Congress has two weeks to fund the government, and many congressional Democrats are threatening to shut down the federal government unless Congress sends tens of billions of dollars more to health insurers annually. Specifically, the issue is whether to extend the Biden COVID credits that fueled massive waste and fraud while contributing to big insurer profits. Last week’s newsletter reviewed five major reasons why Congress should permit the COVID credits to expire.
 
In this week’s newsletter, I highlight three Paragon comment letters in strong support of Trump administration regulatory proposals to improve Medicare payment policy—most importantly through an expansion of site neutral payment reforms. I conclude this newsletter with a summary of a new policy brief from Paragon on the immigration-related reforms in the One Big Beautiful Bill (OBBB) to preserve federal subsidies to U.S. citizens and certain categories of lawful immigrants. 

New Guidance on Rural Health Transformation Fund

Before I get to those new Paragon analyses, on Monday, the Centers for Medicare and Medicaid Services (CMS) released guidance on the new Rural Health Transformation Fund, created by the OBBB to ensure that rural patients have access to quality health care while working towards a sustainable rural health system. Beginning in 2026 and continuing through 2030, $10 billion will be distributed annually, with states required to submit applications by November 5. The guidance gives states leeway to propose innovative, state-driven solutions targeting root causes of poor health outcomes in rural America. Importantly, half of the funding will be allocated on a fixed basis, while the other half creates strong incentives for states to reform their health care programs in ways that promote more choice and competition. CMS will sensibly reward states for reforms that expand competition or reduce barriers, such as eliminating certificate of need laws, easing scope-of-practice restrictions, and permitting short-term, limited-duration health insurance.

Medicare Payment Rules Contain Important Steps to Remove Harmful Policies

One of CMS’s most important annual activities is issuing Medicare payment rules. Because of Medicare’s size, the program has substantial influence over the entire health sector. So, these annual rules are extremely important.
 
Medicare sets rates that cause enormous distortions throughout the health sector, including paying much more for a service delivered in a hospital setting than for the same service in an ambulatory surgical center or a physician’s office. Another big distortion from Medicare payment policy: paying 340B hospitals much more for administered drugs than the hospitals pay to acquire them. Both payment policies produce large incentives for hospitals to acquire physician practices, and this consolidation both raises prices and lowers quality of care.
 
OPPS/ASC Payment Rule
 
Our most extensive comments addressed the Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) payment rule. The rule includes several important provisions that move Medicare toward site-neutrality, expand competition, and introduce more market discipline. Key reforms we support include:

• Eliminating the Inpatient-Only (IPO) List. This outdated restriction prevents Medicare from reimbursing certain procedures in outpatient settings. Removing it would lower costs, expand access—particularly for rural patients—and prioritize clinical judgment and patient choice.
• Expanding the ASC Covered Procedures List. The proposed rule would add more than 500 procedures to the ASC list, enabling lower-cost facilities to perform them. This will reduce costs for Medicare and beneficiaries, increase patient choice, and harness ASCs’ specialization advantages.
• Extending ASC Inflation Updates. Equalizing inflation updates between ASCs and hospital outpatient departments facilitates the migration of procedures to lower-cost settings.
• Site-Neutral Drug Administration Payments. Expanding equal payments for drug administration across sites will save $210 million in 2026 and reduce incentives for hospitals to acquire physician practices purely for billing advantages.
• Market-Based Pricing. Requiring hospitals to report median Medicare Advantage rates in cost reports would incorporate more market-based pricing into Medicare and move away from distorted chargemaster data.
• Hospital Price Transparency. Strengthening requirements on publishing negotiated prices will give consumers and employers better tools to shop and compare.
• 340B Acquisition Cost Survey. Conducting this survey is a critical first step to reduce the market-distorting effects of 340B on Medicare Part B payments, save taxpayers money, and lessen government-induced consolidation pressures.

Overall, Paragon strongly endorses this OPPS rule as a significant step toward eliminating distortions, saving money for beneficiaries and taxpayers, and creating a more competitive, market-driven Medicare program.
 
Physician Fee Schedule Rule
 
Paragon positively commented on many items in the proposed Physician Fee Schedule (PFS) rule. This rule advanced key reforms by extending site-neutral efforts through better accounting for the higher practice expenses borne by independent physicians. This change will reduce consolidation pressures caused by Medicare’s distortionary payment policy and support independent practices.
 
We also generally supported the concept of a new efficiency adjustment to better align payments with physician time and reduce biases in favor of specialists. We also urged CMS to use empirical data generally and market sources in particular when determining this adjustment to avoid it becoming yet another government payment distortion. Additionally, CMS’s overhaul of skin substitute payments—moving to a flat rate—will curb massive waste and abuse, which exploded in recent years.
 
We urged caution and further analysis on telehealth expansions, warning that these could drive unnecessary utilization absent stronger evidence or safeguards.
 
340B Rebate Pilot Program
 
We also supported HHS’s new 340B Rebate Model Pilot Program. While modest, the program increases transparency by replacing upfront discounts with rebates tied to verified data, which will help prevent duplicate discounts and drug diversion, specifically in the context of the new Maximum Fair Price (MFP) rules. We encouraged HHS to expand the pilot to more drugs and allow manufacturers to pause rebates when clear evidence of diversion or duplicate discounts exists in Medicaid.

OBBB’s Important Reforms to Protect Federal Health Programs for U.S. Citizens

Today, Paragon released a new brief on the provisions in the One Big Beautiful Bill (OBBB) that help ensure that federal health program subsidies are expended on U.S. citizens and certain categories of legal immigrants.
 
For decades, Medicaid, Medicare, and the Affordable Care Act (ACA) enabled unauthorized aliens and certain noncitizens to access federally subsidized benefits. These policies not only diverted taxpayer resources but also created perverse incentives for states to game federal financing rules, leading Washington to reimburse states at a higher percentage for emergency services received by unauthorized aliens than for U.S. citizens. In expansion states, the federal government reimbursed emergency medical services for unauthorized aliens at a 90 percent match—nearly double the rate for many citizen enrollees.
 
Medicare extended eligibility beyond citizens and lawful permanent residents, while the ACA allowed certain noncitizens to bypass the Medicaid five-year waiting period (a restriction requiring most lawful aliens to reside in the U.S. for five years before qualifying for Medicaid) and obtain premium tax credits, subsidies denied to low-income citizens at the same income levels. Automatic re-enrollment further locked in improper and even fraudulent ACA subsidies. These policies resulted in tens of billions of dollars in excess federal spending due to improper enrollment.
 
The OBBB makes three major reforms. First, it restricts Medicaid and Children’s Health Insurance Program (CHIP) reimbursements strictly to citizens, lawful permanent residents, Cuban and Haitian entrants, and individuals under Compacts of Free Association, while reducing the federal match for unauthorized aliens’ emergency care to the state’s regular rate. Second, it limits Medicare eligibility to those same groups. Third and most importantly, it reforms the ACA by tightening which aliens may access subsidies, closing the Medicaid waiting-period loophole, and ending automatic re-enrollment without verification of lawful status.
 
According to the Congressional Budget Office, these provisions will save more than $200 billion over the next decade: nearly $40 billion from Medicaid and Medicare reforms and more than $160 billion from ACA reforms. While the Senate removed some of the stronger House-passed enforcement provisions, the OBBB addresses long-standing weaknesses, directs taxpayer dollars to citizens and lawful immigrants, and strengthens program integrity.