What's Congress Up To?

Trying to keep up with the news? I thought it would be a good use of time to explain the Budget Resolution and Reconciliation Process since Congress is spending a lot of time on that.

Background on The Federal Budget

Federal spending is about 61% mandatory spending (a.k.a. “direct spending”), 26% discretionary spending, and 13% interest payments on our deficit.

Federal revenue to pay for that spending is mainly from taxes.

For mandatory spending, the law and its funding levels are combined, so funding doesn’t go through the annual appropriations process. This includes things like part of defense spending, Medicare, Medicaid, the Affordable Care Act Marketplace, Social Security, and more.

For discretionary spending, the law that authorizes programs is not what determines the funding levels. Funding levels are set in annual appropriations legislation via the House and Senate Appropriations Committees. Twelve bills make up this legislation. This may be one or or more omnibus packages of bills or multiple bills. Some programs that go through appropriations also have mandatory funding components and include funding through an authorizing bill (used for mandatory spending items).

Budget Resolutions and Budget Reconciliation

Things in Congress are a bit of a slog right now. Congress is following President Trump’s directive to pass a Budget Reconciliation package. I’ll cover what that means and why he is focused on it in a little bit. They also have to address the expiring Continuing Resolution and the debt ceiling. And those are needed to avoid a government shutdown.

After a 10-hour “vote-a-rama,” the Senate passed a Budget Resolution on February 21st. Then this past week, the House passed its own Budget Resolution by two votes, 2017-2015. The only Republican to join the Democrats and vote “no” was Thomas Massie of Kentucky.

So what’s next? The Senate’s version looks very different from the House’s version and is much narrower in scope. So they have to figure out what one bill will include to be sent to President Trump to sign.

The Resolutions are essentially an outline for spending bills. A Budget Reconciliation bill can then be used to expedite passage of mandatory spending and tax changes. But neither of these are required legislative vehicles. However, it’s now common for Budget Resolutions ONLY to be passed when Congress wants to use the Budget Reconciliation option.

What’s so special about budget reconciliation bills?

They are used because of their procedural advantages, and mainly because of the avoidance of the filibuster in the Senate that normally requires 60 votes to overcome.

In their Budget Resolution, the House stuck with President Trump’s intent to pass “one big beautiful bill.” The Senate, on the other hand, took the position that it might be would be too difficult to pass both the border and mandatory defense spending at the same time as the massive spending cuts and debt ceiling increases needed to extend the 2017 Trump tax cuts, or the Tax Cuts and Jobs Act of 2017. So their Resolution does not include the latter.

The Resolution passed by the House requires $4.5 trillion in tax cuts and a $2 trillion reduction in Federal spending over a decade. It also calls for a $4 trillion dollar increase in the debt limit. The House Energy and Commerce Committee alone has to cut $880 billion in spending in their areas of jurisdiction for the Budget Reconciliation bill to hit its targets.

The large cuts required in the House’s Budget Resolution are nearly impossible to meet unless there are deep, controversial cuts to Medicaid under the jurisdiction of the E & C Committee. These would include policies like per capita caps, which are very unlikely to have enough support, as well as Medicaid “work requirements.” Why is support going to be so difficult?

There are a couple of main reasons.

First, the cuts can pass as long as all but 2 Republicans in the House vote for them. That’s a tall order. Not only will Republican Members in blue states face re-election challenges in less than two years if they pass steep Medicaid cuts, but even Republican Members in red states will have backlash and risk re-election challenges.

Second, many red states are heavily dependent on the Federal government for high Medicaid funding matches, and at this point, most red states have opted into the Medicaid expansion opportunities under the Affordable Care Act. Cutting Medicaid will likely cause fiscal strain to the hospitals and many businesses in their states. Many argue Medicaid expansion and Medicaid sufficient funding levels are crucial economic drivers in their states.

Note that red Mississippi receives the highest Federal Medical Assistance Percentages (FMAP) at 77%, while blue California is the lowest at 50%. 👇️ 

Forty-one states have opted into Medicaid expansion under the Affordable Care Act. It’s pretty popular. And taking away popular programs is very difficult. 👇️ 

This recent Hart Research poll also shows 71% of Trump voters oppose Medicaid cuts, and 82% of ALL voters oppose Medicaid cuts.

So all this to say there’s a ways to go before a Budget Reconciliation bill is passed. And as the saying goes, the devil’s in the details.

Budget Reconciliation bills are usually passed when one party is in the White House and the same party controls both Houses of Congress. They generally don’t contain bipartisan policies. When they have this opportunity, parties use this moment in time to pass policies that can be voted on and passed along party lines.

