On February 10, 2020, the White House unveiled its proposed budget (the Budget) for FY 2021, which would decrease funding for HHS by 10 percent. Medicare and Medicaid would bear the brunt of these cuts. For both programs combined, the Budget would reduce federal funding by $1.5 trillion over the next decade. Although the President’s Budget is not binding and is not expected to pass in its current form, it nonetheless offers insight into the Administration’s current priorities for healthcare policy.

Like the budgets for FYs 2019 and 2020, this year’s Budget proposes to “eliminate wasteful spending in Medicare” by reforming graduate medical education payments, modifying payments to hospitals for uncompensated care, reducing Medicare’s coverage of bad debts, and establishing a need-based unified payment system for post-acute services. Other familiar proposals to cut Medicare expenditures include paying the physician office rate to both off-campus provider-based departments and on-campus hospital outpatient departments. One new cut proposed this year is to modify Medicare payment for hospice care provided to beneficiaries in skilled nursing and nursing facilities. Several proposed cuts from last year’s budget are omitted this year, including last year’s proposals to eliminate pass-through payments for drugs, biologicals and biosimilars, and to exclude manufacturer discounts from the calculation of beneficiary out-of-pocket costs in the Medicare Part D coverage gap. Also missing in this year’s Budget is last year’s proposal to reform and expand competitive bidding for durable medical equipment.

For Medicaid, the Budget proposes to eliminate the enhanced federal match for Medicaid expansion enrollees. The Budget would also implement work requirements (projected to save the program $152 billion over the next decade), continue the Disproportionate Share Hospital (DSH) allotment reductions, strengthen CMS’s ability to recoup improper Medicaid payments, and improve the process for recovering overpayments. Not included in this year’s Budget are last year’s proposals to clarify definitions under the Medicaid drug rebate program to prevent inappropriate low manufacturer rebates, to test allowing state Medicaid programs to negotiate directly with drug manufacturers, and to impose greater penalties on manufacturers that report false information under the Medicaid drug rebate program.

The Budget proposes to improve access to rural health by expanding and enhancing access to Medicare telehealth services and modernizing payment for Rural Health Clinics (RHCs), which is projected to reduce payment to RHCs by $1.7 billion over the next ten years. This year’s Budget also proposes several changes to kidney care, including allowing HHS to determine the appropriate number of organ procurement organizations (OPOs) and the appropriate recertification period for OPOs. This year’s Budget does not include last year’s proposals to collect user fees from hospitals participating in the 340B program.

Providers would be wise to pay close attention to the proposals in this year’s Budget. Even though the Budget will likely not pass the House or Senate in its current form, the Administration may attempt to use administrative fiat to implement some of these proposals.

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