Insights^

On July 14, 2025, the Centers for Medicare and Medicaid Services (CMS) released the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) Proposed Rule. The CMS press release can be found here. A fact sheet from CMS can be found here. The 60-day comment period ends on September 12, 2025.

CONVERSION FACTOR

As part of the rule, CMS proposes implementing two separate conversion factors (CFs). For Alternative Payment Model (APM) participants, known as Qualifying Participants (QPs), the aggregate conversion factor is set at $33.59, a 3.83% increase ($1.24) from the CY25 CF of $32.35. For non-qualifying participants (non-QPs), the aggregate proposed CF is $33.42, reflecting a 3.62% increase ($1.17) from the previous year. A summary of the various components of those aggregate payment updates is below

• The primary reason for the bifurcation of the CFs is the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, which reformed Medicare physician payments by replacing the outdated Sustainable Growth Rate (SGR) formula with the Quality Payment Program (QPP). Under MACRA, starting in CY26, a statutory update of 0.75% is provided for QPs (that meet thresholds for significant participation in Advanced APMs that emphasize quality and cost accountability) and 0.25% for nonQPs. This differential aims to incentivize clinicians to shift toward value-based care delivery models.
• In addition to the MACRA updates, the proposed rule includes a one-year increase of 2.50% applicable to both QPs and non-QPs, as included in the recently enacted One Big Beautiful Bill Act (OBBBA). Enacted to address concerns over physician payment adequacy, the OBBBA’s 2.50% adjustment helps offset inflation and other economic factors while Congress considers longer-term/systemic reforms to the PFS (which were considered during the development of the OBBBA but were ultimately dropped from the bill due to a combination of cost concerns and a lack of broad Republican consensus).
• Finally, the CF updates account for shifts in relative value units (RVUs), which are used to determine payment rates based on the resources required for services. CMS proposes an estimated 0.55% adjustment to accommodate two broad-based changes in work and practice expense (PE) RVUs. As discussed below in greater detail, the RVU modifications proposed by CMS as part of the CY26 rule will (if finalized) have the practical effect of somewhat offsetting (in some instances, substantially) the positive CF update for certain specialties/services, particularly those delivered in the facility setting.

EFFICIENCY ADJUSTMENT

As noted above, CMS is proposing broad-based adjustments to RVUs as part of the CY26 rule. The first, described as an efficiency adjustment, would have the practical effect of reducing the work component of the aggregate RVU calculations. The work RVU quantifies the physician’s professional effort in providing a service, encompassing factors such as time, technical skill, physical effort, mental effort and judgment, and psychological stress due to potential risks to the patient. It constitutes approximately 51% of the total RVUs for a service, alongside practice expense (PE) and malpractice RVUs.

As part of the proposed rule, CMS notes that it has long depended on survey data from the American Medical Association’s Relative Value Scale Update Committee (AMA-RUC) to determine work RVUs. However, the agency raises concerns over the limited number of codes that undergo annual reevaluation and highlights third-party research suggesting time assumptions in many PFS valuations are significantly overstated.

The efficiency adjustment involves a broad-based -2.5% reduction applied to the intraservice physician time component of the work RVUs. The -2.5% is calculated as the sum of the Medicare Economic Index (MEI) productivity adjustments from the prior five years (CY21 through CY25). In the view of CMS, the use of MEI – which measures economy-wide productivity gains and is used here to proxy efficiency improvements in medical practices – for calculating broad-based work RVU adjustments provides a more accurate picture of shifts in efficiency as compared to “low-response rate” and “conflicted” industry surveys. Notably, the adjustment does not apply to time-based codes, such as evaluation and management (E/M) services, care management services, behavioral health services, services on the telehealth list, and specific maternity codes.

Specialties most directly impacted by this proposal include interventional radiology (-1% cut to work RVUs), neurosurgery (-1%), nuclear medicine (-1%), pathology (-1%), plastic surgery (-1%), radiation oncology (-1%), and thoracic surgery (-1%).

PRACTICE EXPENSE

As part of the CY26 proposed rule, CMS intends to pursue a second broad-based adjustment to the RVUs, this time targeting the PE RVU. The PE RVU quantifies the non-physician costs associated with providing a medical service, including clinical staff time, supplies, equipment, and indirect expenses like office rent and administrative overhead.

According to CMS, the PE RVU adjustment is necessary to address distortions in payment allocation resulting from evolving site-of-service trends and to promote payment stability amid healthcare consolidation. As noted by CMS, in recent years, there has been a significant shift in physician practices from independent, non-facility settings to hospital-based or facility settings, with private practice ownership decreasing from 72% to 35.4% over the past three decades. This consolidation into larger health systems means that many physicians no longer bear the full indirect costs in facility settings, where hospitals often cover these expenses, distorting payment incentives and contributing to higher Medicare expenditures without reflecting actual resource use.