Budget Reconciliation bills are also not required. They are optional spending packages made possible through the Congressional Budget Act.

The Filibuster

There’s something in the Senate you’ve probably heard of called the filibuster. In all other times, bills can only get voted on and pass out of the Senate if they can overcome the filibuster, or prolonged debate. This requires 60 votes in the Senate to pass a bill out of that House of Congress. The 60 votes ends the filibuster through a procedure called cloture.

But again, in Budget Reconciliation bills, only a simple majority is needed. In this case, it can be a 50/50 vote with Vice President J.D. Vance breaking a potential tie. Another way to think about Budget Reconciliation bills is that they are spending packages that make the passage of tax and spending bills easier.

Budget Reconciliation can be used only for three purposes: creating, changing, and repealing existing taxes, creating, changing, and repealing existing spending, and changing the debt limit by a specified amount only (It may not be used to suspend or repeal the debt limit.).

In reality, large changes to taxing and spending policy are most commonly made through Budget Reconciliation, at times when a party’s stars align and they have the votes needed. Hence why it’s in the works now.

Budget Reconciliation bills include legislative changes to programs that are funding through mandatory spending, such as Medicare, Medicaid, and the Affordable Care Act Marketplace. While Social Security is also part of mandatory spending, it’s not included in Reconciliation.

(There’s also fine print that’s worth understanding if you want to dive more deeply into things like the Byrd rule and the important role of the Senate parliamentarian, but it’s out of scope for this piece.)

To summarize:

For President Trump to reach what is considered his top policy goal, extension of the 2017 tax cuts that expire on December 31st, 2025, Congress needs to accomplish a few things using one or more vehicles. They need to make deep cuts to spending AND they need to raise and/or suspend the debt ceiling. Current estimates say we will have reached the debt ceiling limit sometime in June or July of this year.

The Tax Cuts and Jobs Act (TCJA) of 2017

So what exactly are the “Trump Tax Cuts?”

These cuts were passed by President Trump in his first term with the Republican House and Senate of the 115th Congress, as part of Budget Reconciliation in 2017. Some parts of the tax cuts package expire at the end of 2025 because they couldn’t get the votes for permanence.

See the below visuals to get an idea of the size and scale of the tax cuts and who directly benefits at what levels. For reference as you view the graphic, the highest income bracket is approximately $1 million per year and more, and the second highest bracket is approximately $400,000 to $1 million per year.

What else did the Tax Cuts and Jobs Act of 2017 do?

It cut the corporate tax rate to 21% from 35%, and this component of the TCJA does not technically expire. However, another change to the corporate tax rate still may be a necessary lever used to meet the other spending goals of extending the TCJA. But President Trump has also said he wants to reduce the corporate tax rate down to 15% for companies that make their products in the U.S. So again, more to figure out before a Reconciliation bill can be passed.

State and Local Taxes (SALT)

The TCJA has capped State and Local Tax (SALT) deductions at $10,000, which is often what blue state middle and upper-middle class residents “feel” directly from the TCJA. Many Republican governors of blue states, the states where taxes are the highest, are lobbying President Trump for the cap on SALT deductions to be allowed to expire.

This article in Bloomberg Government provides more details about what else is included in the TCJA, if you are interested in diving in further.

The Bottom Line

The TCJA of 2017 tax cuts, along with the George W. Bush era tax cuts, have reduced the Federal Government’s revenue significantly. That inherently and objectively impacts how and where the Federal Government can deploy resources to the American people and in American support initiatives around the world.

These tax cuts have also contributed to a $28 trillion and growing deficit. Without offsets for this new package in development, also known as “pay-fors,” lowering taxes so significantly for the higher income tax brackets will drive the deficit up even higher.

While the President has promised not to cut Medicare, Medicaid, Social Security, etc., he and others have been saying they will cut “fraud, waste, and abuse” in those programs. How that is defined is what’s unclear and is where things get murky. But they will need to make cuts to mandatory spending to reach the goals of the House’s Budget Resolution.

(This article provides a nice summary of the Senate vs. House Budget Resolution process if you want to read more about that.)

Continuing Resolutions and Discretionary Spending

“Discretionary” spending is another major part of the Federal Government’s annual budget. Appropriations bills are the vehicles used to pay for these programs to be funded. Funding levels are not part of the law, unlike in mandatory spending where they are one and the same. In their case, the law is updated when funding levels are updated or other changes are made. Appropriations bills are more bipartisan in nature.

It’s common for only some of the appropriations bills to be passed before October One every year, when the fiscal year for the Federal government begins. It’s also common for several of the bills to be combined together into an omnibus.

