Fiscal Déjà Vu: The CR & CBO

It’s one week from Christmas, and Congress is up to its neck in things green and red. Congress is spreading greenbacks far and wide in its seemingly annual ritual of waiting to the last minute to fund the government and pass legislative priorities for the coming year. And, as the federal government drowns in red ink with large and growing federal deficits, the Congressional Budget Office (CBO) has just released a set of budget options. I explore both below.

Congressional Redux with Continuing Resolutions

Government funding runs out Friday and Congress did not release bill text for the continuing resolution (CR) to fund the government until Tuesday. The House will vote on the massive package today and then it will go to the Senate.

The package contains several provisions that Paragon has discussed previously, as well as many more. These include numerous policies that increase government health care spending: Funding for community health centers, an extension of pandemic-era telehealth provisions in Medicare and private plans, an increase in the Physician Fee Schedule by 2.5 percentage points, and extensions for a variety of Medicare payment add-ons. Additionally, the CR contains reauthorizations of public health measures, the SUPPORT Act, and the Pandemic and All-Hazards Preparedness Act. There is also a wide range of Medicaid provisions, from limits on disproportionate share hospital (DSH) payment adjustments to removing age restrictions on Medicaid eligibility to streamlining provider enrollment.

The health policies attracting the most attention are new regulations on pharmacy benefit managers (PBMs), including de-linking PBM compensation from rebate size in Part D, passing through 100 percent of rebates to private plan sponsors, and banning spread pricing in Medicaid. Additionally, the legislation contains reforms to so-called “patent thickets” in pharmaceutical patents and a few other savers. The largest health care pay-for is an extension of the Medicare sequester. One clear (though incremental) positive is a new requirement for hospital off-campus outpatient departments to use a separate national provider identifier from their main campus, which will help with enforcing site neutral requirements.

The end of the year package shows how fundamentally broken the Congressional budgeting process has become. There is no way to have an open, honest debate about the policies – like the flow of money in the drug supply chain – in the CR process as Congress scrambles to fund the government right before Christmas. This has been happening for so long that many Congressional staffers were not even born the last time that Congress passed a full budget before the start of the fiscal year being funded (1996, in case you were wondering). Unfortunately, it is a sign of a lack of seriousness in Washington that has led the federal debt to now exceed the size of the economy. It’s way past time for Congress to engage in the difficult tradeoffs of budgeting and living within our collective means.

CBO Posts Health Savers

The flaws of the end-of-year spending ritual are particularly harmful by perpetuating a key problem: Federal health spending is the main driver of rising deficits and debt, along with interest payments on existing debt. Without actions to stem the growth of red ink, Americans’ future standard of living will decline, and interest rates and inflation will be much higher than otherwise. Paragon has offered numerous recommendations to reform government health programs, including many policies that have been considered in the past by various government agencies.

On December 12, CBO released Options for Reducing the Deficit: 2025 to 2034, the latest version of a report it publishes every two years. CBO does not make recommendations, but offers options to reduce spending or increase revenue to address growing deficits. CBO projects that, under current law, federal deficits will average 5.4 percent of total economic output per year over the next decade (versus 3.7 percent over the past 50 years) and that the national debt will grow to 166 percent of the economy by 2054.

This year’s report includes many familiar health care policies along with updated estimates of 10-year budgetary effects. But there are a few notable changes from previous years:

• CBO introduced options for adopting site neutral payment rates in hospitals. First, it estimated that paying site neutral rates for “most” services in off-campus and on-campus hospital outpatient departments would save about $157 billion. (Previous proposals supported by Paragon go a bit further by removing site neutrality exemptions for all services in off-campus facilities.) CBO also estimated the effect of individually applying site neutral rates for drug administration – as proposed in the House-passed Lower Costs, More Transparency Act – and imaging in off-campus departments at $5.6 and $7.6 billion in savings, respectively.
• Also for the first time, CBO scored two options for reducing Medicare payments to hospitals for drugs acquired through the 340B discount program: reducing rates from average sales price plus 6 percent under current law to average sales price ($15.4 billion in savings) and average sales price minus 22.5 percent, as previously attempted under the Trump administration ($73.5 billion) and recommended by Paragon. The latter figure is a significant update, since total payment reductions from this policy had previously been estimated at roughly $1.6 billion per year.
• CBO included options for modifying Medicare Advantage risk adjustment payments for the first time since 2018. The government currently reduces MA risk adjustment with a 5.9 percent across the board cut to address greater diagnostic coding by plans. CBO’s estimated savings from raising that reduction from 5.9 to 8 percent grew significantly since 2018, from $47 to $159 billion—in part a reflection of MA’s enrollment growth in this period. However, CBO also added an option to raise the cut to 20 percent, projecting savings of $1.049 trillion. While Paragon has advocated for sensible savings in MA as part of a broader package of changes to improve the program, it is worth noting that this 20 percent figure is far above any recent estimate of the magnitude of coding intensity.

While individual options from this report may vary in terms of policy wisdom or political feasibility, they provide useful context for those hoping to see how various health policy changes can reduce the deficit. Most importantly—Congress must not make the fiscal situation worse, which it would do if it extends wasteful subsidies to insurers for Affordable Care Act (ACA) plans or enacts other poorly designed policies.

All the best,

Brian Blase
President
Paragon Health Institute