The mechanics of the PE RVU shift involve adjusting the indirect PE allocation methodology by reducing the facility indirect PE to half of the non-facility indirect PE for applicable services, calculated using a revised formula that scales down the indirect PE allocator for facility settings based on work RVUs or clinical labor inputs. This adjustment applies broadly to PFS services, excluding those without dual settings and those with specific exemptions, such as certain radiation oncology codes (which instead use Outpatient Prospective Payment System (OPPS) relative weights for PE valuation).

Specialties most directly impacted by this proposal include cardiac surgery (-3% cut to aggregate PE RVUs), colon/rectal surgery (-2%), critical care (-5%), emergency medicine (-3%), gastroenterology (-3%), infectious disease (-7%), neurosurgery (-4%), plastic surgery (-3%), and thoracic surgery (-3%). Facility-based PE RVU cuts are, in some instances, much more dramatic (i.e., -10% or higher for many specialties).

SKIN SUBSTITUTES

Skin substitutes are currently reimbursed under the Medicare PFS in non-facility settings as separately payable items using the Average Sales Price (ASP) plus 6% methodology, with each product assigned a unique HCPCS Level II code and manufacturers required to report ASP data quarterly. Synthetic skin substitutes have been paid separately in physician offices since CY 2022, distinct from the application procedure codes (i.e., CPT 15271-15278). In contrast, under the Outpatient Prospective Payment System (OPPS), skin substitutes have been packaged into the payment for application procedures since CY 2014. CMS has significant concerns with the PFS approach, noting the dramatic increase in Medicare Part B spending on skin substitutes from $250 million in CY19 to $10 billion in CY24, while the number of beneficiaries treated has only doubled.

To address concerns about the potential overuse of skin substitute products, CMS proposes reclassifying skin substitutes as “incident-to” supplies rather than treating them as separately payable under the ASP + 6% methodology. In practice, “incident-to” classification means skin substitutes are considered integral but incidental components of the physician’s professional service during wound care. In place of the separate payment, the cost of such products would be “packaged” into the physicians’ PE RVU. Under this new construct, the PE RVU for such procedures would be adjusted to reflect a uniform OPPS-based rate of $125.38 per cm² for skin substitute products for CY26, representing up to a -90% reduction in aggregate per-service costs, yielding a projected $9.4 billion in savings for CY26. In the out-years, CMS intends to trifurcate the payment rates for skin substitute products in a manner consistent with their FDA regulatory status (i.e., resulting in distinct rates for products depending on whether they are approved under the Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/P), Pre-Market Approvals (PMAs), or 510(k) pathways).

Notably, for CY26, CMS is asserting that this change, which, in practice, shifts what was ordinarily a separately payable supply into the PE RVU of the underlying procedure, will not carry broader budget neutrality implications for RVUs or the CF. However, the agency notes that once this change is reflected in the CY26 claims data, there may be potential budget neutrality impacts in CY27 and beyond (i.e., future downward pressure on RVUs and/or the CF more broadly to account for the increase in PE RVUs for skin substitutes).

CHRONIC ILLNESS AND BEHAVIORAL HEALTH G-CODES

As part of the CY25 PFS final rule, CMS finalized three new G-codes for Advanced Primary Care Management (APCM) services. These codes – G0556 for non-complex APCM (requiring at least one serious condition and clinical staff time thresholds), G0557 for complex APCM (involving multiple conditions with significant staff involvement), and G0558 for APCM with direct physician or non-physician practitioner time thresholds – bundle elements from existing Chronic Care Management (CCM), Principal Care Management (PCM), and Communication Technology-Based Services (CTBS) into a single monthly payment structure. The intent was to reduce administrative burdens associated with fragmented billing requirements and increase access to coordinated care for beneficiaries with chronic or high-risk conditions.

In the CY26 PFS proposed rule, CMS is building on that framework by introducing three new add-on G-codes – GPCM1 (initial psychiatric Collaborative Care Model or CoCM, mirroring CPT 99492 for the first month of outreach, assessment, and treatment planning), GPCM2 (subsequent CoCM months, mirroring CPT 99493 for ongoing monitoring and adjustments), and GPCM3 (general Behavioral Health Integration or BHI services, mirroring CPT 99484 for at least 20 minutes of monthly care coordination) – which (if finalized) will be billed monthly alongside the base APCM codes. The intent is to further alleviate documentation burdens by eliminating time-tracking requirements, improve access to behavioral health in primary care environments (especially for underserved populations), and encourage holistic care management without duplicative billing.

While this policy change (if finalized) provides incremental reimbursement for primary care management, in CY27 and beyond, higher-than-anticipated utilization of these add-ons – reflected in CY 2026 claims data – could create downward pressure on PE RVUs for other PFS services or lead to reductions in the CF (as CMS redistributes resources to offset any net spending increases while maintaining aggregate PFS.