Whatever appropriations bills are NOT passed by October One then means Congress will need to pass a Continuing Resolution (CR) bill by October One instead. The CR simply extends funding for some or all existing programs at present levels for some amount of time determined by Congress. That time can be very short, just to buy time, or it be for a few months, or it can even be for a full fiscal year.

A Recap of the December 20, 2024 Continuing Resolution

At the end of 2024, the next Continuing Resolution for 2025 was set to expire on December 20th. Both Houses of Congress and both parties had been collaborating on an Omnibus package to “clear the decks” during the Lame Duck session and pass funding for all of 2025. This type of agreement and collaboration is called “bipartisan and bicameral.” Everyone playing nice in the sand box. 🙂 

Congress’ goal was to take those big tasks off the “to-do” list for 2025, knowing President-elect Trump’s priority was getting an extension of the TCJA done. This is also a common time for a bipartisan package like this to pass as the “Lame Duck” members of Congress (those whose terms are ending because of retirement or being voted out of office) are often more flexible about what they are willing to vote for without re-election to worry about. A large, bipartisan package at the end of the year is also sometimes called a “Christmas Tree Package.” 🎄 

If you recall, right before voting on the final bill, and before President-elect Trump was sworn into office, Elon Musk tweeted that Republicans had to “kill the bill,” and that he and President-elect Trump wanted a full suspension of the debt ceiling for the full two years of the 119th Congress to be included in a much narrower CR package to be signed by December 20th.

Speaker Johnson pulled the bill in response to the tweet, made some adjustments to make it “skinnier,” and added the debt ceiling suspension as “instructed.” But then 38 Republicans voted no on the bill anyway with the debt ceiling suspension added, so that attempt at a CR also failed. Could that also be foreshadowing? Only time will tell.

To get a Continuing Resolution passed without a government shutdown, Speaker Johnson then pulled the revised bill, removed the debt ceiling limit, and included only a small number of “extenders” in a three-month Continuing Resolution. Much of the CR now expires March 14, 2025. That’s twelve days from now. Telehealth extensions are part of that CR, but they, along with the Hospital at Home waiver, expire March 31st of 2025. They have a tiny bit of wiggle room there.

What’s Next?

Without a new CR, these healthcare programs will suspend until they are passed and funded.

What did not get included after Speaker Johnson had to get something across the finish line were some things healthcare providers were counting on and lobbying hard on. The biggest of these that many of you can relate to is the Physician Fee Schedule (PFS) “conversion factor fix.”

Here’s some background and what that means:

Medicare Part B is funded through mandatory spending with funding levels as part of statute (dictated by the most recent update to the law). Medicare B covers many things, including physicians’ and other providers’ reimbursement in Medicare, the cost of “Part B” drugs, and tests and other services billed under Medicare Part B (think MRIs, PET scans, EKGs, screening tests like colonoscopies, etc.).

It’s also a fixed budget amount that then the Centers for Medicare and Medicaid Services (CMS) has to divide up through the weights assigned to thousands of codes that are associated with all providers and services that bill under Medicare Part B.

And every year, spending is higher than the budgeted amounts allotted by statute.

In the annual rulemaking (regulatory) cycle, CMS has a couple of levers to get spending within their Congressionally-allotted budget. They can re-weight codes (and add and subtract codes) and they can reduce the multiplier, or the “conversion factor.” So if spending is too high by 3%, for example, one lever they must pull is reducing the conversion factor by 3%.

Here’s a simple illustrative example, not a provider’s real Relative Value Units (RVUs): 

Let’s say an orthopedic surgeon averages 100 work RVUs per day. Multiply that by the conversion factor of $32.35 (2025 conversion factor) = $3235 per day. If the Budget budgets for 100 orthopedic surgeon work RVUs per day on average, and the average ends ups at 101 RVUs per day, they have gone over budget.

It’s easy to see how this budget can’t be maintained when you see a simple spending trend driven by higher RVU levels (more RVUs being billed per year). Here are some good visuals I found from the Medical Group Management Association (MGMA):

(Note that “APP” means Advanced Practice Provider, a.k.a. Nurse Practitioners, Physician Assistants/Associates, and Clinical Nurse Specialists)

Budgeting for this kind of rapid “productivity” growth, or growth in per-provider annual billable units of service, is challenging. Check out this trend line 👀 👇️ 

Other providers aren’t accounted for outside of physicians and APPs in these visuals. But their billable Part B services are in the exact same Medicare Part B budget.

So what I explain to my fellow rehabilitation professionals is that their Medicare B billing is only a tiny fraction of Medicare B billing and any conversion factor updates in a “Physician Fee Schedule” Congressional, short term fix has a relatively small impact compared to the impact of that same 3% increase for a provider like a surgeon. In other words, they aren’t the cause of the spending problem at scale.

