On February 10, 2020, the White House released its $4.8 trillion FY 2021 budget proposal. The budget outlines the Administration’s priorities for the upcoming fiscal year. In the area of healthcare, the president requested $94.5 billion in discretionary budget authority for the US Department of Health and Human Services (HHS), which represents a 10% decrease from the 2020 enacted level. The budget also proposes targeted savings of $1.6 trillion in Centers for Medicare and Medicaid Services (CMS) mandatory programs, such as Medicare and Medicaid, over the next decade.
The Administration’s annual budget should be viewed primarily as a messaging tool, because most of its legislative policies are unlikely to be enacted. With a Democrat-controlled US House of Representatives, controversial legislative proposals almost certainly will not become law. An exception to that general rule may occur where there are proposals categorized in the budget as legislative but where the Administration has some existing statutory authority to move forward with regulatory action on the topic. Proposals categorized as regulatory should be monitored closely, however, as the Administration is more likely to have authority to advance changes through regulation, and is more likely to try to do so.
Read on for a summary of key proposals in the HHS budget. The CMS budget justification is not currently available. As additional information becomes available, we will update this document.
In May 2018, the Administration published the American Patients First Blueprint, which established four focus areas for addressing the rising cost of prescription drugs: increased competition, better negotiation, incentives for lower list prices, and lower out-of-pocket costs. Unlike the Blueprint, the budget includes no specific regulatory proposals on prescription drug pricing. Instead, it allows for savings of $135 billion over 10 years from bipartisan drug pricing legislative proposals. The budget broadly mentions support for legislative efforts to improve the Medicare Part D benefit by establishing an out-of-pocket maximum, improving incentives to contain costs, and reducing out-of-pocket expenses for seniors. The budget also includes support for legislation that addresses policies stunting generic drug development, promotes competition, and increases patient access to more affordable medications.
The legislation referenced in the budget might be the Prescription Drug Pricing Reduction Act of 2019, a bipartisan proposal from US Senate Committee on Finance Chairman Chuck Grassley (R-IA) and Ranking Committee Democrat Ron Wyden (D-OR). This bill includes several policies that that align with proposals in the President’s budget.
By not including specific regulatory reforms relating to prescription drug costs in its budget, the Administration is signaling a preference that Congress reconcile differences between the Grassley/Wyden proposal and House Speaker Nancy Pelosi’s (D-CA) bill, the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3). H.R. 3 is the prescription drug pricing reform package developed and supported by House Democrats. It includes many policy changes found in the Grassley-Wyden bill, but also includes provisions relating to Medicare price negotiation. A comparison of H.R. 3, the Grassley/Wyden proposal and the Administration’s previous regulatory actions on prescription drug pricing can be found here.
The budget also includes proposals to revise the 340B program. One such proposal is to allow the Health Resources and Services Administration (HRSA) to collect a user fee of 0.1% for total 340B drug purchases from participating covered entities, which is estimated to save $24 million over 10 years. The budget also requests explicit general regulatory authority over the 340B program, which would allow HRSA to require covered entities to report their savings and how those savings are used.
The budget includes legislative and regulatory proposals related to Medicare that are estimated to yield gross savings of $756 billion over 10 years. The estimated net impact of the Medicare-specific proposals is $450 billion over 10 years. The budget mostly focuses on legislative proposals, which are less likely to be enacted. Noteworthy legislative proposals include the following:
The budget outlines only four regulatory proposals related to Medicare. Of these, the most noteworthy is implementation of a Medicare Advantage risk adjustment model. The budget proposes to accelerate the phase-in of a new risk adjustment model that is expected to save $40.6 billion over 10 years.
The president’s budget includes Medicaid-related legislative proposals that would result in approximately $920 billion in reductions to the program over 10 years. It is unlikely that these proposals will move forward with a Democrat-controlled House, however.
The budget includes a legislative proposal entitled “President’s Health Reform Vision Allowance.” Information on the specifics of this proposal are limited. The budget indicates that the proposal would build on the Executive Order Improving Price and Quality Transparency in American Healthcare to Put Patients First, and states that “Medicaid reform will restore balance, flexibility, integrity, and accountability to the state-federal partnership. Medicaid spending will grow at a more sustainable rate by ending the financial bias that currently favors able bodied working-age adults over the truly vulnerable.” This proposal is estimated to reduce $744 billion in Medicaid funding over 10 years.