TELEHEALTH

CMS is proposing several updates to its PFS telehealth policies for CY26, including:

• CMS plans to streamline additions to the telehealth services list by eliminating the “provisional” versus “permanent” categories and concentrating evaluations only on whether the service can be adequately provided through interactive two-way audio-video technology.
• The agency intends to permanently lift limitations on the frequency of telehealth use for follow-up inpatient visits, subsequent nursing facility encounters, and critical care consultations.
• For procedures needing direct oversight, CMS proposes allowing permanent virtual supervision via real-time interactive audio-video communications (excluding audio-only). This would cover “incidentto” billing, diagnostic testing, pulmonary rehab, and cardiac or intensive cardiac rehab services.
• CMS does not plan to extend the pandemic-era flexibility permitting teaching physicians to supervise residents virtually for billing purposes. Instead, it proposes returning to the original mandate for physical presence during key parts of resident-delivered services in urban Metropolitan Statistical Areas (MSAs), while preserving the exemption for rural areas.

AMBULATORY SPECIALTY MODEL

CMS proposes launching the Ambulatory Specialty Model (ASM) as a mandatory alternative payment model through the Innovation Center (CMMI), targeting beneficiaries with heart failure and low back pain. Starting January 1, 2027 (performance period through 2031, with payments tied from 2029 to 2023), the model holds specialists individually accountable through a two-sided risk payment adjustment on Medicare Part B fees, ranging roughly between –9% and +9% in the first payment year. Performance is evaluated across four domains: quality (e.g., BP control, functional improvement), cost reduction, careimprovement activities (like patient engagement and social needs screening), and interoperability via certified EHRs. Specialists must treat at least 20 Medicare patients per condition annually and operate within selected Core-Based Statistical Areas (CBSA).

QUALITY PAYMENT PROGRAM

CMS proposes several refinements to the Quality Payment Program (QPP), including maintaining the Merit-based Incentive Payment System (MIPS) performance threshold at 75 points for the 2028-2030 payment years, adding five new quality measures (i.e., transplant waitlist ratios) while removing 10 others (i.e., social drivers of health), and introducing six new Value Pathways (MVPs) for specialties like diagnostic radiology and podiatry.

MEDICARE SHARED SAVINGS PROGRAM (MSSP)

The CY26 PFS proposed rule includes several updates to the MSSP, including:

• Limiting participation in the BASIC track’s one-sided risk level to a maximum of five performance years (down from seven), requiring ACOs to transition more quickly to two-sided risk models
• Renaming the health equity adjustment to “population adjustment” and removing it from scoring.
• Updating the APM Performance Pathway Plus measure set, including removing the social determinants of health screening measure and expanding CAHPS survey modes to web-mail-phone in 2027.
• Extending Extreme and Uncontrollable Circumstances (EUC) protections to include cybersecurity events for quality and financial evaluations from performance year 2025 onward.

REQUESTS FOR INFORMATION

As part of the proposed rule, CMS issued several Requests for Information (RFIs), seeking stakeholder feedback on issues including:

• Ways to streamline Medicare regulations to reduce provider burdens and align those regulations with Executive Order 14192 (“Unleashing Prosperity Through Deregulation”)
• How to enhance payment accuracy for global surgical packages
• How to handle cost-sharing for APCM services, and whether waiving or adjusting cost-sharing requirements for APCM services could enhance access and utilization
• Whether and how to standardize “core elements” within the MVP reporting requirements
• How to integrate Prescription Drug Monitoring Program (PDMP) data into Medicare workflows to enhance opioid prescribing safety and reduce misuse
• Input on transitioning to digital quality measurement within the QPP and MSSP
• The timeline for implementing Fast Healthcare Interoperability Resources (FHIR)
• Whether and how CMS can enhance its support for prevention and management of chronic disease through new “well-being” and “nutrition” service lines or quality metrics

On June 25, 2025, the House Ways and Means Health Subcommittee held a hearing on the role of digital health in improving patient outcomes. Members from both parties asked questions related to improving chronic disease, rural health, and data privacy and security. Ultimately, there was bipartisan agreement that digital health is vital for improving access to health care.

OPENING STATEMENTS

• Health Subcommittee Chair Vern Buchanan (R-FL)
• Health Subcommittee Ranking Member Lloyd Doggett (D-TX)

WITNESS TESTIMONY

• Kristen Holmes, Ph.D. Global Head of Human Performance and Principal Scientist of WHOOP – Testimony
• Josh Phelps, President of Winchester Metals Inc. – Testimony
• Andrew Zengilowski, CEO and Co-Founder of CoachCare – Testimony
• Dr. Jackie Gerhart, Chief Medical Officer and VP of Clinical Informatics Epic Systems – Testimony
• Sabrina Corlette, Research Professor and Co-Director at the Center on Health Insurance Reforms, Georgetown University McCourt School of Public Policy – Testimony

MEMBER DISCUSSION

Rural Health Care

Rural access and infrastructure were central concerns during the hearing. Health Subcommittee Ranking Member Lloyd Doggett (D-TX) asked what sustained funding cuts would mean for providers under the House reconciliation bill. In response, Ms. Corlette explained that the bill would trigger annual 4% mandatory cuts to providers, placing rural hospitals under significant financial strain. She warned that repeated reductions would make it difficult for rural facilities to maintain operations and services.

