Healthcare Business Trends

Trump administration details hospital spending plans in FY21 proposed budget

February 12, 2020 6:56 pm
  • Hospitals cuts proposed in the FY21 budget include $117 billion in site-neutral payment cuts for on-campus hospital outpatient departments (HOPDs).
  • Hospitals would lose $87.9 billion over 10 years from limits on bad debt payment increases.
  • Hospitals would lose $47.2 billion from site-neutral payment policies for off-campus HOPDs.

In what could be a 2021 preview if Republicans take control of Congress and retain the White House, the Trump administration included a range of sweeping healthcare policy proposals targeting hospitals in this week’s release of its proposed budget.

The Trump administration’s FY21 budget proposal emphasizes healthcare policies that would foster cost transparency, break down barriers impeding choice and competition, and reduce regulatory burdens.

Although the current Congress may ignore the budget, the proposals could come back as last-minute funding sources for big budget packages or as part of major healthcare policy changes in the next Congress.

The budget projected savings of $844 billion over 10 years through implementation of a “Health Reform Vision Allowance,” which entailed:

  • Reforming Medicare’s primary care service payments
  • Implementing a value-based purchasing program for hospital outpatient departments (HOPDs), ambulatory surgical centers and post-acute care facilities
  • Offering incentives to improve quality and health outcomes

Proposed healthcare funding levels

The Centers for Medicare & Medicaid Services (CMS) is projected to spend $1.2 trillion in FY21, or $47.6 billion more than in FY20. The budget proposes $1.6 trillion in CMS spending cuts over the next decade.  Those cuts include $756 billion to Medicare over 10 years, which is projected to extend the Hospital Insurance Trust Fund by 25 years.

The budget also includes $920 billion in Medicaid cuts over 10 years, in part through increased eligibility enforcement and anti-fraud measures.

The budget would provide $5.7 billion for the 1,400 community health centers, which operate more than 12,000 care delivery locations and serve more than 28 million patients.

Hospital revenue would be significantly affected

The budget includes policies that would directly affect hospital revenue in widely varying ways, including:

  • Limiting uncompensated-care bad debt payment increases to the consumer price index for all urban consumers (87.9 billion in savings over 10 years)
  • Requiring site-neutral payments between on-campus HOPDs and physician offices for services, such as clinic visits, commonly provided in nonhospital settings ($117 billion in savings)
  • Eliminating Medicare bad debt payments for disproportionate share eligible hospitals, exempting rural hospitals ($33.6 billion in savings)
  • Requiring all off-campus HOPDs to be paid under the Physician Fee Schedule ($47.2 billion in savings)
  • Allowing increased Medicaid copayments for nonemergency use of emergency departments ($1.8 billion in savings)

The bad debt payment cuts would principally hit urban safety-net hospitals, said Chad Mulvany, a director of healthcare financial practices with HFMA.

Meanwhile the site-neutral payment cuts would “blow teaching hospitals out of the water,” Mulvany said.

Among savings to Medicare more broadly, the budget projects that already-implemented changes to payment arrangements for Medicare accountable care organizations will save $2.9 billion over 10 years.

Potential good news for hospitals

Among the administration’s priorities is reducing the regulatory burden for providers. The Department of Health and Human Services (HHS) touted a reduction of $25.7 billion in regulatory burdens between FY17 and FY19.

The administration aims to add to that amount by requiring regulators to:

  • By August 2020, issue finalized regulations on processes and procedures for issuing guidance documents
  • By the end of February 2021, establish a single, searchable database on the HHS website that contains, or links to, all of the agency’s guidance documents currently in effect

The budget proposes medical liability reforms that would save HHS $27.2 billion and the federal government $40.3 billion over 10 years. Those reforms include capping awards for noneconomic damages at $250,000, indexed to inflation.

Another proposal would consolidate the four hospital quality payment programs in the form of a 5% payment cut that hospitals could earn back.

The budget would risk-adjust payments to HOPDs and ambulatory surgical centers based on the severity of patients’ diagnoses, in a budget-neutral manner.

A value-based purchasing program for HOPDs and ambulatory surgical centers would be implemented, with 2% of payments tied in a budget-neutral manner to performance on quality and outcome measures.

For primary care physicians, the budget would create a risk-adjusted monthly Medicare Priority Care payment for providers who are eligible to bill for evaluation and management services and who provide ongoing primary care to Medicare beneficiaries. That payment would be funded by a 5% cut to all nonprimary care services and procedures.

The budget would eliminate the requirement that physicians certify all patients at critical access hospitals (CAHs) who are reasonably expected to be discharged or transferred within 96 hours of admission.

CAHs could voluntarily convert to an emergency hospital that does not maintain inpatient beds, while receiving the same Medicare payment rates as other emergency departments, plus an additional payment to assist with capital costs.

Impacts on bundled payments and other value-based payment policies

A major cut in the budget that was not targeted at hospitals but could directly affect their performance in value-based payment models was the $101 billion in 10-years savings from the establishment of a unified post-acute care payment system across all four post-acute care settings, including long-term care hospitals.

Such cuts could eliminate the source of nearly all of the savings obtained by hospital-led bundled payment participants, Mulvany noted.

“If you suddenly go site-neutral on post-acute care, I don’t know why I join joint bundles, or really any bundle; there’s no savings there at that point,” Mulvany said about how hospital finance leaders might perceive such a change.

The budget would incentivize participation in advanced alternative payment models (APMs) by eliminating the participation thresholds needed for physicians to qualify for the 5% APMs bonus.

In another proposed tweak to the physician payment system, the budget would alter the Merit-based Incentive Payment System (MIPS) to assess performance at the group practice level instead of the individual-clinician level during the performance period, to reduce physician reporting burdens

Striving to shore up rural hospitals

Rural providers were a big focus of the administration’s budget.

The administration aims to build on its 2019 temporary increase in the wage index for hospitals in low-wage areas, which are primarily rural hospitals, with a proposed pilot to implement further changes to the Medicare inpatient hospital wage index.

The budget also would build on the expanded use of telehealth for Medicare Advantage plans with a comprehensive package to promote rural access to care and telehealth in Medicare fee-for-service.

Rural hospitals would be exempted from the proposed site-neutral payment cut to on-campus HOPDs.

A new Medicare prospective payment system would be established for rural health clinics, with annual updates based on a market basket derived from cost report data and rebased periodically. Those changes would save an estimated $1.8 billion over 10 years.

Rural health clinics and federally qualified health centers could become distant-site providers for Medicare telehealth and be paid at a composite rate similar to that for comparable telehealth services under the Medicare Physician Fee Schedule.

340B targeted with oversight

The budget would increase scrutiny of the 340B discount drug program, which is used by about 12,000 safety-net hospitals and clinics. A new $34 million oversight initiative for 340B would be established, funded in part by a new user fee based on 340B sales.

Anti-fraud initiatives included

The administration said it cut the Medicare fee-for-service improper payment rate to 7.25%, the lowest since 2010, and projected that continued savings from anti-fraud program changes will provide another $31.4 billion over 10 years.

The budget would garner $20 million over the decade through new administrative fees for filing Medicare appeals, which the administration said is needed due to the filing of “non-meritorious appeals.”

The package of program-integrity legislative proposals is projected to improve payment accuracy, enhance provider and program oversight, reduce improper payments and support law enforcement.



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