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White House FY 2021 Budget Proposal Reduces Research Appropriations, GME

February 14, 2020

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CONTACTS
Len Marquez, Senior Director, Government Relations
Matthew Shick, Sr. Director, Gov't Relations & Regulatory Affairs

The White House Feb. 10 released A Budget for America’s Future, the president’s fiscal year (FY) 2021 budget proposal. The budget proposes significant decreases in federal spending overall, including a 9% reduction to the Department of Health and Human Services (HHS). In addition to deep cuts to Medicare, graduate medical education (GME), and Medicaid, the proposal also requests major funding reductions for the National Institutes of Health (NIH) and the Health Resources and Services Administration (HRSA) Titles VII and VIII workforce programs, among a number of other HHS programs.

AAMC President and CEO David J. Skorton, MD, issued a Feb. 10 statement encouraging Congress to reject the proposed budget, noting that it “would be devastating for patients and their families, derailing critical progress on new cures, prevention, and treatments for disease. The proposed budget also would ravage America’s health care workforce infrastructure and dismantle the health care safety net.”

For the NIH, the administration proposes $38.7 billion in FY 2021, a $3 billion or more than 7% cut below the FY 2020 enacted program level. The AAMC is among over 330 members of the Ad Hoc Group for Medical Research recommending $44.7 billion for NIH in FY 2021.

As in the past three years, the president’s request proposes to eliminate the Agency for Healthcare Research and Quality (AHRQ) and fund it as a new institute within NIH. The budget requests $257 million for the proposed replacement National Institute for Research on Safety and Quality, which would represent an $82 million (24%) cut below AHRQ’s current funding level.

The administration, as in previous years, proposes to consolidate Medicare GME, Medicaid GME, and Children’s Hospital GME (CHGME) spending into a single, capped grant program that would be funded out of the Treasury. Growth in total GME funding would be limited to the sum of Medicare and Medicaid’s 2017 GME payments, plus 2017 CHGME payments. This amount would be adjusted for inflation according to the Consumer Price Index for all Urban Consumers (CPI-U), minus one percentage point annually. According to budget documents, the proposal would have an overall net cut of $52.2 billion over 10 years.

Payments would be made to teaching hospitals based on the “number of residents at a hospital (up to its existing cap) and the portion of the hospital’s inpatient days accounted for by Medicare and Medicaid patients.” The HHS Secretary would have discretion to modify the amounts distributed based on several factors, including the proportion of residents training in priority specialties or programs, health care professional shortages, and educational priorities.

The proposed budget also generates cuts to all hospitals by amending so-called site neutral payment policy in two ways. The proposal would cut $47.24 billion over 10 years by eliminating all exceptions to the so-called site neutral payment policy and requiring all off-campus hospital outpatient departments to be paid under the Physician Fee Schedule. The budget proposal would also cut $117.2 billion over 10 years by expanding so-called site neutral payment policy to on-campus hospital outpatient departments and pay them under the physician fee schedule for certain services, such as clinic visits.

As in past years, the proposed budget would establish a new process to distribute Medicare uncompensated care payments to hospitals based on share of charity care and non-Medicare bad debt, as reported on Medicare cost reports. The total amount of available uncompensated care payments would be equal to FY 2019 funding levels, grown annually CPI-U. Uncompensated care payments would be funded from the general fund of the Treasury rather than the Medicare Trust Fund.  The proposal would result in a $174.2 billion Medicare cut over 10 years, however $86.3 billion in increased spending from general revenues would result in a net cut of $87.9 billion over 10 years.

Under current law, Medicare generally reimburses providers for 65% of bad debts from non-payment of cost-sharing requirements. Under the proposed budget, Medicare reimbursement of bad debt would be eliminated, for a cut of $33.6 billion over 10 years.

The budget proposal includes nearly $1 trillion in cuts to the Medicaid program over 10 years. The proposal would increase and extend the Medicaid Disproportionate Share Hospital (DSH) cuts through FY 2030, resulting in a $32.36 billion cut over 10 years. Under current law, the cuts are scheduled to go through FYs 2020-2025 and take effect beginning May 22 [see Washington Highlights, Dec. 19, 2019].

