer price index increase; for drugs paid based wholesale acquisition cost (WAC), reducing the WAC add-on from 6% to 3%; and authorizing the Secretary to consolidate certain drugs currently covered under Part B into Part D [budget impact not available]. The budget also would require all Part B drug manufacturers to report ASP data and authorize the Secretary to apply penalties to manufacturers that do not report required data [no budget impact].
  • Establish new standards for hospitals to receive redistributed savings resulting from reduced payment for outpatient drugs purchased through the 340B discount drug program, based on the hospital's level of uncompensated care [budget impact not available].
  • Reduce Medicaid drug spending by: establishing a Medicaid demonstration to test coverage and financing reforms that build on private sector best practices [$85 million]; clarifying Medicaid drug rebate program definitions to ensure consistency in classifying drugs for rebate purposes [$319 million]; requiring state Medicaid to cover all FDA-approved Medication Assisted Treatments for opioid use disorder [$865 million in savings]; and establishing minimum standards for Medicaid drug utilization review programs [$245 million].

Other drug-related policy proposals include: numerous provisions intended to address opioid abuse; 340B program integrity reforms (including enforceable program participation standards and reporting requirements); extension of Medicare secondary payer reporting requirements to prescription drug coverage; and changes to generic drug exclusivity policy.

The Trump Administration budget also features numerous program integrity provisions. For instance, the budget calls for: a $45 million increase in Health Care Fraud and Abuse Control funding; expanded prior authorization requirements for high utilization practitioners of radiation therapy, therapy services, advanced imaging, and anatomic pathology services; expansion of the items of DME, prosthetics and orthotics that are subject to prior authorization; a demonstration to test the use of a benefits manager for serial/refill DME claims; a requirement that clearinghouses and billing agents enroll in Medicare; and the addition of the National Provider Identifier of covered recipients on the public Open Payments website. The budget also calls for an amendment to the physician self-referral statute to exclude physician-owned distributors (PODs) from the indirect compensation exception if more than 40% of the POD's business is generated by physician-owners.

The sweeping plan covers many other HHS issues, such as FDA approval of drugs and devices, funding to address the opioid crisis, and support for biomedical research at the National Institutes of Health. Congressional committees have begun holding oversight hearings on the HHS budget proposals. Additional consideration of the President's recommendations – and alternative health policy proposals – can be expected throughout the FY 2019 budget cycle.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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