Providers serving high numbers of Medicaid patients would lose under White House budget

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Trine K. Tsouderos HRI Regulatory Center Leader, PwC US February 14, 2020

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President Donald Trump’s 2021 budget proposal, unveiled this week, proposes cutting almost $1 trillion in federal Medicaid funding over 10 years, underscoring the administration’s push to reduce spending on the program.

In particular, dramatic cuts to federal Medicaid funds would affect healthcare providers and Medicaid managed care organizations, and would force states to make difficult decisions about how to serve their millions of beneficiaries, many of them children.

The document, which has little chance of being enacted but serves as a statement of the administration’s priorities, describes its approach as fostering state flexibility, while enhancing accountability to preserve Medicaid’s sustainability over the long run.

About 74 million Americans get their health coverage from the program, which is jointly administered by the states and the federal government. Total Medicaid spending in fiscal 2019 was $616 billion, according to the Kaiser Family Foundation.

Savings of $152 billion over 10 years would be generated through a federal requirement that low-income, able-bodied, working-age people find employment, train for work or volunteer in order to receive Medicaid benefits. CMS has encouraged states to adopt work requirements, but so far, these programs have been met with skepticism in the federal courts.

The budget document also indicates that the administration plans to finalize proposed regulatory changes that would reduce federal Medicaid outlays by tightening rules on state Medicaid financial arrangements, such as provider taxes and supplemental provider payments, that generate matching dollars from the federal government.

HRI impact analysis

Outlined in the proposed Medicaid Fiscal Accountability Regulation, these reforms have been criticized by providers, private insurers, governors and state Medicaid directors. The rule would diminish state flexibility and create Medicaid funding uncertainty, the National Governors Association and the National Association of State Medicaid Directors noted in comment letters to CMS.

The regulation states that its fiscal impact on Medicaid is “unknown.” The American Hospital Association (AHA) estimates that it would cut Medicaid by $37 billion to $49 billion annually, or 5.8% to 7.6% of total program spending. Hospitals could see Medicaid payment reductions of $23 billion to $31 billion annually, representing 12.8% to 16.9% of hospital program payments.

The 2021 budget proposal also would hit some hospitals’ bottom lines by extending by five years, to 2030, reductions in payments to facilities that serve a disproportionate share of Medicaid patients. The administration estimates the move would generate $32.4 billion.

On the Medicare front, the budget proposes saving $9.5 billion over 10 years by going forward with the administration’s plan to begin paying for outpatient hospital clinic visits at the less expensive physician office rate.

All told, the budget proposal includes “hundreds of billions of dollars in reductions to Medicare and Medicaid over 10 years,” according to the AHA. However, this $4.8 trillion budget, like all presidential budget plans, is nonbinding as Congress ultimately decides federal funding.

Many of its public health spending cuts would require additional legislative changes by Congress that are unlikely to happen, especially with Democrats in the House majority. Other measures may be held up in court. Still, the document serves as an indication of the president’s priorities in the coming fiscal year.    

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

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