What’s Good, Bad or Ugly for Ortho in Trump’s 2020 Budget

Some of President Trump’s proposed 2020 budget (with projections to 2028) is likely dead on arrival but other sections may well emerge from the gauntlet and become law. So, pay attention.

Here, according to the American Academy of Orthopaedic Surgeons (AAOS), are the proposals that orthopedic physicians should like. The AAOS statement says in part:

“We are encouraged to see the president’s budget request funding for several ongoing AAOS advocacy priorities… Reducing the cost disparity between sites of care, reforming anti-competitive physician self-referral laws, and providing safe harbors to the anti-kickback statute are a few of the ways we can begin to address the many regulations and policies that inhibit choice and competition.“

But politics is a full-contact sport these days. And Trump’s proposed budget faces tough going. Among other things, it proposes to cut healthcare and other entitlements going into an election year.

Some of Trump’s funding cuts which would affect orthopedists in easily predictable ways, and others with less visible consequences, do stand a chance of passing in Congress or being implemented in regulations. Here’s an overview.

1. Trump’s $575 billion Medicare cut includes less pay for physicians and hospitals

Trump proposes to cut the Medicare budget by $575 billion* over the next 10 years.

* (A bigger number, $845 billion, has been widely reported in the media. However, $270 billion of that comes from moving out of Medicare two programs which aren’t direct patient care).

About 15% of the $575 billion cut is the estimated benefit from spending more to catch fraud and abuse. These programs have been fed more funds over the years, but sooner or later, spending on them will inevitably collide headlong with the law of diminishing returns.

The bigger cuts, according to the Committee for a Responsible Budget (CFRB), are reductions in Medicare direct payments to physicians and hospitals. Some of these might pass because they respond to the political pressures created by the giant Trump deficits, and some Democratic leaders believe Medicare overpays physicians and hospitals. Details include:

2. Slash Medicare payments to on-campus hospital outpatient departments

In a “site neutrality” proposal supported by AAOS, the budget would slash Medicare payments to on-campus hospital outpatient departments by $131 billion over 10 years, pegging them to the Physician Fee Schedule (PFS). A budget document says:

“Effective CY 2020, this proposal makes site neutral payments between on-campus hospital outpatient departments and physician offices for certain services such as clinic visits, eliminating the disparity between what Medicare pays in these settings for the same services.”

This proposal mirrors the “site neutrality” reduction in payments to hospital off-campus outpatient departments, which the Centers for Medicare and Medicaid Services (CMS) implemented last November, setting their reimbursements to basically the same rates as paid to physicians under the PFS. (“CMS Finalizes Outpatient ‘Site Neutrality’ Rules,” Orthopedics This Week, November 14, 2018).

Those prior reductions in payments for off-campus clinics are being phased in over 2019 and 2020; they’re expected to cut total Medicare payments to hospitals by $33.98 billion over 10 years.

It’s not clear how much of the newly proposed cuts would be passed on by hospitals to physicians who receive pay from on-campus hospital outpatient clinics. Clearly, however, taking $131 billion out of the healthcare system, on top of the prior $33.98 billion, is downward pressure on the income of hospital-based physicians and subtracts money from patient care overall.

The American Hospital Association (AHA) and the American Association of Medical Colleges filed a lawsuit to challenge that first site neutrality rule. No doubt, they’d sue again if CMS were to propose the same change for on-campus outpatient departments without clear congressional authority.

3. Will Private insurers follow Medicare cuts? Yes

Reduced Medicare reimbursements might drag down the generally higher private insurance reimbursement rates as well. The cuts could be significant.

According to “In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments,” a statistics-heavy 2017 study in the Journal of Political Economics, “we estimate that a $1.00 decrease in Medicare’s payment for a surgical service causes a $1.16 decline in private payments for that service. This response emerges within 1 year of Medicare’s administrative change.” A second branch of the study, using broader sets of data than surgical-only, found that a $1.00 decrease in Medicare reimbursement brought about a $1.12 decline in private insurance reimbursement.

4. Change ASC payments to be risk-adjusted but budget-neutral

Currently, Medicare bases payments for services at outpatient hospital and ambulatory surgery centers (ASCs) on the care setting rather than on patient acuity. The budget proposes to risk-adjust payments to these facilities based on the severity of patients’ diagnoses in a budget-neutral manner. “This proposal will promote site neutrality in payments for similar services and similar patient characteristics at these facilities,” the budget proposal says.

This proposal goes hand-in-glove with cutting payments to hospital-based outpatient surgery facilities. The AHA has argued that hospitals get the more complex and difficult surgery cases, and ASCs don’t have the capability to deal with some emergencies.

Site neutrality is the sort of proposal Congress might accept, given the federal budget deficit and given the support from surgeons.

5. Financial incentives to risk-taking ACOs; Stark Law exemptions

The budget seeks to boost patient use of accountable care organizations (ACOs) which accept down-side risk. One proposed action would allow them to “cover the cost of primary care visits to encourage use of the ACO’s providers.”

Another proposal, strongly supported by AAOS, would establish “safe-harbors” for surgeons and ACOs from Stark Law rules. A White House budget-in-brief document says:

“The Physician Self-Referral Law … [is] a significant impediment to care coordination, participation in alternative payment models, and the establishment of novel financial arrangements that further the goals of a value-based system. Effective CY 2021, the Department, in consultation with the HHS Office of Inspector General, will establish a new exception to the physician self-referral law for arrangements that arise due to participation in advanced Alternative Payment Models and identify the types of arrangements and the minimum risk levels and level of participation in the model required for such exceptions.”