Rep. Greg Steube (R-FL) expressed skepticism about the practical benefits of digital health technologies if rural hospitals lack the capacity to implement them. He asked what specific steps could be taken to support rural health providers. Dr. Gerhardt emphasized the need for continued innovation, noting that small and rural providers must be empowered to tailor digital solutions to their communities’ needs.

When Rep. Kevin Hern (R-OK) raised questions about bipartisan collaboration for Rep. David Kustoff (RTN) bill H.R. 3108 which addresses the impact of remote monitoring devices on patient outcomes, Mr. Zengilowski explained how providers contact patients directly when digital readings fall out of range. Still, he warned that many small practices simply cannot afford to absorb the financial loss of adopting new technologies without policy support.

Chronic Disease

Rep. Brian Fitzpatrick (R-PA) spotlighted the alarming prevalence of chronic disease, citing Centers for Medicare and Medicaid Services (CMS) data that 60% of Americans suffer from one or more chronic conditions. He asked how digital tools and data-sharing can enhance care coordination and outcomes. Dr. Gerhardt pointed to diabetes and prediabetes management as examples where digital monitoring has been especially effective. Dr. Gerhardt said that by regularly reviewing patients’ data, providers can make informed decisions more quickly and adjust treatment plans as needed.

Rep. Fitzpatrick also asked about the barriers doctors face in adopting digital tools in rural areas. Witnesses pointed to workflow challenges, limited reimbursement, and the steep learning curve for providers unfamiliar with technology integration. Without incentives and clear guidance, many providers struggle to fully incorporate digital solutions into their practice.

Data Privacy and Security

Data privacy emerged as another central concern throughout the hearing, with members from both sides voicing alarm over the increasing vulnerability of health records in the digital age. Rep. Judy Chu (DCA) raised concerns about the proliferation of wearable health devices, questioning whether companies collecting this data adequately safeguard users. She warned that as more patients are pushed toward digital tools, particularly in the wake of potential rollbacks to the Affordable Care Act (ACA) subsidies and health coverage, many may not fully understand how their information is being used or shared.

Ms. Corlette responded by emphasizing that when individuals lose access to health insurance, they are not only less likely to receive in-person care, but also less able or willing to engage with digital health solutions. This disengagement, she noted, carries implications for both health outcomes and privacy, as patients may resort to unregulated tools or delay care altogether. The issue of health data being collected by devices such as fitness trackers, mobile health apps, and wearable devices, outside of traditional Health Insurance Portability and Accountability Act (HIPAA) protections, was raised multiple times. Several witnesses highlighted that these platforms operate in a legal gray area, where user data is often shared with third parties for marketing or analytics purposes without the explicit consent of patients.

Rep. Brian Fitzpatrick (R-PA) asked whether HIPAA needs to be updated to reflect the current digital health ecosystem. Dr. Gerhart affirmed that while HIPAA still provides a baseline of protections, it does not adequately address the types of data now routinely gathered by consumer-facing technologies. She urged Congress to consider modernizing the law to extend protections beyond the walls of traditional clinical settings. This includes establishing clearer rules for data collection, use, and storage by thirdparty tech companies that are not classified as health care providers or insurers but still handle sensitive health information.

Rep. Mike Thompson (D-CA) questioned whether federal agencies outside of the Department of Health and Human Services (HHS)—such as the Department of Government Efficiency (DOGE) should have access to any form of health-related data. Though witnesses did not have insight into the specific agency reference, they echoed a broader concern about cross-agency data sharing without public transparency. Calls for comprehensive federal privacy legislation were repeatedly echoed throughout the hearing, with panelists warning that piecemeal regulations would not be sufficient to address emerging threats, such as hacking, unauthorized use of biometric data, and data aggregation from multiple sources.

On June 25, the House Budget Committee held a hearing on work requirements in federal programs, including Medicaid. This hearing takes place as the Senate prepares to consider its version of reconciliation legislation, following the House’s passage of its bill in May. The hearing included both sides accusing the other of misleading the public about the impact of the House reconciliation bill. Any person(s) or organization(s) wishing to submit written comments for the hearing record can do so by emailing Ryan.Bailey@mail.house.gov by the close of business on June 27, 2025.

