Funding Healthcare: A Tale of Two Budgets

February 16, 2018

While the president’s budget proposal for fiscal year 2019 reflects the administration’s aspirational policy priorities, its uneasy pairing with the Bipartisan Budget Act of 2018, which increases funding for many US healthcare programs, underscores the challenges associated with funding healthcare in a constrained budget environment.

Over the course of four days, Congress and the White House each released a budget that addresses funding for healthcare programs—however, the budgets differ significantly. While Congress’s Bipartisan Budget Act of 2018 (BBA), signed into law by President Donald Trump on February 9, increases and extends funding for many healthcare programs, the president’s budget proposal for fiscal year 2019, released on February 12, would reduce US Department of Health and Human Services (HHS) funding by nearly 18% and turn Medicaid into a block grant program. And while the 2019 budget proposal reflects the administration’s aspirational policy priorities, its misalignment with the BBA emphasizes the challenges that come with funding healthcare in a constrained budget environment.

The Bipartisan Budget Act of 2018

The BBA extends government funding at current levels through March 23 and paves the way for full funding of the government after March 23 by increasing the budget caps on defense and nondefense discretionary spending for fiscal years 2018 and 2019. Additionally, the BBA extends and modifies dozens of healthcare programs through the end of the fiscal year and in some cases, well beyond.

To put this action in context, under the 2011 Budget Control Act annual discretionary spending—both defense and nondefense—was automatically limited by sequestration in order to reduce the deficit. However, due to the unpopularity of sequestration, Congress has attempted to avoid those spending cuts by enacting bipartisan spending agreements for fiscal years 2012 through 2017. Under those agreements, Congress raised discretionary spending caps for defense and nondefense in parity, while allowing for automatic cuts to certain mandatory programs to achieve the required deficit savings.

Prior to last week’s action, Congress was unable to reach a similar bipartisan agreement for fiscal year 2018 and thus had to rely on a series of “continuing resolutions” to fund the government. Under the BBA, the budget for nondefense discretionary spending will increase by $131 billion over the next two years, with the fiscal year 2018 cap increasing by $63 billion and the fiscal year 2019 cap increasing by $68 billion. It will now be left to the House and Senate Appropriations Committees to decide on the allocation of those additional spending limits before the March 23 deadline.

Healthcare Funding, Policy Changes, and Related Provisions

At its core, the BBA is healthcare legislation, cobbled together from a slew of pending bills in Congress. To that end, the new law appropriates $6 billion for combatting the opioid crisis and improving mental healthcare and $2 billion to support medical research by the National Institutes of Health, and fully funds community health centers for two years ($7.8 billion). It also provides $90 billion in supplemental appropriations for disaster relief and recovery for those affected by the hurricanes, wildfires, and other weather events of 2017, including additional funding support for the Medicaid programs in Puerto Rico and the US Virgin Islands.

The BBA extends authorization of the Children’s Health Insurance Program (CHIP) from 6 years to 10 years, through 2027. The Congressional Budget Office concluded that further extending CHIP would reduce direct spending by $260 million while resulting in $4.6 billion in increased revenues, for an overall $4.8 billion deficit reduction. Also extended were grants for outreach and enrollment activities in CHIP as well as the Pediatric Quality Measures Program and the Maternal, Infant and Early Childhood Home Visiting Program.

In the Medicaid program, disproportionate share hospital (DSH) payment cuts, called for under the Affordable Care Act, have been delayed for another two years. Updates were also made to the Medicaid/CHIP third-party liability provisions to extend to 90 days the time period in which a state must process Medicaid claims in order to allow for the proper processing of claims, in particular for prenatal care and preventive pediatric care, through third-party payors prior to processing Medicaid claims where Medicaid is a secondary payor.

Medicare Policy and Payment Changes

Medicare policy and payment changes dominate the BBA’s healthcare provisions. Highlights include a permanent repeal of the Medicare payment cap for outpatient physical and occupational therapy and speech-language pathology services retroactive to January 1, 2018. Various programs extended by the BBA include ground ambulance service add-on payments (now extended to December 31, 2022) and the reauthorization of the Medicare low-volume hospital and Medicare-dependent hospital programs through September 30, 2022.

Noteworthy changes to Medicare payment policy include a reduction in the 2019 update to the physician fee schedule from 0.5% to 0.25%. The reimbursement update for skilled nursing facilities will be set at 2.4% in fiscal year 2019. For long-term care hospitals, the new law extends the current blended payment rate through fiscal year 2019 and reduces the market basket update by 4.6% for fiscal years 2018 through 2026.

