Budget reconciliation process set in motion; Medicaid advocates sound the alarm over the potential for deep cuts
President Trump’s desire for “one big, beautiful bill” that encompasses his major policy priorities (e.g. extension of the 2017 tax cuts and border security/immigration reforms) has cleared its first hurdles in both the House and Senate. However, it’s the equivalent of the opening pitch in what could be an extra innings game (baseball reference cited in hopes of bringing Spring to us sooner!). The House narrowly passed its version (217-215) this week, which basically gives instructions to key committees to begin their work on the details. In this case, each committee has been given a target number in terms of savings that can be generated. Committees will now look at various government programs and budgets to cut in order to find the necessary cost savings.
While you wouldn’t know it from listening to media reports on this process, there are no specific cuts that have been approved at this time. This is especially true with Medicaid. The House Energy & Commerce Committee has been asked to identify $880 billion in savings. Critics argue that this number can’t be achieved without massive Medicaid cuts. While House Republicans say their goal is to rid Medicaid of fraud and waste, Democrats counter that any large-scale Medicaid cuts will undoubtedly hurt some of the most vulnerable Americans, since about a quarter of Americans rely on Medicaid for health care coverage. Some sort of Medicaid reform will be included in a final budget reconciliation bill, the question is how deep the cuts will go. So-called “work requirements” for people on Medicaid seem to be no brainer for Republicans, but other proposals being considered include reducing the overall federal matching rate for Medicaid (on average the federal government pays 69% of Medicaid costs, while the states pay 31%) or implementing a per capita cap, which would cap per enrollee federal spending (likely shifting costs to state governments). It’s also likely that Congress will seriously consider changing federal funding for individuals who have been added to the Medicaid rolls as a result of Medicaid expansion. 40 states and Washington, D.C. have expanded Medicaid since 2012. Currently, the federal government pays 90% of the costs for enrollees in this expansion group. Many Republicans who have high numbers of Medicaid beneficiaries as constituents have stated that deep cuts to the program are unacceptable. At least 10 Republicans have stated that they would vote “no” on any budget reconciliation bill that included drastic cuts. Democrats see an opportunity to score political points against Republicans with the issue, with a left-leaning group, Protect Our Care, launching a multi-million advertising campaign opposing the potential cuts. The ads target a handful of vulnerable Republicans with large Medicaid constituencies. Gridiron is already picking up signs that Republicans are considering scaling back their initial draft language surrounding Medicaid cuts, which risks drawing the ire of more conservative Republicans who view themselves as “deficit hawks”.
The political drama will play out in the coming weeks, but remember that we don’t have specific details yet (regardless of the what the headlines scream) and the road will include many twists and turns. Getting the House to agree on a bill, then having the House and Senate agree on a version, and ensuring that a final bill wont’ face opposition from President Trump (or last minute tweets by Elon Musk) will remain a sizeable feat for the next several months. To illustrate this point, on February 27th, Senate Majority Leader John Thune (R-SD) indicated that current House budget bill framework would not advance in the Senate. If you’re looking for a relatively simple explanation of the budget reconciliation process, its history, its complexities and why it even exists, this National Public Radio (NPR) piece successfully covers the details.
First round of government staffing cuts completed, with more on the horizon: How will it impact health care policy?
In what some described as a “Valentine’s Day Massacre” for federal employees, the Trump Administration’s first round of staffing cuts across the federal government was completed in mid-February. Completed might not be the best word, since the haphazard process of reducing the workforce resulted in many errors and the government asking some employees to rejoin their agencies after they received a termination notice. The first round of reductions focused heaving on “probationary employees” and those individuals who had accepted positions with a federal agency but had not yet started. On Wednesday, the administration instructed agency leaders to prepare for another round of mass layoffs in mid-March. While specific numbers have not been released, it’s estimated that at the Centers for Medicare & Medicaid Services (CMS), about 20% of employees were terminated in most divisions. The Associated Press reported that about 700 staffers were dismissed from the Food and Drug Administration (FDA). In the wake of the terminations, several agency leaders resigned, including the head of the FDA’s food safety division and the deputy director of FDA’s Center for Biologics Evaluation and Research (CBER).
