The Trump Administration’s proposed fiscal year (FY) 2020 budget includes extensive health policy provisions – as evidenced by the 162-page Department of Health and Human Services (HHS) “Budget in Brief.” This summary focuses on the major Medicare and Medicaid proposals most directly impacting providers and suppliers; note that we discuss the Administration’s proposed prescription drug reimbursement provisions in a separate blog post.

Medicare, Value-Based, and Related Reforms

The Administration estimates that its Medicare policy reforms would save approximately $811 billion over 10 years. The Administration states that these proposals are “designed to improve value-based systems of care, exercise fiscal integrity, promote competition, reduce provider burdens, improve the appeals system, and address high drug prices.” Budget provisions that would result in significant Medicare savings include the following (savings are over the 10-year period of FYs 2020-2029):

  • A new process to distribute uncompensated care payments to hospitals based on share of charity care and non-Medicare bad debt. [$98.0 billion net]
  • Site neutral payments between on-campus hospital outpatient departments and physician offices for certain services (e.g., clinic visits). [$131.4 billion]
  • Payment for all off-campus hospital outpatient departments under the physician fee schedule (PFS) effective CY 2020. [$28.7 billion]
  • A unified post-acute care system for skilled nursing facilities, home health agencies, inpatient rehabilitation facilities, and long-term care hospitals (LTCHs) beginning in 2025. [$101.2 billion]
  • An increase in the intensive care unit minimum stay threshold from three days to eight days in order to qualify for payment under the LTCH prospective payment system. [$10.0 billion]
  • A reduction in Medicare reimbursement of bad debt from 65% to 25% over three years beginning in FY 2020. [$38.5 billion]
  • Expansion of the durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS) 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. [$7.1 billion]
  • Consolidation of federal spending for graduate medical education (GME) programs. [$211.8 billion in Medicare savings].

Other legislative proposals intended to promote value-based care that are not expected to have a budget impact include the following:

  • Consolidation of four existing inpatient hospital quality programs (the Hospital Inpatient Quality Reporting Program, Hospital Readmissions Reduction Program, Hospital-Acquired Condition Reduction Program, and Hospital Value-Based Purchasing Program) into a single hospital quality payment program.
  • Implementation of value-based programs for hospital outpatient departments and ambulatory surgical centers, and risk-adjusted payment to these facilities based on the severity of patients’ diagnoses.
  • Creation of a risk-adjusted monthly Medicare Priority Care payment for providers who (1) are eligible to bill for evaluation and management (E/M) services and (2) provide ongoing primary care to Medicare beneficiaries. The payment would be funded by a 5% annual reduction in the valuations of all non-E/M services and procedures under the PFS.
  • Authorization for the Secretary to base beneficiary accountable care organization assignment on a broader set of non-physician primary care providers.

The Administration also intends to establish a new exception to the physician self-referral law (Stark Act) for arrangements arising due to participation in Advanced Alternative Payment Models (APMs) that meet certain criteria. HHS notes that this provision would establish a new process for physicians to report “inadvertent, technical non-compliance violations of the law.” HHS intends to exclude physician-owned distributors (often known as PODs) from the indirect compensation exception if more than 40% of a POD’s business is generated by physician owners. The budget impact for the physician self-referral proposals is not available.

A number of the budget proposals are intended to reduce the burden that Medicare program rules impose on providers and suppliers. For instance, the budget calls for: simplifying the Merit-based Incentive Payment System and Advanced APM rules for physicians; authorizing the Centers for Medicare & Medicaid Services (CMS) not to impose the requirement for a face-to-face provider visit for all DME orders; and aligning the End Stage Renal Disease Quality Incentive Program with CMS’s Meaningful Measures initiative. Other planned Medicare administrative proposals, which do not require Congressional approval and which are not expected to have a budget impact, include:

  • Episodic bundled payment arrangements for certain “high value devices” under which the device manufacturer would bear some or all of the risk.
  • Additional CMS guidance regarding the Medicare coverage process, including sub-regulatory guidance on the evidence standards the agency utilizes in assessing coverage and in the appeals process.
  • A proposal to strengthen the existing FDA/CMS parallel review process to improve device manufacturer participation and increase transparency.
  • For beneficiaries participating in clinical trials, a proposal to provide Medicare coverage of devices approved through the Breakthrough Device Program for up to four years from the date of FDA approval.

The budget includes a reference to adding ventilators and certain orthotics to the next round of the DMEPOS competitive bidding program, which is estimated to save $6.1 billion over 10 years. CMS has already announced its intention to bid these items for contracts that will go into effect in 2021, as discussed in a previous blog post.

Program Integrity Proposals

The budget also features program integrity legislative proposals that the Administration estimates would save $19.6 billion over 10 years, in addition to a number of related regulatory proposals. For instance, the Administration proposes:

  • Authorizing the Secretary to assess an administrative penalty on providers for ordering high-risk, high-cost items or services without proper documentation.
  • Expanding prior authorization requirements to additional DMEPOS items, to certain “low-value” health services, and to all Medicare fee-for-service items and services that are at high risk for fraud and abuse.
  • Establishing a prior authorization program for high utilization practitioners of radiation therapy, therapy services, advanced imaging, and anatomic pathology services.
  • Implementing targeted pre-payment review requirements for chiropractic services, and to confirm documentation of diagnoses in support of Medicare Advantage risk-adjustment payments.
  • Authorizing civil monetary penalties for failure to report changes to information provided during enrollment or revalidation.
  • 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 to CMS clearinghouses and billing agents that act on their behalf.
  • Requiring PODs to report under the Open Payments program (while providing the Secretary with flexibility to extend certain Open Payments reporting deadlines).
  • Establishing a demonstration to test the use of a benefits manager for serial/refill DME claims.

Medicaid Reforms

With regard to Medicaid, the Administration continues to call for sweeping reforms to the program’s structure and financing. The Administration reiterates its support for legislation to (1) give states a choice between a per-capita cap or a block grant, and (2) repeal the Affordable Care Act’s (ACA) Medicaid expansion – reforms that the Administration estimates would reduce Medicaid spending by $1.4 trillion over 10 years (but which are unlikely to be considered by the Democrat-controlled House of Representatives). Other Medicaid provider payment-related proposals would:

  • Close a “loophole” related to Medicaid matching payments to privately-operated medical facilities owned by states and localities.
  • Cap Medicaid reimbursement to health care providers operated by a unit of government to the provider’s cost of providing services.
  • Clarify treatment of third party payments to Medicaid beneficiaries when calculating uncompensated care costs under the Medicaid Disproportionate Share Hospital (DSH) limits.
  • Extend through FY 2029 Medicaid DSH allotment reductions.
  • Reform GME payments.

The Administration’s budget proposal covers many other HHS policies, such as new minimum individual contributions for subsidized enrollees in ACA Exchange health plans; extension of ACA Cost-Sharing Reduction payments through CY 2020; Medicare appeals system improvements; medical liability reforms; changes to survey and certification policies; Medicare-Medicaid dually-eligible beneficiary policies; and provisions to address the opioid epidemic. Congressional committees have begun holding oversight hearings on the HHS budget proposals. Additional consideration of the President’s recommendations, along with alternative health policy proposals, can be expected throughout the FY 2020 budget cycle.