White House Proposes $845B in Medicare Spending Cuts

March 12, 2019 - President Trump’s budget proposal for the 2020 fiscal year is requesting a tightening of the purse strings for HHS, including $845 billion in Medicare spending cuts over the next decade.

The budget proposal released March 11 by the White House requests $87.1 billion for HHS in FY 2020, a 12 percent decrease from the estimated level of funding from 2019. On top of the funding cut, the budget also proposes over $1.2 trillion in net mandatory health savings from HHS programs to decrease longer-term deficits.

The White House aims to help the federal health department live up to its bold goal of generating savings by focusing on how the program reimburses providers. For example, the White House is looking to implement additional site-neutral payments.

The Trump Administration recently started reimbursing hospitals at a reduced site-neutral payment rate for clinic visits. The reduced rate is closer to the one CMS uses to pay providers under the Physician Fee Schedule for the same service.

“[T]he Budget proposes realigning incentives through site-neutral payment reform to ensure accurate payments across different healthcare provider types are based on patient characteristics rather than site of care,” the White House stated in the budget proposal. “By ensuring payments are accurately aligned with the costs of care and strengthening providers accountability to improve quality and health outcomes, the Budget protects seniors from excessive out-of-pocket costs and improves the standard of care they receive.”

READ MORE: The Difference Between Medicare and Medicaid Reimbursement

The White House is also taking aim at Medicare prescription drug spending and reimbursement as a way to cut program spending. The Trump Administration is particularly focusing on reforms to the 340B Drug Pricing Program.

The 340B Drug Pricing Program requires drug manufacturers to provide discounts to hospitals serving vulnerable communities, such as Medicare/Medicaid Disproportionate Share Hospitals, children’s hospitals, and other safety-net providers. The program has been a valuable resource for hospitals, helping the facilities stretch their federal resources as far as possible to deliver more comprehensive services to vulnerable populations.

However, stakeholders have been debating whether the program is running as intended.

The Trump Administration’s blueprint for lowering drug costs stated that hospitals receiving discounts under the program do not provide meaningful levels of charity care to low-income and vulnerable patients.

CMS also recently reduced Medicare reimbursement to 340B hospitals by $1.6 billion over the next few years. The agency finalized the payment reduction to “address recent trends of increasing drug prices, for which some of the cost burden falls to Medicare beneficiaries.”

READ MORE: Medicare Spending, Prices Drive Healthcare Spending Growth

Now, the White House is proposing to further modify Medicare reimbursement to 340B hospitals by rewarding hospitals that provide charity care and decreasing payments to hospitals that provide “little to no charity care.”

The White House is also seeking additional oversight of the 340B program, proposing “broad regulatory authority for the 340B Drug Pricing Program to set enforceable standards of program participation and requires all covered entities to report on use of program savings.”

Prescription drug reimbursement is not just a problem for 340B hospitals. The budget also details Medicare Part B reimbursement changes that aim to reduce prescription drug spending through lower provider payments. The changes included:

• Removing the three-year payment protection of average sales price (ASP) plus six percent reimbursement methodology for certain new drugs provided in outpatient hospitals
• Stopping anti-competitive behavior from drug manufacturers that use the patent system to keep out competition
• Moving coverage of some Part B drugs to Part D to reduce spending
• Limiting Part B drug payment growth to an inflation benchmark
• Requiring drug manufacturers to report ASP data for all Part B drugs to improve payment accuracy

Medicaid would also see its fair share of cuts if the White House proposals are approved by Congress. The budget plan outlines almost $1.5 trillion in Medicaid cuts over the next decade, with another $1.2 trillion to be added for a new Market-Based Health Care Grant that would convert the program to a system of block grants.

Other healthcare-related proposals in the Trump Administration’s budget included:

• About $300 million for an initiative to eliminate the HIV epidemic
• Annual fee on e-cigarette manufacturers
• Out-of-pocket drug cost caps for Medicare beneficiaries
• Funding increase for the FDA, including $55 million to support the agency’s response to the opioid crisis
• $5 billion reduction in funding for National Institutes of Health (NIH) research
• Work requirements for able-bodied, working-age individuals seeking welfare benefits

READ MORE: Federal Policies to Decrease Hospital Payments by $218B by 2028

President Trump promised that the budget proposal for FY 2020 aims to protect Medicare and Medicaid and improve program solvency.

However, hospital leaders are already speaking out against proposed Medicare spending cuts.

According to the Federation of American Hospitals’ President and CEO Chip Kahn, “The new White House budget imposes arbitrary and blunt Medicare cuts to hospitals who care for the nation’s most vulnerable. The impact on care for seniors would be devastating. Not to mention that massive reductions would drastically reduce resources critical to care for low-income Americans and cripple efforts to stave off the looming physician shortage.”

“Hospitals are less and less able to cover the cost of care for Medicare patients, it is no time to gut Medicare,” he added.

The Association of American Medical Colleges (AAMC) also expressed their concerns with several Medicare reimbursement changes proposed in the budget.

“Proposals to block grant Medicaid, cut payments to hospitals that treat a disproportionate share of Medicaid beneficiaries, and eliminate facility-based reimbursements to all hospital outpatient departments would harm vulnerable patients and dismantle the healthcare safety net,” the group stated.

“Specifically, cuts to hospital outpatient department payments would reduce access for patients seeking care at these facilities, many of whom have more complex conditions and require higher levels of care than those cared for at physician offices and ambulatory surgical centers.”

AAMC also took issue with proposals to reform the 340B program.

“Similarly, undermining the 340B program, which requires no funding from taxpayers, would only weaken one of the most effective programs in healthcare,” the group continued. “While the AAMC agrees that the high price of prescription drugs needs to be addressed, it should be addressed directly, not by cutting this critical program.”

The White House budget proposal is essentially a wish list, and policy experts suspect many of the legislative proposals and administrative actions detailed in the budget will never get passed in Congress. However, the proposal does set the tone for healthcare reform under the Trump Administration in the next year.