While industry leaders have yet to report major delays in such things as FDA approvals or pivotal meetings, rare disease advocates expressed disappointment that the administration postponed a planned FDA-NIH Rare Disease Day which was scheduled to include a two-day conference February 27 and 28, coinciding with commemoration of Rare Disease Day on the 28th. While the staffing terminations continue to send shockwaves through the federal government, some observers believe the administration’s “return to work” deadline, set for March 17, will be pivotal and could subsequently result in many employee resignations. This is particularly worrisome for some patient advocates who note that several key staff who are actively engaged in the FDA’s new drug review process work remotely. Government employees have also pointed out that federal workspace has been reduced since employees went remote during the COVID-19 pandemic. Those employees are now asking where exactly they’re supposed to return to on March 17. The union representing federal employees has instructed employees to return to work, but to file a grievance if they believe the requirement violates their existing agency’s contract. It will likely take several months to assess the real-world impact of this unprecedented action. The move has also sparked legal battles. On February 27, a San Francisco federal judge issued a temporary restraining order instructing the federal Office of Personnel Management (OPM) to rescind the directives sent to agencies ordering them to fire probationary employees. The order only impacts a handful of government agencies, so we now await how the federal government will respond.
Kennedy wins approval as HHS secretary; Oz, Makary and Bhattacharya on deck for CMS, FDA and NIH confirmations
Robert F. Kennedy, Jr. became the secretary of the U.S. Department of Health and Human Services on February 13. Kennedy received support from every Republican senator except Sen. Mitch McConnell (R-KY). In the week leading up to his confirmation votes in the Senate Finance Committee and the full Senate, Kennedy attempted to downplay his past condemnation of many vaccines, stating that he would focus only on studying the safety of vaccines. Some Kennedy critics have already jumped on certain early actions at HHS, claiming that he is readying a full-scale assault on the government’s recommended vaccine schedule for children by replacing members of the CDC’s 19-member Advisory Committee on Immunization Practices (ACIP). While Kennedy made assurances to key Republican senators, such as Sen. Bill Cassidy (R-LA), that he would not change the committee’s vaccine recommendations, he could dismiss committee members and replace them with vaccine skeptics. Meanwhile, Dr. Mehmet Oz, Trump’s nominee to run CMS has completed his meetings with key senators on Capitol Hill. Republicans had hoped to begin his confirmation hearings by the end of February, but ongoing scrutiny of Oz’s stock holdings in various health care companies and his advisory role to a nutritional supplement company has caused a delay. Both Oz and Trump’s nominee to lead the NIH, Dr. Jay Bhattacharya, have promised senator that they would divest investments in health care companies. Politico reported on February 26 that the Senate Health, Education, Labor and Pensions (HELP) Committee is planning a March 6 confirmation hearing for Trump’s pick to lead the FDA, Johns Hopkins surgeon Dr. Marty Makary. The same committee is slated to hold a hearing on Dr. Bhattacharya’s confirmation on March 5. Industry observers are anxious for FDA, NIH and CMS leaders to be put in place given the instability caused by the recent reductions in the agencies’ workforce.
Health Policy Snippets
- PhRMA leaders meet with Trump; pledge to expand U.S. manufacturing. Leaders of some of the country’s largest biopharma companies met with the president on February 22, pledging to expand U.S. manufacturing capabilities. Some sources said the president threatened the CEOs with tariffs if they did not take steps to reshore manufacturing operations. Lilly, whose CEO attended the meeting, announced just a few days later that they would invest $27 billion in four new U.S. manufacturing facilities in the next five years. Sources also said Trump did not agree to repeal of the Inflation Reduction Act (IRA) or its provision allowing Medicare to set the price for some medications through “negotiation”.
- California lawmakers seek to require insurers to disclose denial rates, reasoning, and statistics; potentially impose fines. California Senate Bill 363 is being heralded by patient groups and some health care providers, seeks to fine insurers for denials that are ultimately overturned on appeal. The only other state that has a robust denial rate disclosure law is Connecticut, which publishes an annual report card detailing the number of claims each insurer has denied, as well as the share that are ultimately reversed.