OPENING STATEMENTS

• House Budget Committee Chair Jodey Arrington (R-TX)
• House Budget Committee Ranking Member Brendan Boyle (D-PA)

WITNESS TESTIMONY

• Dr. Brian Blase Ph.D., President, Paragon Health Institute
  • See Witness Support Document #1
• Mr. Nick Stehle, Vice President of Communications, Foundation for Government Accountability
• Mr. Matthew Dickerson, Director of Budget Policy, Economic Policy Innovation Center
• The Honorable Robert Gordon, Duke Distinguished Visiting Fellow, McCourt School of Public Policy, Georgetown University

MEMBER QUESTIONS

The hearing provided Republicans an opportunity to defend provisions they argue will address waste, fraud, and abuse within federal programs. Republicans praised the provisions to strengthen eligibility verification, prevent undocumented immigrants from accessing federal benefits, and limit certain state f inancing options, such as provider taxes and state-directed payments, which they argued have been used by states like California to secure more Medicaid funding. They also argued the bill does not cut Medicaid but ensures the program can provide care to those who genuinely need it. Republicans, such as Chair Jodey Arrington (R-TX) and Rep. Ralph Northam (R-SC), also said that the bill could go further to address waste, fraud, and abuse in federal programs. Reps. Chip Roy (R-TX) and Andrew Clyde (RGA) expressed concerns that a Senate proposal to change the expanded Federal Medical Assistance Percentage (FMAP) for the Medicaid expansion population does not go far enough in addressing their concerns about spending in the program.

Democratic members responded to these arguments by stating that these Medicaid and SNAP work requirements will increase bureaucratic burden and will cause Americans to lose access to legitimate benefits in order to fund tax cuts for the wealthy, and that most people impacted by the bill will be citizens and legal residents. Additionally, Democrats argued that instead of enacting the work requirements in the House reconciliation bill, Congress should focus on eliminating what they see as real waste, fraud, and abuse, including examples they cited within the Trump administration. Notably, Rep. Lloyd Doggett (D-TX) and Pramila Jayapal (D-WA) argued that there should be an increased focus on provider and insurer fraud. Chairman Arrington noted that he and other Republicans have an interest in addressing concerns about fraud and abuse within the Medicare Advantage program. Reps. Jimmy Panetta (D-CA), John McGarvey (D-KY), Veronica Escobar (D-TX), and Marcy Kaptur (D-OH) also argued that Medicaid provisions in the House’s bill would lead to hospital closures, especially in rural and underserved areas.

On June 24, 2025, the House Energy and Commerce Health Subcommittee held a hearing on the FY 26 Department of Health and Human Services (HHS) budget. Republicans praised Sec. Kennedy’s reorganization of HHS and the Make America Healthy Again (MAHA) Commission, while Democrats expressed concerns about Medicaid savings and the status of Medicare drug pricing negotiations. Unlike Sec. Kennedy’s prior appearances, this hearing centered on a different set of issues.

OPENING STATEMENTS

• Health Subcommittee Chairman Buddy Carter (R-GA)
• Full Committee Ranking Member Frank Pallone (D-NJ)

WITNESS TESTIMONY

• HHS Sec. Robert F. Kennedy Jr.

MEMBER DISCUSSION

HHS Reorganizaton

Chairman Buddy Carter (R-GA) opened the discussion by expressing serious concern about the national debt, calling it “one of the greatest threats” to the country’s future. He questioned how the HHS reorganization would lead to measurable efficiencies for patients and providers.

In response, HHS Sec. Robert F. Kennedy Jr. framed the reorganization as a necessary modernization effort aimed at eliminating long-standing bureaucratic waste, fraud, and abuse. He also noted that the department’s restructured framework is designed to shift HHS from a reactive posture to a more proactive, prevention-focused health model. Sec. Kennedy also argued that despite spending $1.5 trillion each year on chronic disease, America has the highest chronic disease burden in the world. He placed a large share of the blame for that on fragmented care delivery and outdated infrastructure within HHS.

Rep. Brett Guthrie (R-KY) followed up by inquiring about the status of the department’s broader workforce reduction efforts, asking whether Sec. Kennedy could provide more information about potential staffing changes or consolidations. Sec. Kennedy responded that the reduction in force is currently under litigation and declined to elaborate further. Rep. Guthrie also raised questions about whether the reorganization would prompt CMS to revisit or modify innovation and technology policies established under the Biden administration. Kennedy replied that HHS is doing more than any other cabinet agency to integrate AI into the health care system, emphasizing the department’s commitment to using emerging technologies to modernize care delivery.

Democratic members such as Rep. Lori Trahan (D-MA) expressed skepticism that the reorganization would protect essential programs and services, warning that hospitals could be forced to cut services or close if Medicaid coverage is reduced or workforce pipelines are disrupted. She pointed to potential impacts on programs that train pediatricians, claiming that the Secretary’s budget “slashes Medicaid” and undermines the health workforce. Kennedy pushed back on these and similar arguments, asserting that the budget does not cut Medicaid and insisting that coverage levels would not be reduced under the new structure.

