Capitol Insights Newsletter - Jan. 31, 2025

Author(s): Luke Schwartz , Matt Reiter

With such a busy week in Washington, this week’s publication of Capitol Insights will spotlight two featured topics.

We also must begin by acknowledging the tragic accident between a commercial airliner and a US Army helicopter that claimed the lives of 67 people in Washington DC. Our thoughts are with the victims and their families.

Executive Spending Drama Foreshadows a Larger “Impoundment” Fight

This week saw one of the most dramatic 24-hour periods of the Trump 2.0 administration when the White House Office of Management and Budget (OMB) put out a broadly worded memo directing federal agencies to pause essentially all federal spending only to rescind that memo less than a day later.

That order, as written, only exempted Medicare and Social Security benefits. Spending on federal grants and aid programs would have been paused. There was much confusion over the directive’s impact on all federal programs but especially Medicaid. States were not able to access their federal Medicaid funding after the memo was released. However, the White House later clarified that Medicaid would also be exempted and access to the funding was then restored.

Legal challenges were quickly filed, and a judge blocked the spending pause from taking effect to allow the legal process to play out. Less than 24 hours after it was first released, the White House rescinded the memo.

The purpose of the pause appeared to be allowing more time for political appointees who will oversee all layers of the federal bureaucracy to start their jobs and review these programs. However, this episode is indicative of the Trump Administration’s larger motivation to assert the President’s “impoundment” authority over how the federal government spends money.

Impoundment is the executive branch choosing not to spend money appropriated by Congress. This presents a constitutional question of separation of powers between the two branches of government. Congress’ “power of the purse” historically means that Congress decides how much money to appropriate for various purposes and then the executive branch is responsible for implementing that spending.

President Nixon sought to exercise authority over how money appropriated by Congress should be spent by withholding spending for certain programs. This led to Congress passing the Impoundment Control Act (ICA) of 1974 to create statutory limits to how the president can use impoundment. The ICA allows Presidents to impound but only if they follow the specific process created under the ICA.

President Trump is expected to challenge the ICA with the goal of expanding his impoundment authority beyond the process outlined in the ICA. If successful, this would tip the balance of power more strongly in favor of the executive branch over the legislative branch by giving the President much greater authority to determine how federal funding is spent (or not spent) – a role that has historically been reserved for Congress.

Robert F. Kennedy Jr. Testifies at HHS Secretary Senate Confirmation Hearings

This week, President Trump’s nominee for Department of Health and Human Services Secretary Robert F. Kennedy Jr.’s Senate testified in two confirmation hearings before the Senate Finance Committee on Wednesday and the Senate Health, Education, Labor and Pensions (HELP) Committee on Thursday. The Senate Finance Committee is responsible for advancing Kennedy's confirmation vote out of committee and to the Senate floor. However, the Senate HELP Committee also held a courtesy hearing as it has a vested interest in his nomination as HELP oversees many health-related issues.

Interestingly, a number of Senators sit on both the Finance and HELP Committees and therefore had opportunities to question Kennedy in both hearings.

Each of these hearings lasted nearly four hours and touched on a wide range of issues. Topics such as Kennedy’s perspectives on vaccines, abortion, substance abuse, and ending the chronic disease epidemic were discussed at length. Senators were very curious if he still expressed vaccine skepticism and what his specific plans were to “Make America Healthy Again.”

While not the main focus of the hearings, many provider issues were also discussed:

• Pharmacy Benefit Manager (PBM) Reform: Kennedy expressed a strong interest in reforming PBMs and reiterated that the President is interested in this issue as well. Bipartisan members of Congress and Kennedy agreed that PBMs are driving up prescription drug prices and are ripe for change. However, it is unclear how much HHS will be tasked with resolving this issue versus Congress itself.
• Understanding of Medicare and Medicaid: Kennedy was unable to correctly explain the four parts of Medicare when prompted. He also incorrectly insisted that Medicaid was fully paid for by the federal government. Some Senators were concerned that Kennedy was unfamiliar with how both Medicare and Medicaid operate. At least by line item, Medicare and Medicaid are the biggest items HHS is tasked with overseeing.?
• Medicare Advantage: Kennedy discussed how he himself is insured by a Medicare Advantage plan. He spoke very highly of the program, although he said that people could not afford it because it is much more expensive than traditional fee-for-service Medicare. While he did not say so directly, it seemed that Kennedy would be interested in expanding Medicare Advantage offerings. Senator Bill Cassidy M.D. (R-LA) notably disagreed with Kennedy’s assessment of the Medicare Advantage program.
• Graduate Medical Education (GME): Kennedy argued for using GME slots as a means to garner more medical school students into primary care roles to better understand and address addiction care.?

Notably, HELP Chair Senator Cassidy has expressed uncertainty about how he will vote on Kennedy’s nomination as a member of the Finance Committee. As a leading Republican who Chairs the Senate HELP Committee and is a member of the Finance Committee, Senator Cassidy’s vote on this nominee will likely influence other Senators’ votes. Senate Republicans can only afford to lose three votes (assuming no Democrats vote for his nomination) on the Senate floor if his nomination is advanced out of Committee.

While an exact date for Kennedy’s Senate confirmation has not officially been set yet, it is expected to take place at some point next week.

Top Stories in Healthcare Policy

• Lawmakers, led by GOP Doctors Caucus co-chair Representative Greg Murphy (R-NC-3), introduced a bill on Friday to offset the 2.8% Medicare physician cut that took effect on January 1st when Congress failed to extend this increase before the end of 2024. The bill would increase the Medicare Physician Fee Schedule (PFS) Conversion Factor (CF) by 6.62% for services furnished on or after April 1, 2025 through December 31, 2025. This is intended to both address the 2.8% cut and provide an inflationary update to the CF on top of that. Lawmakers will aim to get this new Doc Fix included in the annual appropriations bills that will likely be agreed upon in March, once the current CR is set to expire.
• Due to both Elon Musks’s Department of Government Efficiency (DOGE) and setting the stage for budget reconciliation, Republicans are beginning to look everywhere for possible spending cuts. In the midst of this, President Trump promised to not cut Medicare “by even a penny” at House Republicans’ retreat this week.
• The Biden Administration placed a heavy emphasis on health technology regulation. However, President Trump has signaled a different approach to the issue, as HHS has canceled Health Tech Advisory Committee meetings amid uncertainty with Trump’s artificial intelligence and informational technology policy approach.
• A new analysis from the Kaiser Family Foundation (KFF) on claims denials and appeals data for ACA plans found high rates of denied claims in 2023. According to KFF, insurers of qualified health plans (QHPs) sold on HealthCare.gov denied 19% of in-network claims in 2023 and 37% of out-of-network claims for a combined average of 20% of all claims. Of limited information available on in-network claims denial reasons, the most common reason cited by insurers was “Other” at 34% followed by administrative reasons (18%), excluded service (16%), lack of prior authorization or referral (9%), and only 6% based on lack of medical necessity.
• CMS reaffirmed that it is continuing with the newest round of negotiations with drug manufacturers despite the Trump Administration’s opposition to the Inflation Reduction Act (IRA). CMS’ statement also signaled that it could implement changes to the negotiation process.

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