For home health agencies, the reimbursement update will be set at 1.5% in fiscal year 2020. The home health payment reforms include the transition to a 30-day unit of payment for services beginning January 1, 2020, and modified face-to-face documentation requirements for demonstrating homebound and medical necessity status.

Hospice facilities will be subject to the existing Medicare post–acute care transfer policy beginning October 1, 2018. And effective January 1, 2019, attending physician assistants will be permitted to act as attending physicians for purposes of managing (but not certifying) hospice care for Medicare beneficiaries.

A significant portion of the BBA addresses Medicare policy changes aimed at improving the coordination and management of chronic disease. Chief among these are provisions for expanding telehealth technologies including expanding the use of telehealth for stroke patients, authorizing access to telehealth visits for end-stage renal disease patients receiving dialysis at home, expanding access to telehealth benefits for Medicare Advantage beneficiaries, and removing barriers to utilizing telehealth services by certain accountable care organizations (ACOs).

Notable changes to the Shared Savings Program include the option for ACOs to choose prospective assignments of Medicare beneficiaries and for Medicare beneficiaries to choose ACOs in which their primary care providers participate. ACOs under the Track 2 and 3 payment models may offer cash incentive payments of up to $20 per visit to beneficiaries for qualifying primary care services.

The new law also makes technical modifications to the Merit-based Incentive Payment System (MIPS) established by the Medicare Access and CHIP Reauthorization Act (MACRA) in 2015.

The BBA closes the Part D “doughnut hole” coverage gap sooner by lowering beneficiaries’ coinsurance for drug purchases to 25% in 2019 (as opposed to 2020 under current law). The new law also increases the percentage that beneficiaries earning $500,000 or more ($750,000 for a household) pay in Medicare Part B and D premiums to 85%.

The “escalator” clause under the Health Information Technology for Economic and Clinical Health (HITECH) Act that requires HHS to implement increasingly stringent measures of meaningful use over time is removed.

The new law also repeals the provision that created the controversial Independent Payment Advisory Board (IPAB). Conceived as an independent board under the Affordable Care Act and tasked with constraining growth in Medicare spending, the IPAB was never actually operational.

Program Integrity

The BBA incorporates into statute certain clarifications previously made relating to the Stark Law, including a provision specifying that contemporaneous documents evidencing a course of conduct between the parties are permitted in lieu of a formal written contract, and that the parties have 90 days from the effective date of the arrangement to obtain signatures. The Stark Law is also revised to permit indefinite holdovers on the same terms and conditions following expiration of the term for space and equipment leases and personal service arrangements that continue to meet the requirements of these Stark Law exceptions.

Penalties set forth in the Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which currently range from $2,000 to $50,000, are essentially doubled. For example, the civil penalty for violating the Anti-Kickback Law is increased from $50,000 per violation to $100,000. The BBA also increases criminal fines and sentences for acts involving federal healthcare programs set forth in Section 1128B of the Social Security Act. These acts include the filing of false claims and violation of the Anti-Kickback Law. Maximum sentences for criminal acts are increased from 5 years to 10 years. The criminal fines, which currently range from $2,000 to $25,000, are increased to a range of $4,000 to $100,000. These increased penalties apply to acts committed after the date of enactment of the BBA.

Fiscal Year 2019 Budget Proposal

In the immediate term, the increases to nondefense domestic discretionary spending for fiscal years 2018 and 2019 combined with certain programmatic extensions included in the BBA will deliver greater certainty across the healthcare sector. However, many challenges exist. The fiscal 2019 budget proposal submitted by President Trump and Office of Management and Budget Director Mick Mulvaney illustrates the administration’s desire to significantly constrain current and future domestic spending, redefine the federal government’s role in healthcare, and pare down some of the government’s obligations. This outlook is both a product of and a message to the leadership of the departments and agencies that compose the federal government. The budget proposal is largely symbolic, but the impulses that crafted it will also shape regulation and policy. Furthermore, while the proposal, as a whole, will not be acted upon by Congress, the constituent policies that underpin its ultimate goals may find favor individually on Capitol Hill. Still others may be possible should the Republican Party expand its majorities in the 2018 midterms.


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Washington, DC
Tim Lynch, Senior Director
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