Drug Pricing

Rep. Debbie Dingell (D-MI) led a robust line of questioning focused on HHS’s ability and commitment to deliver on the Inflation Reduction Act’s (IRA’s)Medicare negotiation program. She pressed Sec. Kennedy on whether he would uphold the law’s drug negotiation provisions and resist any proposed rollbacks. Kennedy stated that he is committed to maintaining the IRA’s mechanisms for lowering prices. Rep. Dingell also sought clarity on the Department’s progress toward implementing negotiated drug prices by November 1, 2025, which she argued would allow seniors to see the benefits reflected in their out-ofpocket costs by January 2027. Kennedy confirmed that HHS is on track to meet that timeline. He further explained that HHS is currently negotiating with manufacturers to implement a Most Favored Nation (MFN) model—an international pricing benchmark that bases what prescription drug costs on what is charged in other Organization for Economic Co-operation and Development (OECD) countries, particularly in Europe. When asked how drug manufacturers are being brought into the negotiation process, Kennedy acknowledged the complexity of the effort and stressed that bipartisan cooperation is essential.

Reps. Gus Bilirakis (R-FL) and Dan Crenshaw (R-TX) also expressed strong support for lowering drug costs but brought the conversation into the realm of rare and pediatric diseases. For example, Rep. Bilirakis praised the Food and Drug Administration’s (FDA’s) Rare Pediatric Disease Priority Review Voucher (PRV) program. Rep. Bilirakis asked whether Sec. Kennedy would support preserving this incentive in the President’s budget and commit to ensuring the continuation of the program. Kennedy responded affirmatively, stating that it is a departmental priority and acknowledging that the budget includes provisions to maintain and improve regulatory pathways for these treatments. Rep. Bilirakis further raised the idea of a national priority voucher program to expand incentives for drug development in other high-need areas. Kennedy responded that the department is using the current programs extensively but continues to face regulatory and bureaucratic challenges—describing a “clash with red tape” that limits the approval pipeline for new therapies. He emphasized the need for additional flexibility and support to reduce delays and increase innovation. Rep. Crenshaw also mentioned that the House provision related to Orphan CURES Act was passed out of the House but needs Senate support.

Energy and Commerce Ranking Member Frank Pallone (D-NJ) warned that the Department’s recent actions could lead to preventable deaths if drug access and affordability are not improved. He demanded a written, substantive response from HHS to outstanding letters from lawmakers by August 1, to which Kennedy said they only respond as fast as they can.

Finally, Rep. Diana Harshbarger (R-TN) asked if the President’s budget includes any efforts to address concerns about pharmacy benefit managers (PBMs). Sec. Kennedy responded that PBM reform is currently under negotiation and again pointed to the MFN approach as a broader strategy to address systemic price distortions.

National Institutes of Health (NIH)

Rep. Nanette Barragán (D-CA) turned the conversation toward the NIH’s role in Alzheimer’s and dementia research. She began by affirming the importance of Alzheimer’s research and accused Kennedy of proposing cuts to the agency responsible for advancing this area of science. She specifically asked whether he was familiar with Alzheimer’s Disease Research Centers, key NIH-funded programs located across the country that serve as hubs for basic and translational neuroscience. Kennedy appeared unfamiliar with the centers and denied that any cuts to Alzheimer’s research were being proposed. His lack of awareness about a flagship NIH program drew concern and raised questions about whether research priorities are being sufficiently safeguarded within the HHS budget proposal.

OTHER TOPICS

• Reps. Kat Cammack (R-FL) and Greg Landsman (D-OH) raised concerns about maternal health deserts and requested coordination on efforts like the Save Infant Health Program; Sec. Kennedy expressed willingness to collaborate.
• Rep. Robin Kelly (D-IL) questioned HHS’s recommendation against COVID-19 vaccination for pregnant women and children, but Sec. Kennedy denied claims of coercion or unsupported guidance.
• Rep. Landsman (D-OH) emphasized restoring funding to improve birth outcomes and reduce disparities; Kennedy agreed to work with him.
• Rep. John James (R-MI) asked how HHS is addressing large corporations abusing government programs; Kennedy stressed the need to realign incentives, including improvements to food in military and school programs.

On May 30, the Department of Health and Human Services (HHS) released its Fiscal Year 2026 (FY26) discretionary budget request. This summary provides an overview of key agency estimates and justifications, including HHS, Centers for Medicare and Medicaid Services (CMS), the Food and Drug Administration (FDA), the HHS Office of Inspector General.

WHY THIS MATTERS

The annual budget request demonstrates the priorities of the administration – how they intend to staff their agencies, what policies they will work on and what programs they intend to shutter from the previous year. Congress then takes these requests and determines what will be funded through the appropriations bills. Both the House and Senate will start marking up their appropriations bills in June.

REORGANIZATION

The budget repeatedly notes the intention of HHS to drive operational efficiencies by eliminating duplicative functions and consolidating programs that have similar aims.

The budget centralizes administrative functions, reduces 28 operating divisions to 15, closes five regional offices, reduces the level of full-time employees to 90 percent of pre-COVID levels, and ending or downsizing 5,000 contracts.