Another Medicaid-related proposal would require “able-bodied, working-age individuals” to find employment, train for work, or volunteer in order to receive Medicaid benefits. The Trump Administration and some states have already tried to implement work requirements by applying for Section 1115 waivers, but legal challenges have stopped many of these policies. The budget proposal is projected to reduce Medicaid funding by $152.4 billion over 10 years.
The budget proposes to allow states to apply asset tests to Modified Adjusted Gross Income (MAGI) Medicaid populations. Currently, MAGI Medicaid groups, including children and low-income adults, do not have to undergo an asset test for Medicaid eligibility purposes. Only those in the aged, blind and disabled Medicaid group have asset tests. If this change were to be implemented, the new adult group and other MAGI Medicaid groups could be required to undergo an asset test. This proposal is estimated to reduce Medicaid funding by $2.2 billion over 10 years and was also included in last year’s budget.
The budget calls for a number of other Medicaid legislative changes, including removing states’ authority to increase allowable home equity levels for Medicaid eligibility. The budget also includes continued Medicaid Disproportionate Share Hospital (DSH) allotment reductions through FY 2030. The DSH allotment reductions were also included in last year’s budget. The budget also calls for modifying the Medicaid Institution for Mental Disease (IMD) exclusion to provide states flexibility in offering inpatient mental health services to Medicaid beneficiaries with serious mental illness. Of note, the Trump Administration released a State Medicaid Director letter in 2018 outlining opportunities for states to submit Section 1115 waivers to waive the Medicaid IMD exclusion for individuals with serious mental illness and serious emotional disturbances.
The budget outlines legislative changes related to Medicaid coverage for inmates. It proposes to prohibit states from terminating CHIP coverage for inmates and from terminating Medicaid coverage for the first six months that the inmate is in custody. Both proposals are new and have not been included in previous budget requests.
The budget also includes a few regulatory proposals related to Medicaid, which have a higher likelihood of being implemented because they do not require congressional action. For example, the budget proposes to give states the option of conducting more frequent Medicaid eligibility redeterminations, and notes that CMS will soon release a proposed rule on this issue entitled “Strengthening the Program Integrity of the Medicaid Eligibility Determination Process.”
The budget also refers to increased provider-level data on supplemental payments. CMS recently published the Proposed Rule Medicaid Fiscal Accountability Regulation (MFAR), which would increase provider-level reporting and make structural changes to Medicaid supplemental payments. This suggests that the Administration is still very interested in finalizing the MFAR.
Finally, the budget proposes to change the Non-Emergency Medical Transportation (NEMT) benefit from mandatory to optional. A proposal to make NEMT coverage optional was included in last year’s budget. However, the regulation providing states greater flexibility in covering the NEMT benefit is no longer included on CMS’s unified agenda.
The budget does not propose any substantive changes to the Exchange Marketplace. It allocates $1.5 billion for Marketplace-related program management (down approximately $226 million from 2020), to be funded primarily though user fees collected from insurers operating on the federal exchange and state-based exchanges on the federal platform. The budget extends the use of these user fees to cover almost all federal administrative costs associated with operating the Marketplace ($25 million would come from the Healthcare Fraud and Abuse Control Program appropriation). CMS reduced user fees to 3% of premiums on the federal exchange and 2.5% of premiums on state-based exchanges on the federal platform as part of the Notice of Benefit and Payment Parameters Rule (payment notice) for plan year 2020, and proposed maintaining that level in the payment notice for 2021. However, the proposed 2021 payment notice also included a request for comments on an alternative proposal to further reduce the user fee rates.
The budget would introduce program integrity measures to ensure that the Medicare and Medicaid programs are “paying the right amount to the right entity for the right beneficiary.” The Healthcare Fraud and Abuse Control Program and the Medicaid Integrity Program constitute the largest federal investments in healthcare program integrity. The budget provides $2.3 billion in mandatory and discretionary spending for program integrity investments.
The Administration’s goal for these proposals is to prevent inappropriate payments, reduce spending, protect beneficiaries, and reduce time wasted on fraud and abuse investigations. The budget includes numerous legislative and administrative proposals estimated to save $31 billion and $220 million, respectively, over the next 10 years.
Legislative proposals include the following:
These policy changes were not included in last year’s budget proposal. While this reflects the Administration’s continued interest in supporting policies to address access to care in rural communities, these proposed reforms are legislative rather than regulatory, and thus likely would require congressional action to implement.