It would also require working-age, non-disabled beneficiaries to work, perform community service, or undergo job training as a condition for receiving Medicaid benefits and would create more stringent screening requirements for current enrollees.

Unlike previous years, the president does not include a specific proposal to repeal and replace the Affordable Care Act. Instead, the budget references the President’s Health Reform Vision, which would cut Medicaid by $744 billion over 10 years, but does not provide specific details on the plan.

The budget proposal calls on Congress to pass comprehensive legislation to reduce the cost of prescription drugs. While the administration does not endorse a specific piece of legislation, it does support efforts to establish an out-of-pocket maximum and reduce out-of-pocket costs for seniors, as well  as lower costs of generic and biosimilar drugs to patients. The budget anticipates legislation that accomplishes these goals would save $135 billion over 10 years.

Similar to previous years, the budget proposes several changes to the 340B Drug Pricing Program. The administration proposes to give HRSA general regulatory authority over the program to “allow for clear, enforceable standards of participation and will help ensure covered entities maintain compliance with 340B program requirements and the program benefits low-income and uninsured patients.” Additionally, the budget would implement a new user fee of 0.1% of total 340B drug purchases from covered entities to improve operations and oversight. It would also require covered entities to report on how they use the savings generated from the program.

The president’s budget proposes $250.4 million for HRSA Title VII health professions and Title VIII nursing workforce development and diversity programs, a $484 million (66%) decrease below FY 2020 enacted levels. The budget includes $23.7 million for Centers of Excellence, $137 million for Mental and Behavioral Health and Behavioral Health Workforce Education and Training, all flat-funded from FY 2020, and $4.6 million for Workforce Assessment, a $1 million (18%) decrease from FY 2020. All other Title VII programs, including the Health Careers Opportunity Program and Area Health Education Centers, are proposed to be eliminated.

The president’s FY 2021 budget requests a total of $430 million for the National Health Service Corps. Within this total, the request includes $120 million in discretionary funding, which is the same level as FY 2020 enacted levels. Additionally, the budget would continue $310 million in mandatory funding for FY 2021, which would require congressional reauthorization of the mandatory appropriation fund that expires with the “primary care cliff” on May 22 [see Washington Highlights, Dec. 19, 2019].

The president’s budget request proposes $127 million in mandatory appropriations for Teaching Health Center GME (THCGME) for FY 2021, which also has its funding expire on May 22. The budget proposal would eliminate the HRSA Rural Residency program, which received $10 million in FY 2020, and the HRSA Medical Student Education program, which received $50 million in FY 2020.

The president’s request includes $787 million for VA research in FY 2021. The final FY 2020 spending bill appropriated $800 million for VA research and also rescinded $50 million in prior year unobligated balances. The president’s FY 2021 request is a $13 million, or 1.6%, decrease below the FY 2020 enacted level.  The president’s budget also includes $18.5 billion for VA Medical Community Care, a $3.2 billion (21%) increase over the FY 2020 comparable level, and $20.2 billion in FY 2022 advanced appropriations. The budget request includes $56.7 billion for VA Medical Services in FY 2021, a $5.6 billion (11%) increase from the 2020 enacted level. The budget also proposes $58.9 billion in 2022 advance appropriations for VA Medical Services programs.

The budget request also proposes $7.74 billion for the National Science Foundation, a $537 million or 6.5% decrease from FY 2020 funding levels.

For the third year in a row, the president’s budget request would eliminate Public Service Loan Forgiveness, which forgives federal direct student loans after borrowers serve 10 years working in, and making repayment during, a public service setting. The request also would eliminate cost of attendance borrowing for graduate students (i.e., GradPLUS loans) and proposes to increase graduate student loan interest rates by 1 percentage point to 7.08%, as well as new annual and aggregate loan limits.

The request also includes a proposal for a single income-driven repayment that would increase a borrower’s monthly payment to 12.5% of discretionary income, increase total repayment to 30 years for graduate and professional students, and eliminate the current monthly repayment cap.  The budget request notes that “all student loan proposals would apply to loans originating on or after July 1, 2021, except those provided to borrowers to finish their current course of study.” Congress is likely to consider any student loan legislative changes as part of a broader Higher Education Act reauthorization package.

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