That statement seems to imply that the Administration believes HHS [Health and Human Services] can create exceptions to the Stark Law without congressional action. The AAOS comments on the Stark Laws are closely similar to the Administration’s.

Also, AAOS issued a statement supporting, but seeking changes in, a bill which would similarly relieve ACOs from the Stark Laws. That bill, the Patient Affordability Value and Efficiency (PAVE) Act, is still a draft. U.S. Sens. Bill Cassidy, M.D., a Louisiana Republican, and Mark Warner, a Virginia Democrat, released it for comments February 13. They didn’t indicate when it might be introduced.

6. Value-based purchasing for hospital outpatient departments and ASCs

“Beginning in CY 2021, CMS will implement a value-based purchasing program for hospital outpatient departments and ambulatory surgical centers (ASCs), offering them incentives to improve quality and health outcomes,” the budget-in-brief document says. Two percent of payments would depend on quality and outcome measures under a budget-neutral system.

7. Get ready for more prior authorization requirements – from Medicare

While hospitals and physicians seek ways to reduce the burdens of prior authorizations, the Administration is proposing to vastly increase CMS’ authority to require them.

The budget proposal says, “current law restricts Medicare’s ability to use this tool on all but a few fee-for-service items and services. This proposal extends the narrow existing authority to all Medicare fee-for-service items and services, specifically those that are at high risk for fraud and abuse,” claiming that CMS can reduce improper Medicare payments by $6.3 billion over 10 years.

Nothing in the budget documents explains which fee-for-service items the Trump Administration regards as being “at high risk for fraud and abuse.”

Congressional action would be required, but this item might be worth worrying about. Congress won’t suffer a huge public political backlash if it were to expand prior authorizations, especially if the case can be made for $6.3 billion in savings by making physician office staffs work harder to get procedures authorized. AAOS didn’t comment on this proposal, so maybe its effect on orthopedics is minimal.

8. Replace Medicaid with state block grants: This won’t fly

The budget proposes a version of the so-called Graham-Cassidy-Heller-Johnson bill, which failed in 2017 as a bill and in 2018 as a Trump budget proposal when Republicans held both houses of Congress.

Among other actions, it would replace federal Medicaid funding with a block grant system HHS Secretary Alex Azar calls the “Market-Based Health Care Grant Program.” The Kaiser Family Foundation published a summary of the reductions in health care coverage under Graham-Cassidy, “5 Ways the Graham-Cassidy Proposal Puts Medicaid Coverage At Risk,” in 2017. The Trump budget adopts the same ideas as Graham-Cassidy, but it’s stingier.

A White House summary also says the budget includes “proposals to align the Market-Based Health Care Grant Program, Medicaid per capita cap, and block grant growth rates with the Consumer Price Index (CPI-U) and to allow States to share in program savings.”

Since health care spending tends to rise faster than the CPI-U (Consumer Price Index for All Urban Consumers), the net effect would be that states would individually decide where to spend healthcare funds. Available funds would effectively diminish each year against need.

Also, the Trump budget proposes higher Medicaid copayments, work requirements for Medicaid, and an end to zero-premium Obamacare plans, all of which would create financial impediments for patients needing medical care.

While Medicaid in most states doesn’t cover the most common big-ticket orthopedic procedures (knee and hip arthroplasties and complex spinal procedures), the website doctor.com lists 13,763 orthopedic surgeons who accept Medicaid. AAOS estimates that there are about 25,500 orthopedic surgeons practicing in the U.S., so more than half of all orthopedic surgeons could potentially see some negative effects if these proposed changes in Medicaid were to pass.

However, this change doesn’t seem to stand a chance of becoming law with Democrats controlling the House, and with the history of opposition from Republicans on Capitol Hill.

9. Gut the NIH budget: this one also is probably DOA

AAOS opposes a proposed Administration action to slash the National Institutes of Health (NIH) by 12%, from $39.1 billion this year to $34.4 billion in 2020. Under this plan, the National Institute of Arthritis & Musculoskeletal & Skin Diseases would see a deeper cut of $84 million, or 13.9%, from $605 million in 2019 to $521 million in 2020.

These cuts are highly unlikely. Congress likes science funding. It has boosted NIH funding by small amounts each year after the Administration proposed cuts.

AAOS also opposes a budget proposal to kill off the Agency for Healthcare Research and Quality (AHRQ), move its functions into the National Institutes of Health under the name “National Institute for Research on Safety and Quality,” and slash its budget 24% from $338 million to $255,960.

10. Expand cheap health insurance policies with little coverage: DOA

Another Trump budget proposal without a chance of becoming law is described in the budget as “a path for States and consumers to be relieved from many of the PPACA’s (Patient Protection and Affordable Care Act, e.g., Obamacare) insurance rules and pricing restrictions that have resulted in one-size-fits-all plans with soaring premiums and deductibles. This would allow people to buy insurance plans that work for them and that are fairly priced, a substantial benefit to middle class families who do not receive coverage through the workplace.”

In plain English: Trump wants to let states write cheap insurance policies with bare-bones coverage. It would then fall to the physician’s office to tell patients that their painful back, hip, or knee isn’t covered by their plan or isn’t covered because it’s a pre-existing condition. The Democratic majority in the House won’t let this happen.