GOP puts ideas for major healthcare spending cuts in writing

Big healthcare provisions and programs face the prospect of cutbacks as congressional Republicans look to pass a budget for the remainder of FY25.

With Donald Trump in place for a second presidential term starting Monday afternoon and narrow Republican majorities in both chambers of Congress, the GOP has a chance to influence federal policy on various fronts. Party leaders plan to use the budget reconciliation process, which avoids the need for a 60-vote supermajority in the Senate, to pass key measures.

A preliminary list of federal programs to trim totals more than $5 trillion over 10 years. The 50-page list is essentially a menu of options, not an indication that included programs will actually be targeted leading up to the March 14 deadline to pass legislation before federal funding expires.

But with a stated intent to decrease the annual budgetary deficit while maintaining tax cuts that have been on the books since 2017, Republicans are expected to examine various avenues to achieving savings. Numerous healthcare items are on the list that was compiled and circulated in Congress late last week.

In a sign that the list was a work in progress, fields for indicating the viability (high, medium or low) of each proposal were left unattended. Thus, it’s hard to tell which of the recommendations are considered legitimately realistic in the halls of Congress.

Concerns for hospitals

The list includes proposals from various House committees, among them numerous cuts that would affect hospitals. Arguably the most radical step would be a sweeping elimination of the tax exemption for nonprofit hospitals, bringing in up to $260 billion in estimated 10-year savings

Medicare payments for bad debt would be phased out, according to one item, resulting in savings of up to $42 billion over a decade.

Savings potentially totaling $146 billion would accrue from implementing a comprehensive site-neutral payment policy in Medicare. It’s notable that this provision was listed by two committees, potentially giving some version of it momentum in budget talks. A related update would do away with the inpatient-only list, saving up to $10 billion over 10 years.

Another far-reaching change, to the tune of as much as $229 billion in savings, would modify the system of uncompensated care payments to include providers other than hospitals and remove Medicare as the funding source. A goal would be to more closely link payments to a provider’s “true share” of charity care and non-Medicare bad debt, according to the listing.

Another idea is to adopt block grants for graduate medical education (GME), achieving $75 billion in savings over 10 years. A narrower update to GME would shift more funding to rural teaching hospitals and reduce “excess” funding for “efficient” teaching hospitals.

Comparatively tame proposals entail prohibiting dual-track wage-index reclassification for hospitals and implementing “geographic integrity to reduce overpayments to urban hospitals,” as well as banning facility fees for telehealth and some outpatient services.

A change to the 340B Drug Pricing Program would affect revenue for participating providers by prohibiting employer-sponsored health plans from paying full price for a discounted drug. The estimated savings for this item was not listed.

Big impact on Medicaid

While essentially leaving Social Security and Medicare benefits untouched, the menu of cuts could affect Medicaid by more than $1 trillion.

Different options are presented for scaling back the federal medical assistance percentage (FMAP), including:

• Imposing per capita caps within states (savings of $900 billion)
• Lowering the 90% rate for the expansion population FMAP to equal the rate set by the traditional Medicaid formula ($561 billion)
• Removing the 50% floor for any state’s FMAP ($400 billion)

Another Medicaid proposal would limit hold-harmless tax arrangements by phasing down the provider-tax safe harbor from 6% to 3%, for 10-year savings of $175 billion. Such arrangements have been used to fund state-directed payment programs, some of which have become key revenue sources for providers.

There’s also a proposal to establish Medicaid work requirements, creating savings of $100 billion.

Savings well into the hundreds of billions could be realized by repealing sets of recent regulations that expanded Medicaid home- and community-based services and added constraints to eligibility verification, according to the list.

In another insurance program, technical changes to the availability of subsidies for buying Affordable Care Act marketplace insurance would add up to billions of dollars in savings. A bigger change, eliminating the enhanced subsidies that have been available since 2021, cannot be implemented until 2026.

Bolstering some funding

A few healthcare provisions on the list would increase spending, in part to boost underfunded providers.

For example, $10 billion over 10 years would go toward improving access to rural emergency care and facilitating discharges to post-acute care in rural areas.

In addition, $20 billion would be slotted within Medicare for improving access to care innovation, such as advanced screening that can detect multiple forms of cancer, and to telehealth.

Reforms to the Inflation Reduction Act would phase out Medicare’s authority to negotiate drug prices, costing about $20 billion over 10 years.

An unspecified cost would be generated by reforms to the Medicare Physician Fee Schedule, partly for the sake of breaking a string of several years in which physicians have incurred reductions to their payment rate. That includes a 2.83% cut for 2025.

Costs of nearly $600 billion over 10 years would accrue from the tax implications of a plan to recognize association health plans as single, large-employer plans under the Employee Retirement Income Security Act.