The Trump Administration’s proposed fiscal year (FY) 2021 budget calls for significant cuts to federal health spending, including a 10% decrease in Department of Health and Human Services (HHS) discretionary spending in FY 2021 and a $1.6 trillion net reduction in health entitlements over the next decade. House Budget Committee leaders have blasted the HHS provisions, and the package as a whole is unlikely to be advanced by Congress. Nevertheless, the document reflects the Administration’s current Medicare and Medicaid priorities, some of which are administrative and could be advanced without Congress. Furthermore, Medicare provider/supplier cost-saving recommendations could be incorporated into future budget agreements or potentially other entitlement reform efforts down the road.
Highlights of the Trump Administration’s major Medicare and Medicaid budget proposals are presented below.
Medicare Payment Policies
The Administration estimates that its proposed Medicare legislative package would result in $756 billion in Medicare Trust Fund savings over 10 years (net impact after offsets of $450 billion/10 years). Many of the legislative recommendations have been made in previous budget proposals. Budget provisions that would result in significant net Medicare savings include the following (net savings figures are over the 10-year period of FYs 2021-2030):
- Elimination of the Medicare Advantage (MA) benchmark cap and quality “double bonus” for plans in eligible counties [$1.2 billion].
- Reform of hospital uncompensated care payments, including basing payments on a hospital’s share of charity care and non-Medicare bad debt [$87.9 billion].
- Establishment of site neutral payments between on-campus hospital outpatient departments and physician offices for certain services (e.g., clinic visits) [$2 billion] and payment for all off-campus hospital outpatient departments under the physician fee schedule [$47.2 billion].
- Adoption of a unified post-acute care system for skilled nursing facilities (SNFs), home health agencies, inpatient rehabilitation facilities, and long-term care hospitals (LTCHs) beginning in FY 2026, with reduced annual Medicare payment updates from FYs 2021-2025 [$101.5 billion].
- Elimination of Medicare reimbursement for disproportionate share hospital (DSH) bad debt, with an exemption for rural hospitals [$33.6 billion].
- Reduced Medicare payment for hospice services under the SNF routine home care level of care. [$4.5 billion].
- An increase in the intensive care unit minimum stay threshold from three days to eight days to qualify for LTCH prospective payment system payment [$9.4 billion].
- Expansion of the durable medical equipment (DME), prosthetics, orthotics, and supplies competitive bidding program to all geographic areas and to inhalation drugs, payment of contract suppliers based on their own bids, and elimination of the surety bid bond requirement [$7.73 billion Medicare savings, $435 million in Medicaid savings]. Separate from the bidding program, the Centers for Medicare & Medicaid Services (CMS) would be authorized to update DME rates based on retail prices through rulemaking, without using the inherent reasonableness process [$1.6 billion Medicare savings, $85 million in Medicaid savings].
Other legislative proposals are intended to promote value-based care; in some cases, these proposals also would result in cost savings. For instance, the budget proposes the following:
- Basing Medicare beneficiary accountable care organization assignment on a broader set of non-physician primary care providers [$80 million].
- Consolidation of the four Medicare inpatient hospital quality programs into a single hospital quality payment program [budget neutral].
- Implementation of hospital outpatient department and ambulatory surgical center (ASC) value-based programs, with 2% of payments linked to quality/outcomes performance. Payment would be risk adjusted based on patient diagnosis severity to promote site neutrality [budget neutral].
- Creation of a risk-adjusted monthly Medicare Priority Care payment for providers eligible to bill for evaluation and management (E/M) services who provide ongoing primary care to beneficiaries. The payment would be funded by a 5% annual cut in valuations of non-E/M services [budget neutral].
Medicare Transparency, Quality, Coverage, and Benefits
The budget includes a series of proposals intended to increase access to price and quality information and/or clarify Medicare coverage and payment processes. For instance, the budget would:
- Allow the Secretary to impose civil monetary penalties (CMPs) or other intermediate remedies on hospices and other post-acute care facilities.
- Establish a statutory demonstration program to test comprehensive hospital wage index reform.
- Authorize CMS to publish survey results for all accredited facilities, including hospitals, hospices, ASCs, outpatient physical therapy and speech language pathology services, and rural health clinics.
- Provide CMS with additional flexibility to waive a disapproval of nursing home’s Nurse Aid Training, Competency, and Evaluation Program.
- Allow Medicare to cover innovative non-DME alternatives to treat and manage diabetes; such items would be subject to competitive bidding and payments would be capped at the rate for their DME counterparts.
- Eliminate Part B coinsurance for screening colonoscopies that result in removal of a polyp.
In addition, the budget proposes to “Protect Life and Lives” by implementing the Administration’s Advancing American Kidney Health initiative, enhance Medicare payment for rural health providers, and promoting telehealth.
Removing Regulatory Burdens
The budget includes legislative and regulatory proposals designed to eliminate “unnecessary and onerous billing and oversight requirements.” Among other things, the Administration proposes to:
- Establish a process for physicians to self-report inadvertent, technical non-compliance violations of the physician self-referral law (Stark law). The budget also would exclude physician-owned distributors (PODs) from the Stark indirect compensation exception if physician owners generate more than 40% of the POD’s business.
- Simplify eligibility requirements for Advanced Alternative Payment Model and Merit-based Incentive Payment System physician incentive payments.
