Trump Budget Eyes More Site-Neutral, Hospital Reimbursement Cuts

President Trump’s proposed budget for the 2021 fiscal year (FY) is stirring up controversy over massive cuts to Medicare and Medicaid spending and proposals to implement work requirements and block grants in Medicaid. But the plan also signaled the administration’s direction for healthcare payment reform, including lower hospital reimbursement.

The Trump administration’s plan is to reduce HHS funding by 9 percent in FY 2021, with major cuts proposed for Medicare and Medicaid. Specifically, the administration proposed to cut $465 billion from Medicare, including from hospitals, while Medicaid and Affordable Care Act programs would see almost $1 trillion in cuts over ten years, which would include savings from a new, voluntary block grant system of funding.

The plan to reduce spending on the federal healthcare programs by hundreds of billions of dollars each over the next decade has little chance of becoming law, according to policy experts. However, the budget proposal does indicate where the administration aims to go with healthcare reform

The budget proposal indicates that large Medicare spending reductions would largely cost hospitals through site-neutral payments and reduced uncompensated care reimbursements.

President Trump’s budget for FY 2021 proposes to save Medicare $9.5 billion through 2030 by paying for outpatient hospital services at the less expensive physician office rate and promoting the use of ambulatory surgical centers as a less expensive option for common procedures. The Trump administration intends for these site-neutral payments to cut Medicare spending by enabling “patients and their healthcare providers can choose their setting of care based on their patient needs and clinical characteristics, rather than on payment disparities between settings.”

The administration has already implemented site-neutral payment rates for certain hospital outpatient services and received staunch opposition from stakeholders, including a court order to halt the policy in 2019. But the proposed FY 2021 budget indicates that, through CMS, the administration plans to continue implementing the reduced hospital reimbursement rates.

Another one of the administration’s most criticized policies also appeared in the President’s proposed FY 2021 budget. The administration made it clear that it will continue to push for better hospital price transparency despite efforts from hospitals and payers to stop the implementation of a new rule that will require the disclosure pricing information.

According to the FY 2021 budget, the administration also intends to continue scaling back payments to hospitals for uncompensated care.

In Medicare, the administration proposes to fund uncompensated care payments to hospitals through the general fund of the Treasury rather than the Medicare Trust Fund to reduce Medicare spending. According to the administration, the change “more closely aligns Medicare payment policy with private insurers, who do not typically cover uncompensated care,” resulting in $174 billion in Medicare savings over ten years.

The proposed FY 2021 budget would also eliminate Medicare payments to disproportionate share hospitals (DSH) for bad debt and continue reducing the allotments for Medicaid DSH payments to qualifying hospitals.

Even though the budget is unlikely to become law as it currently stands, hospital groups have spoken out against the proposed reductions to hospital reimbursement, arguing that the cuts undermine quality patient care.

“In addition to the hundreds of billions in proposed reductions to Medicare, the blueprint includes cuts we strongly oppose for care in hospital outpatient departments, teaching hospitals and post-acute care providers,” stated Rick Pollack, president and CEO of the American Hospital Association (AHA). “These cuts fail to recognize the crucial role hospitals serve for their communities, such as providing 24/7 emergency services.”

The association also opposed proposed changes to post-acute payments, which the administration proposed to unify under a single reimbursement system that would “address excessive payments for post-acute care providers” by basing reimbursement on “clinical needs rather than site of care,” which was projected $101.5 billion through 2030.

“Post-acute cuts threaten care for patients with the most medically complex conditions. The cuts also undermine medical advances and the availability of around-the-clock services exclusive to teaching hospitals, and the training they provide to those who will become our nation’s future physicians,” Pollack explained.

Chip Kahn, president and CEO of the Federation of American Hospitals (FAH), added that the proposed FY 2021 budget is “bad medicine” for patients and its “arbitrary cuts to health care programs envisioned in the budget will make the job of America’s caregivers much more difficult.”

The Association of American Medical Colleges (AAMC) also urged Congress to reject the proposed FY 2021 budget, citing its harmful effects on patients. The association also specifically opposed proposed changes to graduate medical education payments, which the administration hopes will reduce result in $52.2 billion in government-wide savings over ten years.

The administration plans to consolidate federal graduate medical education spending from Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) into a singe grant program for teaching hospitals.

AAMC’s president and CEO David J. Skorton, MD, said the change would “exacerbate the projected physician shortage by forcing teaching hospitals to absorb $52 billion in untenable cuts” and “ignores the intent of the Medicare GME program, which is to ensure an adequate physician workforce.”

Acting Office of Management and Budget (OMB) Director Russ Vought maintained in a press briefing that Medicare will continue to grow at 6 percent under the budget. Additionally, Medicaid will grow more than 3 percent on average, which is higher than the rate of inflation.