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Learn about policy issues important to medical schools and teaching hospitals, with Executive Vice President Atul Grover, M.D., Ph.D.

Washington Highlights

President’s Budget Includes Major Cuts to HHS, Other Domestic Spending

May 26, 2017 - The administration May 23 released its full fiscal year (FY) 2018 budget request, which proposes $3.6 trillion in spending reductions over ten years. Though the proposal does not include direct cuts to Medicare, it proposes substantial reductions to other programs within the Department of Health and Human Services (HHS) – including the National Institutes of Health (NIH), Medicaid, and health professions programs – as well as programs at the Departments of Education and Veterans Affairs.

In a May 23 statement, AAMC President and CEO Darrell G. Kirch, MD, noted, “The president’s proposed cuts in domestic spending for fiscal year 2018 would put national health security at risk. Such drastic reductions to medical research, Medicaid, and other programs at the Departments of Health and Human Services and Education would have a devastating impact on the health of all Americans.”

Many of the proposed cuts align with the FY 2018 “budget blueprint” the White House released in March [see Washington Highlights, March 17], which focused exclusively on discretionary spending. The full budget request released May 23 offers additional details about the March proposals, as well as an outline of the administration’s priorities on mandatory spending and other items.

Of particular interest to medical schools and teaching hospitals:

 

NIH and Agency for Healthcare Research and Quality: The president’s budget request proposes a program level of $26.9 billion for NIH, a $7.2 billion (21 percent) cut below the final FY 2017 spending bill, which the administration estimates would lead to approximately 2,000 fewer grants compared to FY 2016. The budget request achieves the cut in part by proposing to allow no more than 10 percent of total NIH research funding to support facilities and administrative (F&A) expenses, a 72 percent drop relative to the FY 2016 proportion of 27 percent.

While the proposal assumes continued funding through the 21st Century Cures Act Innovation Account, which provides $496 million for four targeted NIH initiatives in FY 2018, the budget request proposes to eliminate the Fogarty International Center and to establish a new National Institute for Research on Safety and Quality (NIRSQ) to replace the Agency for Healthcare Research and Quality (AHRQ). The request assumes a $272 million appropriation for NIRSQ, $52 million (16 percent) less than AHRQ’s final FY 2017 appropriation, and expects to supplement the appropriation with a $107 million transfer to the institute from the Patient Centered Outcomes Research Trust Fund, as currently directed to AHRQ. 

The funding proposal stands in stark contrast to the $2 billion increase that more than 300 patient, medical, scientific, academic, and industry organizations are recommending for NIH through the Ad Hoc Group for Medical Research, which the AAMC convenes.

Salary Cap: The administration proposes to reduce the salary cap for HHS grants from Executive Level II of the federal pay scale ($187,000 in 2017) to Executive Level V ($151,700 in 2017).

Medicare and Medicaid: The president’s budget request does not include any direct Medicare cuts. The budget proposes to repeal the Independent Payment Advisory Board and provides $1.3 billion over 10 years to address the backlog in pending Medicare appeals. However, the administration proposes to reform the Medicaid financing structure to give states the choice between a per capita cap or block grant beginning in FY 2020, resulting in over $600 billion in cuts to the program over ten years. According to the HHS Budget-in-Brief, “This proposal will free States to advance solutions that best serve their unique populations – for example, encouraging work, promoting personal responsibility, and meeting the spectrum of diverse needs of their Medicaid populations.” These cuts are in addition to the Medicaid reductions in the House-passed American Health Care Act, leading to a total of over $1.2 trillion in cuts to the program between FY 2018-2027 if both proposals are enacted.

Additionally, the budget proposes to extend the Children’s Health Insurance Program (CHIP) for two years (through FY 2019), but would eliminate a temporary 23 percentage point increase in the enhanced federal match two years early. The proposal also would remove the maintenance of effort requirement and limit eligibility to no more than 250 percent of the federal poverty level (FPL), which would reduce CHIP eligibility levels in more than 20 states. Also, the administration proposes to allow states to move children ages 6-18 in families with incomes between 100-133 percent FPL back into CHIP, after they were transitioned into Medicaid under the Affordable Care Act. In total, the CHIP changes would result in almost $6 billion in cuts.

Department of Veterans Affairs (VA): The president’s budget request for VA proposes $640 million for VA Medical and Prosthetic Research, a $35 million (5.2 percent) cut from the FY 2017 comparable level. The president’s budget proposal also requests $9.7 billion for FY 2018 VA Medical Community Care, a $254 million (2.7 percent) increase above the enacted FY 2018 advance level. The budget proposal also requests $8.4 billion in advance appropriations for FY 2019, a $1.3 billion (13.2 percent) decrease from the FY 2018 request.

The administration also notes that in 2018 and 2019 it will consolidate all of its community care programs and business processes, and “build on existing infrastructure to develop a high-performing network of community providers, including Federal partners such as the Department of Defense, and academic affiliates; streamline clinical and administrative processes; and implement a continuum of care coordination services.”

Health Professions: The president’s budget proposes to eliminate all Title VII health professions and Title VIII nursing workforce programs under the Health Resources and Services Administration (HRSA) with the exception of flat funding for the Title VII Health Care Workforce Assessment ($4.7 million) and the Nurse Corps Scholarship and Loan Repayment programs ($83 million). In total, the budget proposes to cut $403 million from HRSA workforce programs, including the Centers of Excellence (COE), Health Careers Opportunity Programs (HCOP), Primary Care Medicine, Area Health Education Centers (AHECs), and Geriatric programs, among others. The budget also eliminates the Behavioral Health Workforce Education and Training (BHWET) program — providing no funding through HRSA and expressly removing it from the Substance Abuse and Mental Health Services Administration (SAMHSA) budget.

340B Drug Pricing Program: The FY 2018 budget proposes $10.2 million to administer the 340B program, which is the same as the FY 2017 comparable level. The budget also requests regulatory authority, stating, “HHS will work with Congress to develop a legislative proposal to improve 340B Program integrity and ensure that the benefits derived from participation in the program are used to benefit patients, especially low-income and uninsured populations. This proposal would provide regulatory authority.” The HRSA budget justification highlights that “the 340B program helps designated hospitals and clinics provide more care to additional patients” and references a 2011 GAO study that found that “entities participating in the 340B program are able to expand the type and volume of care they provide to target populations as a result of access to these lower cost medications.” Additionally, the justification states that 340B sales are approximately 2.8 percent of the total U.S. drug market.

Department of Education (ED): The president’s Education budget proposes several legislative changes to medical student loan and repayment programs. Of interest to medical students and residents, the budget proposes eliminating Public Service Loan Forgiveness (PSLF). 

The proposal also would replace the five current Income Driven Repayment (IDR) plans with one new single IDR plan. The proposed IDR would:

  • Set monthly payments at 12.5 percent of discretionary income;

  • Eliminate the standard repayment cap;

  • Increase the maximum repayment length to 30 years for borrowers with any graduate debt—any remaining amounts owed after these repayment periods would be forgiven; and

  • Calculate payments for married borrowers filing separately on the combined household Adjusted Gross Income. 

During a Department of Education budget briefing, staff reassured stakeholders that borrowers with loans originated prior to July 1, 2018, will be “grandfathered” in to previous repayment plans.

Contact:

Tannaz Rasouli
Sr. Director, Public Policy & Strategic Outreach
Telephone: 202-828-0525
Email: trasouli@aamc.org

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For More Information

Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806
Email: jkleinman@aamc.org