- Authorize CMS to waive the face-to-face provider visit requirement for DME orders, and eliminate the requirement that physicians certify that all critical access hospital patients are reasonably expected to be discharged or transferred within 96 hours of admission.
- Align the End Stage Renal Disease Quality Incentive Program with CMS’s Meaningful Measures initiative and clarify dialysis facility survey requirements.
The budget also includes a package of legislative proposals intended to improve the Medicare appeals process. According to the Administration, the proposals would “accelerate the elimination of the backlog of appeals at the Office of Medicare Hearings and Appeals by the end of FY 2022 and will prevent a resurgence of appeals at all levels into the future.”
Medicare Administrative Proposals
Medicare administrative proposals that HHS plans to implement in FY 2021 include the following:
- Acceleration of the phase-in of a new MA risk adjustments model.
- Sub-regulatory guidance on CMS’s coverage evidence standards and its coverage appeals process.
- Establishment of an Innovation Center model to test episodic bundled payment arrangements for certain “high value devices” under which the device manufacturer would bear risk.
- Improvements to the FDA/CMS parallel review process to encourage device manufacturer participation and increase transparency.
“Cross-cutting” legislative proposals that impact multiple programs and HHS agencies include:
- A commitment to lowering drug prices. Rather than set forth specific drug payment reforms as it did last year, however, the proposed FY 2021 budget includes an “allowance” for $135 billion in savings over 10 years attributable to “bipartisan drug pricing proposals.” The Administration restates its general support for efforts to reduce Medicare Part D cost sharing, promote generic and biosimilar drugs, “legislative efforts to ensure manufacturers pay an appropriate share of Medicaid rebates,” and “innovative Medicaid drug payment arrangements.”
- Consolidation of federal graduate medical education programs and reform of the payment distribution formula [$52.2 billion in government-wide savings].
- Various medical liability reforms [$40.3 billion in government-wide savings].
Program Integrity Proposals
The budget also features HHS program integrity legislative proposals that the Administration estimates would save more than $31 billion over 10 years, in addition to a number of related regulatory proposals. For instance, the budget proposes:
- Expanding prior authorization (PA) requirements to all Medicare fee-for-service items and services. The Administration states that “CMS will target this authority toward items and services that are at high risk for fraud and abuse, such as inpatient rehabilitation facilities.” The budget also would establish a PA program for high utilization practitioners of radiation therapy, therapy services, advanced imaging, and anatomic pathology services, and test the use of PA for certain “low value” services (i.e., health services that are unlikely to improve health or that potentially harm patients).
- Authorizing the Secretary to assess an administrative penalty on providers for ordering high-risk, high-cost items or services without proper documentation.
- Establishing MA pre-payment review to confirm diagnoses submitted by MA organizations with the medical record prior to CMS making risk-adjusted payments.
- Authorizing CMPs for failure to report changes to information provided during enrollment or revalidation, and extending the period of enhanced oversight for new providers and suppliers.
- Preventing providers who have been terminated from Medicare for patient harm or neglect from reenrolling for a period of one-to-three years.
- Requiring providers and suppliers to report during Medicare enrollment whether they use clearinghouses and billing agents to process their claims so CMS can track these entities.
- Requiring PODs to report under the Open Payments program.
- Requiring providers and suppliers to produce Part B records to support Part D investigations or audits.
- Removing the requirement for CMS to expand the Recovery Audit Program to Medicare Parts C and D to “more efficiently use program integrity resources.” Plan sponsors would be required to report fraud and abuse incidents and corrective actions. Additionally, participation in the Medicaid Recovery Audit Contractor Program would be optional for states.
- Establishing a demonstration to test the use of a benefits manager for serial/refill DME claims.
- Implementing targeted medical review requirements for chiropractic services.
- Allowing Medicaid Fraud Control Units to receive federal matching funds for investigation of abuse and neglect of a beneficiary in non-institutional settings, such as home-based care.
The Administration once again calls for sweeping reforms to Medicaid administration and financing, which the Administration projects would save $920 billion over 10 years. Notably, the budget calls for allowing states to choose between a per-capita cap or a block grant, and allowing states to require “community engagement” (i.e., a work requirement) for “able-bodied, working-age individuals.” These policy options were also included in a recent CMS Medicaid “Healthy Adult Opportunity” demonstration program, as discussed our recent blog post. Note that earlier this month the D.C. Circuit unanimously affirmed a district court’s judgment that the HHS Secretary acted in an arbitrary and capricious manner by approving a demonstration waiver imposing work requirements on Medicaid beneficiaries, so the prospects of broader implementation of a Medicaid work requirement is in doubt.
Other notable Medicaid provisions would:
- Extend through FY 2030 Medicaid DSH allotment reductions [$32.4 billion]. The budget also would clarify treatment of third-party payments to Medicaid beneficiaries when calculating uncompensated care costs under Medicaid DSH limits.
- Give states the option to establish a Money Follows the Person program with a time limited enhanced federal match to promote home and community based services [$91 million].
- Set minimum standards for drug utilization review programs to increase oversight of opioid prescriptions and dispensing in the Medicaid program [$205 million].
- Reduce maximum allowable home equity limits for purposes of determining eligibility for Medicaid long-term care coverage [$34.3 billion].