Administration for a Healthy America

HHS plans to create the Administration for a Healthy America (AHA) by combining:

• Health Resources and Services Administration (HRSA)
• Substance Abuse and Mental Health Services Administration (SAMHSA)
• Office of the Assistant Secretary for Health (OASH)
• National Institute for Environmental Health Sciences (NIEHS)
• Centers for Disease Control and Prevention (CDC) – certain programs

AHA will focus on prevention including:

• primary care
• maternal and child health
• mental health
• substance use prevention and treatment
• environmental health
• HIV/AIDS
• workforce development
• policy, research, and oversight

The Administration for Children, Families, and Communities (ACFC) will be a new division at HHS and will focus on:

• Head Start
• Child Care and Development Block Grant
• social services for children
• program formerly housed in the Administration for Community Living (ACL) such as nutrition services, falls prevention services, home and community-based support, and caregiver support
• National Institute on Disability, Independent Living, and Rehab Research

The budget eliminates the following programs:

Previously in HRSA: Healthy Start, Newborn Screening for Heritable Disorders, Early Hearing Detection and Intervention, Emergency Medical Services for Children, Ryan White Part F, Rural Hospital Flexibility Grants, State Offices of Rural Health, Rural Hospital Stabilization, Family Planning, and 15 workforce programs including some Nursing workforce programs and Medical Student Education.

Previously in CDC: Youth Violence Prevention, Adverse Childhood Experiences, Firearm Injury and Mortality Prevention Research, Traumatic Brain Injury, Elderly Falls, Drowning, Other Injury Prevention Activities, Injury Control Research Centers, the National Occupational Research Agenda, Education and Research Centers, Personal Protective Technology, Other Occupational Safety and Health Research (Total Worker Health), the Amyotrophic Lateral Sclerosis (ALS) Registry, Climate and Health, Trevor’s Law, Environmental and Health Outcome Tracking Network, and Asthma.

Previously in SAMHSA: Mental Health Awareness Training, Healthy Transitions, Infant and Early Childhood Mental Health, Mental Health Children and Family Programs, Consumer and Family Network Grants, Mental Health System Transformation, Project LAUNCH, Primary and Behavioral Health Care Integration Programs, Mental Health Crisis Response Partnership Program, Homelessness Prevention, Mental Health Criminal and Juvenile Justice Programs, Assertive Community Treatment for Individuals with Serious Mental Health Illness, Homelessness Technical Assistance, Minority AIDS, Seclusion and Restraint, Minority Fellowship Program, Tribal Behavioral Health Grants, Interagency Task Force on Trauma Informed Care, Strategic Prevention Framework, Sober Truth on Prevention Underage Drinking, Screening, Brief Intervention and Referral to Treatment, Targeted Capacity Expansion, Grants to Prevent Prescription Drug and Opioid Overdose-Related Deaths, First Responder Training, Improving Access to Overdose Treatment, Pregnant and Postpartum Women, Recovery Community Services Program, Substance Abuse Treatment Children and Families, Treatment Systems for Homeless, Building

Communities of Recovery, Substance Abuse Treatment Criminal Justice activities, Emergency Department Alternatives to Opioids, Treatment, Recovery, and Workforce Support, Peer Support Technical Assistance Center, Comprehensive Opioid Recovery Centers, Youth Prevention and Recovery Initiative, and Drug Abuse Warning Network.

Previously in OASH: Office of Population Affairs, Teen Pregnancy Prevention, Secretary’s Minority HIV/ AIDS Fund, Kidney X, Stillbirth Task Force, and Sexual Risk Avoidance.

National Institutes of Health

The National Institutes of Health will be reorganized into eight institutes. Reiterating the administration’s commitment to “gold standard science,” transparency, and the restoration of scientific integrity, the request prioritizes research related to research on nutrition and environmental factors that cause chronic disease and as well the rise in autism spectrum disorder.

Assistant Secretary for a Healthy Future

The budget creates an Assistant Secretary for a Healthy Future to bring together the Administration for Strategic Preparedness and Response and the Advanced Research Project Agency for Health (ARPA-H) into the. The Assistant Secretary’s mandate includes:

• addressing chronic disease
• America-made manufacturing and rural access
• proactive approaches to healthy well-being
• healthcare security, efficiency, and transparency
• American leadership in frontier health technologies

Consumer Product Safety Commission

The budget also changes the status of the Consumer Product Safety Commission (CPSC) from an independent agency and moves the functions of the commission into the HHS Office of the Secretary.

MEDICARE

The budget mentions $119 million for a new Prevention Innovation Program to promote broadband access to nutrition and physical activity and reduce dependence on medication. Included are $20 million for the Chronic Care Telehealth Centers for Excellence Program and $8 million for the Telehealth Nutrition Services Network Grant Program.

On prior authorization, CMS will continue to test and implement AI activities in medical review and prior authorization of the Medicare fee-for-service program, including AI to review medical records and make a recommendation regarding payment. CMS will also continue to look for services or items showing unnecessary increases in volume or utilization due to fraud, waste, or abuse, for which prior authorization would be appropriate. While CMS has focused on DMEPOS items and power mobility devices, the agency notes its success in requiring prior authorization for certain outpatient hospital department services which started in FY20.

