Welcome to another round of PYA Washington Updates, highlighting this week’s health policy developments. And what a week it has been! Hang on, there’s a lot of important stuff to discuss:
- Budget Reconciliation Bill – Status update, Medicaid changes, and House/Senate actions.
- Medicaid Provisions – Work requirements, retroactive coverage limits, provider tax restrictions, and state-directed payments.
- Medicare Physician Fee Schedule – Changes to the conversion factor and future adjustments.
- RFK Jr. Testimony – HHS reorganization and Congressional hearings.
- CMS Innovation Center Strategy – New direction focusing on risk, prevention, and expanded model participation.
- DOJ Memo on White Collar Crime – Renewed focus on healthcare fraud and revised enforcement policies.
- Drug Pricing Executive Order – Most-Favored-Nation pricing and industry pushback.
- Regulation Repeal RFI – CMS and AHA efforts to identify burdensome healthcare regulations.
- Upcoming Webinar – PYA’s May 21 session covering all these developments.
Budget Reconciliation Update
Right before Easter, the House and Senate adopted a resolution providing an outline for the budget reconciliation bill. The resolution assigned committees to draft legislation that would then be assembled into the final bill. For example, the House Energy & Commerce Committee (E&C) was directed to cut $800 billion over ten years across the programs under the committee’s jurisdiction, including energy, environment, communications, and health.
On Sunday evening, the chair of E&C released draft legislation to be “marked up” (debated and voted on) by the committee starting Wednesday morning. After a record 26-hour meeting, E&C approved the draft legislation in a straight party-line vote.
All eyes are on the House Budget Committee this morning, as it marks up the full reconciliation bill (named the One Big Beautiful Bill Act and weighing in at 1,116 pages), including provisions approved by E&C and other committees. This is the last step before the bill goes to the full House. Speaker Johnson wants the House to complete its work on the reconciliation bill by Memorial Day. The bill then heads to the Senate.
According to the Congressional Budget Office, the Medicaid provisions would reduce the deficit by $625 billion over ten years and increase the number of people without health insurance by at least 7.6 million by 2034. Here are the highlights (or lowlights, at least for providers):
- Work requirements. Effective January 1, 2029, states must condition Medicaid eligibility for non-disabled individuals ages 19-64 on working or participating in qualifying activities for at least 80 hours per month, with specific exceptions. States must verify that an individual applying for coverage meets this requirement for one or more consecutive months preceding the month of application and then complete re-verifications every six months.
- Retroactive coverage. Effective October 1, 2026, states would be required to provide Medicaid coverage for qualified medical expenses incurred for up to 30 days prior to the date of application for coverage, as opposed to the current 90-day requirement.
- Provider taxes. States can finance the non-federal share of Medicaid spending through multiple sources, including taxes on healthcare providers. Such taxes provide a means for a state to increase the amount it receives in federal funds for its Medicaid programs, thus allowing the state to increase provider reimbursement rates. Under the bill, states would be prohibited from establishing any new provider taxes or increasing the rates of existing taxes. Also, states would have to restructure existing taxes to meet specified requirements. This provision is of particular concern to hospitals in states with applications for new provider taxes currently pending with CMS (including Tennessee, Kansas, and Nebraska).
- Directed payments. As a general rule, a state cannot direct how managed care organizations (MCOs) pay contracted providers. However, subject to CMS approval, a state can use “state directed payments” (SDPs) to require MCOs to pay providers certain rates. Several states have received approval for SDPs requiring MCOs to pay average commercial rates (ACRs) for specified services (usually using funds generated by a specific provider tax). In most cases, ACRs exceed published Medicare rates. The bill would prohibit any new SDPs for hospitals and nursing facilities from exceeding published Medicare rates.
If you want to take a deeper dive into the Medicaid provisions, KFF published an excellent summary. The bill also tightens eligibility requirements for Marketplace health plans, which the CBO also considered in making its estimate regarding increases in the number of uninsured individuals.
The other big healthcare news out of E&C is a change in the calculation of the Medicare Physician Fee Schedule conversion factor. Presently, the conversion factor is adjusted annually by an amount specified by statute. For 2025, for example, the base adjustment was 0, but the conversion factor was reduced by 2.9% to satisfy budget neutrality requirements. Beginning in 2026, the base adjustment will be 0.75% for providers participating in an advanced alternative payment model (APM) and 0.25% for everyone else. (To learn more about how this works, watch this PYA webinar.)
