2020 Federal Government Budget Proposes Reducing Medicare and Medicaid Spending

King & Spalding

President Trump’s 2020 budget proposal (the Budget) released last Monday cuts the Department of Health and Human Services’ (HHS) budget by 12% from last year. The Budget requests $87.1 billion for HHS and proposes $1,248.8 billion in net mandatory health savings.  The Budget proposes over a hundred-billion-dollar reduction in Medicare and Medicaid program spending over the next ten years.  Most proposals would disproportionately place the burden on providers to reduce the cost of care.  The Budget proposes extending reductions in Medicaid disproportionate share payments, which are payments that offset safety-net hospitals’ uncompensated care costs.   The Budget supports basing post-acute and long-term care provider payments on patients’ clinical needs instead of the site of service, paying on-campus outpatient hospital departments at the lower physician office rate for certain services, and reducing Medicare payments for bad debt.  In addition, the Budget proposes new measures for improving 340B drug discount program integrity.  The proposal includes setting standards for participation and reporting requirements that may increase the administrative cost of 340B program participation.

The Budget also recommends measures that could affect beneficiary spending.  One proposal encourages state flexibility in administering Medicaid benefits and suggests increasing copayments for non-emergent emergency department visits.  This measure is aimed at reducing unnecessary resource use and shifting care to other settings, such as urgent care centers or primary care providers; however, it may burden providers who are unable to recoup higher co-payments from Medicaid beneficiaries and increase out-of-pocket costs for Medicaid beneficiaries.  Proposed changes to the Medicare Part D drug benefit may cost some beneficiaries more for prescription drugs as well, depending on the type of prescribed medication.

The Budget focuses on combatting Medicare and Medicaid fraud, waste, and abuse, including increasing Medicare’s authority to conduct prior authorizations on certain items and services that are at risk for fraud and abuse.  Industry stakeholders have cautioned that expanding HHS’s administrative authority may place additional burdens on providers, causing delays in payment and increases to administrative costs.

The Budget continues to support the idea of shifting Medicaid funding to a block grant program.  This would mean that states would receive a set amount of money from the federal government each year for Medicaid spending.  The measure would constrain how much money is available for states to spend on Medicaid beneficiaries’ care, which may increase Medicaid beneficiary out-of-pocket spending and lower reimbursement to providers.

Regardless of whether the Budget will pass the House in its current form, providers should prepare for cuts to Medicare and Medicaid spending in the near future.  Budget cuts aimed at government healthcare spending is a recurring theme that is unlikely to disappear, no matter which party has a political majority.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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