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February 12, 2018

President’s FY 2019 HHS Budget Proposal Includes Significant Medicaid, Medicare and 340B Changes

The President’s FY 2019 budget includes several widely-reported health care proposals, such as an additional attempt at repealing and replacing the Affordable Care Act, as well as efforts to reduce the cost of prescription drugs and combat the opioid epidemic. But there are several more technical proposals that would directly impact healthcare providers, particularly those serving vulnerable populations. They include proposals to:

  • Limit Medicaid payments to public providers to no more than the cost of providing services in order to “prevent[ ] states from circumventing Medicaid matching requirements.” The Bush Administration pursued this policy through a regulation that was subject to multiple congressional moratoria and overturned by a court (Alameda County Medical Center v. Leavitt).
  • Combine Medicare, Medicaid and Children’s Hospitals Graduate Medical Education funding into a single grant program paid for from the general fund (and thus all subject to the Congressional appropriations process) rather than through Medicare or Medicaid.
  • Strip the portion of Medicare Disproportionate Share Hospital payments that provides funding for uncompensated care out of the Medicare Trust Fund and place it into the general fund, subjecting it to an annual cap on growth that would result in $69.5 billion in cuts over 10 years.
  • Extend Medicaid DSH cuts for three more years (from FY 2026 through FY 2028) at $8 billion per year.
  • Redirect savings from the recently-implemented Medicare cut in outpatient payments for drugs purchased through the 340B drug discount program to hospitals with uncompensated care of at least 1 percent of patient care costs, to be distributed based on share of aggregate uncompensated care. Savings from cuts to 340B hospitals with lower levels of uncompensated care would be returned to the Medicare trust fund. (The White House also plans to seek broad regulatory authority for HRSA to enforce the program and to require covered entities to report on use of 340B program savings.)
  • Subject all off-campus outpatient hospital clinics to site neutral payments at the physician office rate, removing the current law exemption for grandfathered clinics.
  • Reduce Medicare payment for bad debt from 65% to 25% over three years (with certain exceptions including critical access hospitals, small rural hospitals and federally qualified health centers).