Again, very ballpark numbers here:

In a Continuing Resolution where Congress appropriates additional, short-term funding to the PFS in addition to that allocated in the mandatory spending budget, it’s not the therapists who are going to benefit nearly as much nor are therapists the providers costing taxpayers very much. The challenge, and the budgetary hurdle, is the high volume of high-cost transactional services and the cost of a 3% increase on each of them. 

Another illustrative example:

A physician making $500k with a 3% conversion factor fix appropriated by Congress equals $15,000 added to spending for the year for that one surgeon.

A PT in the outpatient settings (because they are part of consolidated billing under Medicare Part A sites of care so are not included there—hospitals, SNFs, home health, IRFs, etc.) making $90,000 with a 3% conversion factor fix equals $2700 added to spending for the year for that PT.

And then there’s the major issue of timed vs. untimed codes…

PTs, and OTs in outpatient settings largely use “timed” codes. Since there are only so many actual hours in the work day and they bill codes based on time providing services, therapists can’t do what you see many physicians doing in that graph above. They can’t just crank out more transactions to make up the difference in a lower conversion factor and meeting the productivity requirements of their business and/or their employers.

So please forgive my cynicism, but when I hear pushback from providers on value-based care, I can’t help but wonder—what else can possibly stop the overutilization runaway train in many (largely) untimed services that’s incentivized in fee-for-service? If we don’t address spending by curtailing fee-for-service reimbursement’s incentives, what else can we do?

It’s one big paradox.

That doesn’t just mean a specialist overutilization problem. The utilization of tests like advanced imaging when not medically necessary is another great example.

For example, when MRIs are ordered and fulfilled but they are not needed, all it does is provide more revenue to the provider reading the MRI and the supplier fulfilling the MRI. The healthcare industry in fee-for-service has zero incentive to limit care to what’s allowed under the law—medically necessary care and treatment. And in fee-for-service, this is nearly impossible to monitor, as least outside of an Accountable Care Organization or similar program.

Back to the CR—

The final CR at the end of 2025 did not include the conversion factor “fix.” One option, if Congress is still willing to add to 2025 spending, is to pass a “fix” from April 1st through the end of the year as part of another CR or another spending bill.

Not to mention that it’s likely that when we see the 2026 PFS, it will include another conversion factor cut. It’s hard to imagine that trend line just drops off given recent history.

But as you can see, there’s a tangled web of taxes and spending that needs to be addressed, too. And appropriations bills like this next CR require bipartisan support in almost all scenarios. Democrats and Republicans aren’t exactly seeing eye-to-eye these days. Collaboration and compromise are a bit hard to come by right now.

I’m not one to make a bet, but something with a price tag like the conversion factor fix in this climate is not something I would bet the 🏠️ on.

Telehealth and Hospital at Home—Bipartisan Programs that Need Legislative Vehicles

Expiration date: March 31, 2025

Telehealth is a priority for Congress and has its own price tag. As a reminder, telehealth was largely not available in Medicare until the COVID waivers. That’s because of the “originating site requirements” for its use based on permanent statute. Without Congress stepping in, approved telehealth services can only be provided when the patient is NOT in their own home (but in an offsite clinic, for example) and only when the patient resides in a rural area.

This is also a big issue for the providers who don’t have statutory authority to provide telehealth services and who are relying on these appropriations bills and CRs. The telehealth extensions include additional provider types temporarily being permitted to provide some of their billable services via audio-visual telehealth.

While telehealth utilization has dropped off significantly in the Medicare population since COVID, it’s a valuable option for providers and patients alike. Since COVID, many behavioral health services have been made permanent, so they are not an issue. Members of Congress don’t want to let telehealth flexibility lapse, but it has a significant price tag. The price tag is one of the top hurdles for making the service and its funding part of permanent statute, so it continues to be added to annual appropriations bills until the time is right for a legislative package making it permanent.

It’s usually paired with the Hospital-at-Home waiver extension, which has a $0 price tag per the Congressional Budget Office and has strong bipartisan support. Some of these Hospital-at-Home programs are serving vital spillover functions for hospitals that are over their capacity. They allow many frail elderly with generally simpler acute medical management needs to receive that care safely and effectively in their own homes. Many programs provide hospital-at-home to other payers’ covered lives, like Medicare Advantage beneficiaries, whose funding is not held up less progressive Medicare statute.

The work of Congress is complicated and full of wonky rules. But if healthcare professionals can make sense of it, they will be in a better position to effectively advocate for the right policy changes that are best for patients, providers, payers, and the U.S. economy.