More details on HHS budget proposals for FY26

An updated version of President Donald Trump’s FY26 budget request to Congress includes new information on how proposed spending cuts would affect HHS and its subsidiary agencies.

As described in a summary, the request calls for “radical change” to improve the performance of the U.S. healthcare system, reiterating previously reported ideas for shrinking and restructuring HHS. The department’s budget would drop by $31.6 billion relative to FY25, coming in at $94.7 billion, for a reduction of 25%.

Most existing agencies would incur budget cuts relative to FY25, while the new Administration for a Healthy America (AHA) would receive a $14 billion first-year budget. The AHA would incorporate agencies such as the Health Resources and Services Administration (HRSA) and the Substance Abuse and Mental Health Services Administration (SAMHSA), among others that previously conducted their own operations.

The budget blueprint is merely a request, with Congress responsible for setting federal funding levels. FY26 funding theoretically needs to be in place by Oct. 1, 2025, although Congress rarely has hit the corresponding deadline in recent years.

Proposals in the budget are distinct from the ongoing discussion and debate over the FY25 budget reconciliation bill, where the most significant implications for Medicaid and Affordable Care Act marketplace coverage can be found.

Medicare program integrity

Relative to FY25, CMS’s budget would lose $674 million in large part by eliminating or deprioritizing funding for health equity, certain community outreach activities and certain administrative costs to implement the Inflation Reduction Act.

The budget summary emphasizes program integrity measures as a focus for the agency in FY26, including efforts to counter fraud, waste and abuse. The $941 million requested allocation for such activities would equal the estimated total for FY25 and would include testing and implementation of AI initiatives to improve medical review and prior authorization in Medicare fee-for-service.

The document notes that the number of items, devices and supplies subject to prior authorization grew from two in FY17 to 69 in FY24. Hospital outpatient services became subject to prior authorization in FY20, with 51 services included by FY24.

CMS provided examples to show the ROI of such efforts. As delivered in the outpatient setting, spending on blepharoplasty, botulinum toxin injections, panniculectomy, rhinoplasty and vein ablation decreased by 27% between FY20 and FY23, while spending on implanted spinal neurostimulators and cervical fusion with disc removal fell by 25.7% between FY21 and FY23.

The improper payment rate for hospital outpatient claims fell from 5.2% in 2023 to 3.15% in 2024, CMS noted.

For claims processing and redeterminations handled by Medicare administrative contractors, CMS is seeking $722 million in FY26 “to continue core Medicare operations” while modernizing “inefficient, decades-old processes.” There will be a push to encourage beneficiaries to use electronic Medicare summary notices.

Funding for state surveys and certification of providers, mainly focused on skilled nursing facilities but also including hospitals, would increase from $399 million to $442 million, and the budget for recovery audit contractors would increase from $252 million to $291 million.

Other Medicare provisions

CMS wants to restart the competitive bidding program for Medicare durable medical equipment, prosthetics, orthotics and supplies (DEMPOS), with a budget request of $22 million.

Medicare quality improvement organizations would see a big funding drop from $1.93 billion to $771 million, mainly by slashing clinical quality improvement activities and Beneficiary and Family-Centered Care activities. As previously reported, CMS announced that reviews of short-stay inpatient claims will shift from BFCC-QIOs to Medicare administrative contractors starting Sept. 1, 2025.

The Center for Medicare & Medicaid Innovation would reap a funding increase of $450 million as the administration seeks to put new emphasis on models that emphasize chronic-disease prevention and patient-centered care. Much of the proposed increase is statutorily required.

An initiative to reduce healthcare-associated infections in critical access hospitals would be discontinued, with CMS noting the initiative has exceeded its FY23 performance targets. The agency is shifting its quality-improvement work to new areas, with consideration of future areas now underway.

Other CMS provisions

One Medicaid grant program that would take a big hit is Money Follows the Person, which supports transitions from hospitals and skilled nursing facilities to community-based living. Funding for the program would drop from $600 million in FY25 to $500 million in FY26, per the proposed budget.

Still, the most notable Medicaid changes appear to be limited to the budget reconciliation bill, which the House passed by a one-vote margin May 22. On a preliminary basis, the Congressional Budget Office (CBO) has projected a $625 billion spending decrease over 10 years, leading to coverage loss for 10.3 million beneficiaries and a net increase in uninsured of 7.6 million before considering additional losses related to Affordable Care Act (ACA) cutbacks.

Correction (added June 3): The first figure in the paragraph above was changed from $625 million.

In the FY26 budget request, ACA funding for cost-sharing reductions made available to low-income beneficiaries would decrease from $15.8 billion to $13.5 billion.

As previously reported, oversight of the 340B Drug Pricing Program would shift from HRSA to CMS, allowing for “streamlined processes and the ability to utilize in-house drug-pricing resources and expertise.”

With a $12 million annual budget for the program, CMS would “provide oversight and auditing of covered entities [i.e., providers] and drug manufacturers, support operational improvements and increase operational efficiencies.”

Other areas

The new budget request has additional details on funding for agencies such as CDC, FDA and the National Institutes of Health (NIH). Funding for NIH would drop by nearly $40 billion, with 24 sub-agencies consolidated into five new institutes. Only the National Cancer Institute, the National Institute of Aging and the National Institute of Allergy and Infectious Diseases would remain in their current form, separate from the five consolidated institutes.

Among the programs proposed to be eliminated are some that previously operated under HRSA, including the Rural Hospital Flexibility Grants and Rural Hospital Stabilization Programs, along with 15 workforce programs, such as some of the nursing workforce and medical student education programs.

Various funding measures for rural healthcare totaled $365 million under HRSA in FY24 and were projected to amount to roughly the same in FY25. The total would drop to $284 million in FY26.

Telehealth initiatives would receive $42 million for primary care and $28 million for new programs designed to integrate telehealth with prevention and treatment of chronic disease.