Welcome to another round of PYA Washington Updates! It’s been a busy week. Here are the latest developments on the healthcare front:
OBBBA Update: Medicare Advantage
As reported last week, some senators want to add MA payment reforms to OBBBA to further offset revenue reductions (or in place of other offsets, like Medicaid cuts). It seemed the two biggest players in the Medicare Advantage space may be supportive: United Healthcare and Humana took the position that diagnoses recorded only during in-home visits should not be considered in calculating payments to MA plans.
However, the reforms under consideration, first introduced in March as part of the No UPCODE Act, go much further, excluding all diagnoses identified through chart reviews and health risk assessments from the risk assessment model. The Congressional Budget Office estimates these changes would generate $125 billion in savings over 10 years.
Trade groups now are complaining loudly that these reforms amount to cuts in Medicare funding, something President Trump and congressional leaders promised they would not do. Better Medicare Alliance commissioned a poll showing voters do not support Medicare Advantage cuts in OBBBA, but by a lesser margin than those who oppose Medicaid cuts. Yesterday, reports circulated that the Senate may not have the stomach to pursue any Medicare Advantage reforms as part of OBBBA.
OBBBA: Direct Primary Care
One of OBBBA’s tax provisions may have a significant impact on the delivery of primary care services, as it would permit individuals with health savings accounts (HSAs) to use funds to pay for direct primary care (DPC) arrangements.
Highly summarized, a DPC arrangement involves a contract for a well-defined range of healthcare services that the DPC practice provides to the patient in exchange for a specified periodic fee. Although a little dated, this PYA white paper delves deep into DPC. For years, DPC proponents have claimed the exclusion of DPC payments from permitted uses of HSA funds stunted the growth of the DPC model, even though doctors and patients both benefit from this model of care delivery. It may be time to update that white paper…
Health Care Fraud and Abuse Control Act of 2025
On Thursday, Senate Democrats introduced legislation to increase funding for federal and state regulatory and law enforcement agencies responsible for tackling healthcare fraud, noting every dollar invested in enforcement generates $11 in recoveries. For now, it’s a political move to challenge Republicans’ claims that OBBBA does not cut Medicaid benefits, but only targets fraud, waste, and abuse. However, it shows there’s a bi-partisan appetite to pursue greater enforcement activity.
Medicaid Provider Taxes and SDPs
Last Friday, the Trump Administration published a memorandum entitled Eliminating Waste, Fraud, and Abuse in Medicaid. The “waste, fraud, and abuse” referenced in the title is state funding of Medicaid through provider taxes and state-directed payments (SDPs) which, according to the memo, states use to “game the system.”
Provider Taxes |
State-imposed taxes on providers for purposes of drawing down additional federal Medicaid matching funds, which are then used to increase Medicaid provider reimbursement |
SDPs |
CMS-approved instructions from state Medicaid program to Medicaid managed care plans to make specified payments to certain providers to shore up Medicaid reimbursement rates |
Every state except Alaska has at least one provider tax. Click here and here for a deeper dive into provider taxes and SDPs.
The memo states the Trump Administration will attempt, when allowable by law, to prevent states from using provider taxes and SDPs to increase Medicaid rates above traditional Medicare rates. Regulations published last year formalized CMS’ policy of average commercial rates (ACR) as the upper payment limit on SDPs for hospital services, professional services at academic medical centers, and nursing facility services. In nearly all cases, ACRs are higher than Medicare rates. In the last few years, several states have received CMS approval for SDPs (e.g., Tennessee, Oklahoma, New Mexico) at or near ACRs and many more requests are awaiting CMS action (e.g., Nebraska, Illinois, Kansas).
Then, on June 9, the Office of Management and Budget (OMB) posted a notice that a new proposed rule from CMS, Medicaid Managed Care-State Directed Payments, is now under review by OMB. The proposed rule will be published in the Federal Register once OMB has completed its impact analysis. The big question is how the proposed rule will treat previously-approved provider taxes and pending requests. If existing and/or pending SDP rates are not grandfathered, several states would lose millions of dollars in federal matching funds and providers in those states would see Medicaid rates plummet.
As you may recall, OBBBA also addresses provider taxes and SDPs. It would limit future SDPs to Medicare rates (except in non-expansion states, for which the new limit would be 110% of Medicare rates). Under the OBBBA provision, existing SDPs, as well as currently pending requests, would be grandfathered.
Current State |
Summary – What’s in Play? |
| CMS has approved SDPs at or near ACRs for several states (e.g., Tennessee, Oklahoma, New Mexico) while several other states are awaiting such approval (e.g., Nebraska, Illinois, Kansas). |
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For now, we have to wait to see what the future of provider taxes and state-directed payments will look like. We’ll be watching the Federal Register closely and will keep you posted.
President’s Proposed FY 2026 Budget – CMS Cuts
As noted last week, HHS agencies, including CMS, released their congressional justifications (CJs) to support their budget requests. One concerning item in the CMS CJ is the planned cuts in payments to the Medicare Administrative Contractors (MACs), the private companies that process Medicare claims and handle provider enrollment, among other things.
CMS is budgeting $588.8 million for the MACs, a 30% reduction from FY 2024. (FY 2025 funding is not disclosed in the CJ). CMS anticipates MACs will process 1.2 billion claims in FY 2026, about 45 million more than FY 2024. According to CMS, MACs will still be able to do their jobs because the budget “reflects efficiencies gained by descoping non-statutory workload and optimizing the level of effort.” No details are provided regarding MAC “descoping.”
NIH Grant Terminations
On Tuesday, the Association of American Medical Colleges (AAMC) released its analysis of the impact of National Institutes of Health (NIH) grant terminations since the beginning of the Trump Administration. 1,138 NIH grants to medical schools and hospitals have been terminated, totaling $2.8 billion.
Over 60% of terminated grants were research and development grants, and 38% were research training and career development grants. According to AAMC, “[t]his loss of critical funding for graduate students and postdoctoral scholars has had an immediate and harmful impact on the biomedical research workforce and the ability of academic medicine to attract and retain the best and brightest scientists.”
Please do not hesitate to contact us if you have any questions regarding these latest developments, and please continue to check PYA’s website for updates.