CMS is working to expedite Medicare Advantage Risk Adjustment Data Validation (RADV) audits so the agency will be current with its audits of prior payment years and new audits will be started as close to the most recent payment year as possible. CMS is also developing a strategy to make it more efficient at identifying the approximately $17 billion in overpayments while reducing agency burden by providing more effective oversight of the MA program. Recently, CMS began conducting utilization management audits for MA plans that were effective Calendar Year 2024.

The budget includes $22 million to restart the durable medical equipment, prosthetics, orthotics, and supplies competitive bidding program.

ACA MARKETPLACE

The budget assumes the enhanced premium tax credits are not extended beyond 2025. Regardless of the administration’s assumptions, extending the tax credits requires Congressional action.

In FY 2025, CMS announced a reduction in funding for the Navigator program to $10 million per year and estimates that $360 million will be saved over the next four years.

In FY 2026, CMS is proposing a Marketplace Integrity rule which would:

• revise three standards relating to past-due premium payments
• exclude Deferred Action for Childhood Arrivals recipients from the definition of “lawfully present”
• define the evidentiary standard HHS uses to assess an agent’s, broker’s, or web-broker’s potential noncompliance
• reinstate the one year requirement for failure to file and reconcile
• strengthen income eligibility verifications for premium tax credits and cost-sharing reductions
• amend annual eligibility redeterminations for consumers in $0 premium plans
• eliminate the special enrollment period for consumers with annual household incomes below 150 percent of the federal poverty level
• amend the automatic reenrollment hierarchy
• shorten the annual open enrollment period
• tighten special enrollment periods
• widen the de minimis thresholds for the actuarial value for plans subject to essential health benefits
• (EHB) requirements and for income-based cost sharing reduction plan variations
• amend the premium adjustment percentage methodology,
• prohibit inclusion of gender affirming care as an essential health benefit

MEDICAID

CMS is prioritizing 1115 waiver budget neutrality policy and oversight, and monitoring and evaluation of demonstration financial and programmatic outcomes. The agency has updated its approach to budget neutrality formulation and is providing technical assistance to states as well as conducting reviews of states’ reported demonstration expenditures.

CMS will also try to ensure proper billing and rate reimbursement in the Home and Community Based Services (HCBS) waiver and state plan programs, including rate setting and financial reporting for PACE. The focus will be on ensuring compliance, providing technical assistance, and fraud and abuse in the delivery of personal care and other HCBS services.

Through the proposed rule called “Preserving Medicaid Funding for Vulnerable Populations – Closing a Health Care-Related Tax Loophole,” CMS is proposing to update the legal requirements in State proposals for Medicaid tax waivers to ensure that proposals using what the administration calls an algorithmic loophole are not approvable. The focus of this proposed rule is on taxes on managed care organizations.

The budget recommends shifting the 340B Drug Pricing Program to CMS to allow for “streamlined processes and the ability to utilize inhouse drug-pricing resources and expertise.”

CMS PERFORMANCE MEASURES

CMS indicates the agency will develop new performance measures that support the MAHA initiative. The status of current CMS performance measures can be found on electronic pages 144-166 of this document. CMS is discontinuing several measures (see electronic pages 167ff), including:

• ensure beneficiary telephone customer service
• increase Marketplace enrollment nationwide
• increase Federally facilitated Marketplace enrollment among underrepresented populations
• increase the national rate of low-income children and adolescents, who are enrolled in Medicaid and Medicaid expansion Children’s Health Insurance Programs (CHIP), who receive any preventive dental service
• increase the proportion of providers performing initial enrollment in the Medicare Program online
• reduce the infection control survey deficiencies (of F880) for nursing homes that have received a Targeted Response Quality Improvement Initiative (TR-QII)
• reduce Healthcare Associated Infections [HAIs] in Critical Access Hospitals (CAH)
• maintain or exceed percent of beneficiaries in Medicare fee-for-service who report access to care
• maintain or exceed percent of beneficiaries in Medicare Advantage (MA) who report access to care
• reduce the average out-of-pocket share of prescription drug costs while in the Medicare Part D coverage gap
• percentage of CMMI model awardees participating in learning activities
• percentage of Original Medicare beneficiaries in an accountable care relationship

FDA AND PCORI

The budget decreases FDA’s discretionary request by 11.4 percent from FY25 due to focusing the agency on its core functions, reducing its physical footprint, and reducing the number of full-time employees by 1,940. The agency proposes MAHA activities to address chronic disease, restore trust in the food system and strengthen the country’s nutritional and food safety. The budget increases by 4 percent the medical device user fee program to review new medical devices.

The budget proposes to eliminate the Patient-Centered Outcomes Research Institute (PCORI). Established under the ACA, PCORI funds patient-centered comparative clinical effectiveness research.