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Analysis of Key Medicare Proposals in the President’s FY 2020 Budget

This week, our In Focus comes to us from HMA Senior Consultant Narda Ipakchi. On March 11, 2019, the White House released President Trump’s budget for fiscal year (FY) 2020, which includes a number of legislative and administrative proposals related to Medicare that would reduce net Medicare spending by $811 billion over the next ten years. It is important to note that the legislative proposals included in the President’s budget are non-binding and serve as recommendations to Congress where they may or may not be advanced. Under a Democratic-majority House of Representatives, many of the legislative proposals outlined in the FY 2020 budget are unlikely to advance. Several of the policies, however, such as reductions to Medicare bad debt and implementing site neutral payment systems were also proposed by the previous administration. Administrative proposals are more likely to move forward, as the administration can implement these policies through its regulatory channels.

Overall, the Medicare proposals in the President’s budget are consistent with this administration’s stated goals of lowering the cost of prescription drugs, expanding value-based payment programs, reducing administrative burden, and improving price transparency. Key Medicare provisions of the President’s FY 2020 budget are highlighted below:

Legislative Proposals

  • Reducing Part D out-of-pocket spending by: 1) ending the practice allowing manufacturer discounts to count toward a beneficiary’s out-of-pocket costs in the coverage gap, 2) eliminating cost-sharing for generics for low-income beneficiaries, and 3) increasing Part D private plan liability in the catastrophic phase from 15 percent to 80 percent while eliminating beneficiary coinsurance and decreasing Medicare program’s liability from 80 percent to 20 percent.
  • Increasing drug price transparency and strengthening negotiating power with drug manufacturers by: 1) consolidating certain Part B drugs into Part D to leverage private plan negotiations, 2) penalizing manufacturers that do not report required average sales price (ASP) data necessary for payment accuracy, 3) reducing the payment rate for single source drugs, biologics and biosimilars, and 4) imposing penalties on manufacturers that pay competitors to delay release of generic/biosimilar products when a drug is about to lose market exclusivity.
  • Continuing to combat the opioid crisis by requiring the Centers for Medicare & Medicaid Services (CMS) to report to the Drug Enforcement Agency (DEA) providers revoked from Medicare or placed on preclusion lists for patterns of abusive prescribing of controlled substances.
  • Increasing participation in alternative payment models (APMs) by establishing an exception to the Physician Self-Referral Law (Stark Law) for APM participants, revising the ACO beneficiary assignment process to allow non-physician primary care providers to align beneficiaries to their ACO, and simplifying reporting requirements for the Merit-based Incentive Payment System (MIPS)
  • Reducing overall payments to hospitals for uncompensated care and graduate medical education (GME) by placing new caps on the total amounts of funds and limiting annual funding growth. The total amount of uncompensated care funds available will be capped at FY2019 funding levels and grown annually by the Consumer Price Index for All Urban Consumers (CPI-U). The budget also proposes to distribute payments based on share of charity care and non-Medicare bad debt. Under the GME proposal, medical education payments would be consolidated into a single grant program. Total available funds would be capped at 2017 payments, adjusted for inflation, and would grow at CPI-U minus one percentage point annually. Funding would be distributed based on the number of residents and the portion of the hospital’s inpatient days accounted for by Medicare and Medicaid patients.
  • Reforming hospital value-based purchasing (VBP) programs to consolidate existing hospital quality reporting programs and implementing a new VBP program for outpatient hospitals and ambulatory surgical centers (ASCs). The budget also proposes redesigning outpatient hospital and ASC payment systems to adjust for the severity of patient diagnoses.
  • Advancing site neutrality through: 1) creation of a unified post-acute care payment system, 2) aligning reimbursement for on-campus hospital outpatient departments and physician services, 3) requiring hospital-owned physician offices located offsite to be reimbursed under the Physician Fee Schedule, and 4) increasing the eligibility threshold for long term care hospitals from three days in an intensive care unit to eight days.
  • Reducing Medicare coverage of bad debts from 65 percent to 25 percent over three years, with exceptions for certain rural settings, Federally Qualified Health Centers, and Critical Access Hospitals.
  • Increasing competition for Durable Medical Equipment (DME) by reimbursing suppliers based on their own bid amounts as opposed to the maximum bid in a given area as well as expanding coverage to non-durable alternatives to DME.
  • Reducing fraud, waste, and abuse through a number of program integrity proposals that would: 1) impose penalties on providers for ordering high-risk, high-cost items or services without proper documentation, 2) expand prior authorization to additional fee-for-service items at high risk for fraud an abuse, and 3) require confirmation of diagnoses submitted by Medicare Advantage (MA) plans prior to CMS making risk-adjusted payments.

Administrative Proposals

  • Encouraging adoption of high-value technologies and devices through bundled payment demonstrations.
  • Improving MA payment accuracy by expanding risk adjustment data validation audits and transitioning to risk score calculations weighted more heavily toward encounter-based data than fee-for-service data: 75 percent in 2021 and 100 percent in 2022. This proposal aligns with CMS’ goals to transition to 100 percent encounter data in 2022 as stated in the 2020 Advance Notice and Draft Call Letter.
  • Reducing utilization of low-value services paid by Traditional Medicare through new prior authorization demonstrations.

HMA Next Steps

HMA continues to analyze these proposals and others included in the President’s budget. For more information or questions about the President’s budget or other legislative or regulatory proposals, please contact Narda Ipakchi.

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