Under the bill, there would be an increase in the conversion factor for 2026 equal to 75% of the Medicare Economic Index (MEI) (an estimated 2.25% increase over the current conversion factor) with no differential for those participating in an advanced APM. Beginning in 2027, the adjustment would be equal to 10% of the MEI. The bill would not make any changes to the Merit-Based Incentive Payment System (MIPS).
Of course, none of this is a done deal. As noted, the bill must still get passed the House Budget Committee and survive a vote by the whole House. Assuming it passes (in some form), it would head to the Senate. Because it’s a reconciliation bill, it could be approved by a simple majority in the Senate (as opposed to the 60 votes normally required to end debate in the Senate). Given the Republicans’ narrow majority in both chambers, we may see (or later hear about) some horse trading on specific provisions.
RFK, Jr., Goes to Capitol Hill
HHS Secretary Robert F. Kennedy, Jr., appeared before the House Appropriations Committee on Wednesday morning and before the Senate Health, Education, Labor, and Pensions (HELP) Committee Wednesday afternoon. RFK, Jr., fielded numerous questions regarding the status of HHS agencies and programs following DOGE cuts and the subsequent HHS reorganization and reduction in force. The Secretary avoided several questions, claiming his attorneys had advised him not to disclose details regarding the reorganization due to pending litigation challenging the legality of those actions. Otherwise, the Secretary claimed HHS was a bloated bureaucracy and that drastic measures were required to correct course. He asserted that HHS would continue to perform the same functions as before, just in a more efficient manner.
CMS Innovation Center 2025 Strategy to Make America Healthy Again
On Tuesday, Abe Sutton, the new head of the CMS Innovation Center, rolled out a new strategy to build healthier lives through evidence-based prevention, patient empowerment, and greater choice and competition while protecting federal taxpayers. Going forward, all CMS Innovation Center models will involve downside financial risk borne by participating providers. Also, model participation will be expanded to include Medicare Advantage plans. Mr. Sutton promised the CMS Innovation Center would be announcing several new models consistent with this new strategy in the coming weeks. Many are openly speculating that CMS will introduce more mandatory alternative payment models, like the Transforming Episode Payment Model (TEAM), based on the new strategy.
DOJ Memo on White Collar Crime
The Department of Justice Criminal Division published a new memo on Monday addressing the prosecution of white collar crimes. While many had believed the Trump Administration would de-emphasize such prosecutions, the memo states the DOJ will focus on ten “high-impact” areas, including healthcare fraud and abuse. The memo also announced changes to revisions to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy intended to streamline self-disclosure incentives and provide a clear path to a declination. Finally, the memo detailed revisions to the Criminal Division’s monitorship policies, signaling that compliance monitorships are strongly disfavored, will be reviewed regularly to control costs and prevent scope creep.
Most Favored Nation Drug Pricing
On Monday, President Trump signed Executive Order 14297, Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients, setting a 30-day deadline for pharmaceutical companies to electively lower the cost of prescription drugs. If prices do not go down, HHS will develop regulations that tie the price federal healthcare programs pay for medications to lower prices paid by other countries. Not surprisingly, drugmakers are pushing back hard, claiming lower prices would mean deep cuts in research and development. The industry successfully beat back a similar initiative during the first Trump Administration. Stay tuned for future developments.
What Regulations Would You Repeal?
As reported previously, CMS has issued a Request for Information asking healthcare providers and other stakeholders to identify unduly burdensome regulations that should be repealed. This week, the American Hospital Association made public its Top 100 suggestions for regulatory relief. Even though a significant number of the items identified by AHA would require legislative action, it’s still a good read. Stakeholders have until June 11 to submit responses to the RFI recommending regulations ripe for reversal. As they say at weddings, “Speak now or forever hold your peace.” CMS, along with other HHS agencies regulating health IT, issued another Request for Information this week, focused on the digital health ecosystem.
PYA Webinar
On May 21, we will present Episode No. 94 of PYA’s Healthcare Regulatory Round-Up webinar series, One Big, Beautiful Webinar: Budget Battles, HHS Reorganization, and Enforcement Activities. You can register for the webinar here. We’ll be discussing all of the matters identified above, plus a whole lot more!
Please do not hesitate to contact us if you have any questions regarding these latest developments, and please continue to check our website for updates.