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Drug Prices, Medicaid Reform Major Themes in Trump’s HHS Budget

The Trump Administration’s HHS funding proposal highlights a strategy to address the opioid crisis, reduce drug rates, and implement Medicare and Medicaid reform.

President Trump's HHS budget, prescription drug prices, and Medicaid reform

Source: Thinkstock

By Jacqueline LaPointe

- President Trump plans to decrease HHS funding by about 21 percent compared to 2017, while focusing the federal department’s budget on prescription drug prices reductions and Medicaid reform, according to the 2019 fiscal year budget plan.

Alongside the proposed funding allocations, the Trump Administration listed over 130 pages of proposals to help HHS operate on a tighter budget. The list of proposals emphasized reforming Medicare and Medicaid, unraveling the Affordable Care Act, and addressing the opioid epidemic.

“The President’s budget makes investments and reforms that are vital to making our health and human services programs work for Americans and to sustaining them for future generation” stated new HHS Secretary Alex Azar. “In particular, it supports our four priorities here at HHS: addressing the opioid crisis, bringing down the high price of prescription drugs, increasing the affordability and accessibility of health insurance, and improving Medicare in ways that push our health system toward paying for value rather than volume.”

Drug pricing and payments

In terms of Medicare reimbursement to providers for prescription drugs, the budget detailed a proposal to apply the savings produced by lowering 340B drug payments to hospitals.

Under a 2018 rule, hospitals in the 340B Drug Pricing Program will see their reimbursement for acquired drugs drop from average sales price (ASP) of the medication plus 6 percent to ASP minus 22.5 percent. CMS designed the 340B payment cut to “reflect the minimum average discount 340B hospitals receive.”

READ MORE: The Difference Between Medicare and Medicaid Reimbursement

The rule also requires the savings generated from the 340B payment cut to be redistributed within the payment system in a budget neutral manner.

President Trump proposed “the savings from hospitals that provide uncompensated care equaling at least one percent of their patient care costs are redistributed based on their share of aggregate uncompensated care.”

Hospitals that do not meet the uncompensated care cost threshold would not qualify for the redistribution of savings and their savings would be returned to the Medicare Trust Fund.

The FY2019 HHS budget proposal also includes a call for greater transparency in the 340B program. The report detailed a reporting requirement for all covered entities in the program.

The proposed 340B program changes come shortly after an Avalere analysis showed that 85 percent of hospitals would earn greater Part B reimbursements despite cuts to the 340B program.

READ MORE: Medicaid Reimbursement Woes Key Concern for Healthcare CEOs

However, hospital groups are still unconvinced that reducing 340B payments will solve rising prescription drug rates.

“The Administration has proposed to take money away from hospitals that serve high volumes of low-income and rural patients, harming access to care for Americans who are underinsured and enrolled in Medicaid and Medicare,” stated 340B Health. “This policy would not lower drug prices and could, in fact, lead to higher profits for drug manufacturers. Congress should reject this ill-advised proposal and continue its strong, bipartisan support for this vital program.”

The American Hospital Association also opposed the changes to the 340B program outlined in the FY2019 HHS budget.

Other Medicare drug pricing and payment proposals focused on addressing prescription drug rates and costs through health plan modifications and manufacturer rules. The proposals aim to align Medicare drug pricing policies with private payers.


President Trump plans to up CMS funding by a net increase of $53.3 billion in the 2019 fiscal year (FY2019) to carry out administrative and legislative proposals for CMS programs, including Medicare, and Medicaid.

READ MORE: Prescription Drug Rate Growth Slows, But Prices Still Rising 7.35%

The funding bump will bring the CMS budget up to $1.1 trillion in mandatory and discretionary outlays, the President’s FY2019 budget states.

But the budget should save the federal government $632 billion through CMS mandatory programs over the next decade.

President Trump aims to realize savings by proposing a myriad of administrative and legislative actions for Medicare and Medicaid.

The FY2019 HHS budget report outlined several proposals that aimed to reform Medicare care delivery and payment. President Trump proposed 14 legislative actions to improve care delivery and payment system reform in Medicare. The proposals generally try to align Medicare reimbursement policies with those of private payers.

The proposals that would impact Medicare reimbursement to hospitals and other provider organizations included:

• Removing uncompensated care payments from the Inpatient Prospective Payment System by 2020 and creating a new process to reimburse hospitals for uncompensated care costs based on share of charity care and non-Medicare bad debt as reported on Worksheet S-10

• Establishing a unified payment system for post-acute care providers based on patient characteristics rather than site of care starting in 2019 and implementing the payment system by 2024

• Decreasing Medicare coverage of bad debt incurred from Medicare beneficiary non-payment from 65 to 25 percent starting in 2019 for most hospitals

• Eliminating all exemptions to site-neutral payments for hospital-owned physician offices located off-campus

• Developing a hospital transfer policy for Medicare beneficiaries discharged to hospice earlier than the average hospital stay length

In addition, the FY2019 HHS budget included proposals affecting accountable care organizations (ACOs). President Trump proposed to allow the HHS Secretary to base beneficiary assignment to ACOs on a broader set of primary care providers, such as nurse practitioners and physician assistants.

