Elon Musk-led department of government efficiency targets federal healthcare spending

Trump administration initiatives targeting federal spending and other policies have begun to hit healthcare.

Newly installed Trump administration officials and a cost cutting effort led by Elon Musk called the Department of Government Efficiency (DOGE) have launched a range of steps designed to curtail federal spending.

Steps undertaken in the first three weeks of the Trump administration that could affect federal healthcare spending, programs or personnel include:

• Accessing the payment systems of the Centers for Medicare and Medicaid Services (CMS)
• Limiting administrative funds as part of grants from the National Institutes of Health (NIH)
• Eliminating diversity, equity and inclusion (DEI) programs at federal funding recipients
• Offering buyouts to 2.3 million federal employees, 77,000 of whom accepted the offer
• Suspending transgender services for minors

DOGE was formed by renaming the United States Digital Service, which was created by the Obama administration to overhaul federal technology services. Musk reports directly to the White House chief of staff.

CMS payment

DOGE employees recently began to examine spending at CMS.

The agency’s work with DOGE is being led by two senior CMS veterans – one focused on policy and one focused on operations – according to a CMS statement.

“We are taking a thoughtful approach to see where there may be opportunities for more effective and efficient use of resources in line with meeting the goals of President Trump,” said the statement.

CMS spent $1.5 trillion in fiscal 2024, or 22% of federal spending, and employs more than 6,700 staff, according to CMS.

In response to reporting on the effort, Elon Musk wrote on X, “Yeah, this is where the big money fraud is happening.”

The initiative followed a CMS report that found a nearly 8% improper payment rate, or $31.7 billion, just in Medicare fee-for-service (FFS) in fiscal 2024.

“There is more waste, fraud, and abuse in government health programs than anywhere else in the federal budget,” Brian Blase, a former Trump White House healthcare adviser, said when asked about DOGE examination of CMS spending. “It’s a no-brainer for DOGE to focus on problems in this area and it’s long overdue.”

NIH grants

On Feb 7, NIH issued guidance that it would limit funding for “indirect costs,” such as overhead, to no more than 15% of the money it provides for medical research grants. NIH provided indirect cost funding at nearly twice that rate in 2023, when $9 billion of the $35 billion provided for research went to such costs, according to NIH.

 “Most private foundations that fund research provide substantially lower indirect costs than the federal government, and universities readily accept grants from these foundations,” said the NIH guidance. 

The guidance implied the savings would allow NIH to provide more grants.

The nearly 50,000 competitive grants in 2023 went to more than 300,000 researchers at more than 2,500 universities, medical schools and other research institutions. 

The guidance was at least temporarily halted in 22 states by a federal judge.

Research organizations, including academic medical centers, said the new policy would cut the amount of research conducted.

“Every American has benefited from NIH-supported medical research conducted at medical schools, academic health systems, and teaching hospitals nationwide,” David Skorton MD, president and CEO of the Association of American Medical Colleges (AAMC) and Elena Fuentes-Afflick, MD, chief scientific officer of AAMC, said in a written statement. “Every American will be harmed by the undermining of this long-standing partnership between academic institutions and the federal government.”   

AAMC-member medical schools and teaching health systems and hospitals conduct nearly 60% of all extramural research funded by the NIH, according to an AAMC fact sheet.

The move has drawn objections from Democrats in Congress and at least one Republican.

“I oppose the poorly conceived directive imposing an arbitrary cap on the indirect costs that are part of NIH grants and negotiated between the grant recipient and NIH,” Sen. Susan Collins (R-Maine) said in a written statement.

DEI

A Jan. 21 executive order called for the termination of DEI programs and policies both within the federal workforce and also among federal contractors. Executive orders are usually policy statements, while subsequent rulemaking from agencies implement them and establish enforcement.

The order said the “medical industry,” among others, “have adopted and actively use dangerous, demeaning, and immoral race- and sex-based preferences” through DEI “that can violate the civil-rights laws of this nation.”

Medicare providers are not considered contractors under existing federal rules, according to an analysis by Venable, a law firm, but those rules could change. It encouraged providers to determine whether their organization qualifies as a federal contractor by reviewing their contracts with CMS or other federal agencies and legal precedent. 

Beyond contractors, the order directed the attorney general to submit a “plan of specific steps or measures to deter DEI programs or principles (whether specifically denominated ‘DEI’ or otherwise) that constitute illegal discrimination or preferences.” Attorneys have warned that the policy could create False Claims Act risks for providers.

Public statements from hospital and health system executives indicated they plan to comply with any regulatory requirements but don’t intend to end various DEI efforts.

Federal workforce

Federal agencies that regulate the healthcare sector could see reductions in workforce since the Trump administration sent out offers to 2.3 million civilian bureaucrats to provide lump sum payments if they resign instead of returning to full-time in-office work. A reported 77,000 federal employees accepted the buyout offer as of Feb. 13.

The initiative was suspended by a federal judge before it was allowed to resume Feb. 13.

Some healthcare providers have raised concerns the buyout could affect various federal programs if they lose many staff that oversee them.

Transgender services

A Jan. 28 executive order directed all departments and agencies to ensure any organization receiving research or education grants, including medical schools and hospitals, “end the chemical and surgical mutilation of children,” in reference to transgender treatments.

In response, some state attorneys general have warned hospitals that they must continue to provide such services or they will violate state laws. In contrast, the Virginia attorney general warned hospitals against continuing such services.

Legal scholars said the executive order must be implemented by agency action which has not yet occurred. However, several large hospitals and health systems have confirmed they have suspended transgender treatment for minors.