ACOs would also be able to pay beneficiaries for a primary care visit under another proposal. Paying assigned beneficiaries encourages beneficiaries to seek out primary care within the ACO network.

Other care delivery and payment reform proposals included permitting beneficiaries with high-deductible health plans to make tax-deductible contributions to health savings accounts, reforming durable medical equipment competitive bidding, canceling the Medicare Improvement Fund, and requiring prior authorizations for physicians with high utilization.

President Trump also proposed to reform the Physician Self-Referral Law to align with value-based care models and expand the ability of Medicare Advantage Organizations to reimburse for telehealth services. Through legislative actions, President Trump also aimed to reform Medicare by offering strategies to reduce government-imposed provider burdens and alleviate the Medicare appeals backlog.

Additionally, the FY2019 HHS budget contained several administrative proposals, including:

• Implementing an accurate home health payment system using a patient case-mix methodology

• Removing excessive Medicare Advantage payments by phasing in the use of encounter data for payment risk adjustments

• Basing payment on competitive individual market plan bids to reduce excessive payment to Medicare Advantage Employer Group Waiver plans

• Improving physician services valuation to set rates

The legislative and administrative proposals to improve Medicare should generate a net savings of $493.7 billion over ten years, extending Medicare solvency for another eight years.

Medicaid and Affordable Care Act

The FY2019 HHS budget proposes a significant restructuring of Medicaid at the federal level. President Trump plans to repeal and replace the Affordable Care Act and switch the Medicaid funding structure to a block grant system.

The Trump Administration intends for the changes to save Medicaid over $1,438.8 billion over the next decade, with $1,389.2 billion in those savings stemming from the potential Affordable Care Act repeal and replacement.

In the HHS budget proposal, the Trump Administration pushed for Medicaid reform based on the Graham-Cassidy-Heller-Johnson bill to repeal the Affordable Care Act. The reform approach would include eliminating Medicaid expansion and offering more state flexibilities to implement Medicaid through either a per capita cap or block grant funding.

Greater state flexibility was a major theme for Medicaid reform in the proposed budget. President Trump included the following state flexibility proposals:

• Up the limit on Medicaid copayments for non-emergency use of the emergency department

• Allow states to apply asset tests to modified adjusted gross income standard populations

• Establish a pathway to make Medicaid Managed Care waivers permanent and extend the duration of waivers

The HHS budget proposal also emphasized that the Medicaid reform proposals should ensure that individuals who are truly needy are covered by Medicaid.

Other Medicaid proposals detailed in the FY2019 HHS budget included:

• Allowing states to negotiate prices directly with drug manufacturers

• Limiting Medicaid reimbursement for public providers who demonstrate excessive costs for treating Medicaid beneficiaries

• Continuing Medicaid Disproportionate Share Hospital (DSH) payment cuts, starting in 2018

• Requiring coverage of all medication-assisted treatments approved by the FDA in Medicaid

Opioid funding

Addressing the opioid crisis emerged as a top priority on President Trump’s HHS agenda. The president allocated $10 billion to build on the department’s previous efforts and implement the administration’s five-part strategy, according to the FY2019 HHS budget proposal.

The opioid crisis strategy involves the following:

• Enhancing access to prevention, treatment, and recovery services, such as medication-assisted therapies

• Targeting availability and distribution of overdose-reversing medications

• Increasing knowledge of the crisis through better public health data and reporting

• Supporting innovative research on pain and addition

• Improving better practices for pain management

President Trump proposed increasing funds to some agencies to carry out the five-point strategy. The budget outlined proposals for increased funding for the Substance Abuse and Mental Health Services Administration by $123 million, and the president requested a $126 million boost for Prescription Drug Monitoring Programs.

However, other agencies may see their funding decrease as the Trump Administration balances the 2019 budget. For example, the Center for Disease Control and Prevention (CDC) funding could decrease by $1 billion compared to the previous year.

The CDC plays an integral role in the five-point strategy’s third point that discusses public health data and reporting.

The FY2019 HHS budget also outlined a potential closing of the Agency for Healthcare Quality and Research. The agency would be folded into the National Institutes of Health.

The FY2019 HHS budget contained over 130 pages of proposals to improve the federal department and its major healthcare programs. The report acts like a wish list for the Trump Administration and most of the proposals must earn Congressional approval to move forward.

Congress is unlikely to pass all the proposed Medicare and Medicaid reforms, but the budget is still relevant, explained Dan Mendelson, Avalere Health President.

“This year’s budget comes on the heels of a major congressional agreement that explicitly funded many specific healthcare priorities, including $6B to fund responses to the opioid crisis and mental healthcare, $4B for Veterans Health, and $2B for the NIH,” he said. “This budget discussion is meaningful in implementing these changes, as well as the further programmatic reductions that will fund them.”


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