A federal watchdog is renewing the debate over whether private insurers are overutilizing prior authorization to delay patient careNew polling shows how the Trump administration’s approach to health policy could impact the midterm electionsDrugmakers are tweaking GLP-1 formulations, showing that industry still views the drug category as a revenue winner It’s a sweltering day in Washington, and yet Health Brief persists.
Medicare Advantage, operated by private insurance plans, has come under scrutiny. (Jenny Kane/AP)
The Lead Brief:
A new report from a federal watchdog found that three of the nation’s largest Medicare Advantage insurers routinely denied requests for post-acute care services, which could intensify scrutiny of prior authorization practices in the rapidly growing program.The Office of Inspector General for the Department of Health and Human Servicesexamined more than 2,000 prior authorization decisions made in June 2024 by Aetna, UnitedHealthcare and Humana.→ That’s the subject of the latest report from The Post’s Christopher Rowland.The OIG focused on services often needed after a hospital stay, including long-term acute care hospitals and inpatient rehabilitation facilities. Delays or denials can leave patients stuck in hospitals longer than necessary or without access to specialized recovery services.The report found denial rates for long-term acute care hospitals ranged from 70 percent to 80 percent, while denials for inpatient rehabilitation services exceeded 50 percent across all three insurers.
Why it matters:
More than half of Medicare beneficiaries — roughly 35 million people — are now enrolled in Medicare Advantage plans, giving a handful of insurers enormous influence over access to care.“As enrollment in Medicare Advantage continues to grow, so does the urgency and importance of ensuring that [insurance companies] are delivering on the value that the federal government pays them to provide,” the OIG report said.Complaints about Medicare Advantage coverage denials are nothing new, but the report underscores the potential impact they can have.The Centers for Medicare and Medicaid Services, which oversees the Medicare Advantage program,has been working with insurers over the last year to scale back their use of prior authorization.
What to watch:
The report could add fuel to several legislative proposals on Capitol Hill that would require insurers to submit more information about claim denial rates and, for Medicare Advantage plans specifically, additional encounter data related to patient care. The OIG report found for-profit Medicare Advantage organizations denied coverage more frequently than nonprofit plans, a pattern investigators said suggests financial incentives may play a role in utilization management decisions.→ But the report’s data predates pledges that private insurers have made to decrease use of the practice for all consumers. Companies have reported early progress in reducing prior authorization for many services.“This report reflects data from 2024. Since then, health plans have voluntarily eliminated roughly 6.5 million prior authorizations across markets — including more than 15 percent in Medicare Advantage,” said Mary Beth Donahue, president and CEO of the Better Medicare Alliance.Insurers also pointed to previous findings, including ones from the HHS watchdog in 2018, that raised concerns about whether many inpatient rehab facilities met Medicare’s standards or were providing unnecessary care that ultimately harmed patients.“The reports ignore serious, well-documented concerns about wide variations in the cost and quality of post-acute care and skilled nursing facilities,” said Chris Bond, a spokesperson for insurance industry group AHIP.BUT WAIT, THERE’S MORE→
A companion report issued by the OIG also renews scrutiny of insurers’ use of contractors to conduct prior authorization reviews. Investigators found a UnitedHealth Group subsidiary, formerly known as NaviHealth, denied nursing home care more frequently than insurers themselves or other vendors. The subsidiary, which rebranded to Home & Community Care in 2024, has allegedly used an algorithm to determine care needs. The OIG report doesn’t mention the reported algorithm usage. UnitedHealth Group has maintained that coverage decisions are always made by a human, thereby rejecting claims that the algorithms led to improperly denied care. However, the claims are at the center of an ongoing lawsuit filed by the families of deceased Medicare Advantage patients. The inspector general is urging CMS to take action to ensure plans are not improperly denying care. CMS officials told Christopher the agency is examining insurance denials by collecting data through a pilot program and conducting audits. The agency added that it “will continue using its full range of oversight and enforcement tools to identify potential issues, hold plans accountable and strengthen program integrity while protecting beneficiary access to care.
In today’s issue:Hospitals are facing simultaneous payment cuts, new oversight and transparency proposals as policymakers look to rein in health care spendingDemocrats are making the GOP’s tax-and-spending law a centerpiece of their midterm messaging as Republicans pivot to selling its tax cutsA federal judge temporarily blocked Colorado’s first-in-the-nation prescription drug payment cap, handing Amgen an early win… and more.Happy Monday, and welcome back to Health Brief. Hope everyone had a relaxing holiday! Congress isn’t here this week, but the health policy world is showing no signs of slowing down. So let’s get into it. What do you have on your radar?
Speaking of the $900 billion in impending cuts to Medicaid: The One Big Beautiful Bill Act was supposed to be a crowning legislative achievement for Republicans to tout while campaigning in the midterm elections. Among other things: It prevented massive tax increases for most Americans and established a program that allows parents to open investment accounts for children born during President Donald Trump’s second term and receive $1,000 from the government. But the legislation has emerged as a central talking point for the Democratic Party, with congressional Democrats mentioning the law twice as often as Republicans, report Matthew Choi and Clara Ence Morse in The Washington Post newsroom. Democratic candidates are deriding it as the “Big Ugly Bill” and linking the changes it brought to Medicaid and food assistance programs to voters’ anxieties about the cost of living. Republicans, meanwhile, have largely retreated from talking about the law by name, instead opting to emphasize the tax savings and other proposals. Democrats assert that the shift is a sign of the Republican Party’s acknowledgment of the law’s low overall approval. “I don’t care what you call it. It’s what delivers for America,” House Republican Conference Chair Lisa McClain (Michigan) told my colleagues.
Read the full story: “Democrats invoke ‘big, beautiful bill’ far more than Republicans as midterms near. ”INDUSTRY RXA federal judge temporarily blocked Colorado from enforcing a state-set payment cap on a pricey medication for autoimmune disorders called Enbrel, siding with Amgen, the company that makes it, while the lawsuit moves forward. The case centers on whether Colorado’s Prescription Drug Affordability Review Board has the authority to limit what can be reimbursed for a patented drug. The board had determined that Enbrel was unaffordable and set a maximum payment level at roughly 70 percent below Amgen’s wholesale price. The judge found that Amgen is likely to win because an earlier federal appeals court ruling says states cannot impose price caps on patented drugs if doing so conflicts with federal patent law. The court said Congress — not individual states — gets to decide how to balance affordable drug prices with the financial incentives that patents provide for developing new medicines. The judge also agreed that Amgen could suffer “significant harm” if the cap took effect, including weaker negotiating power with wholesalers and contracts that would be difficult to undo later. It rejected the state’s claims that any harm was balanced by carveouts in the law, such as the payment limit applying to employer-based plans. “This is an argument about the scope of damages, not their existence,” the judge wrote.
Why it matters: States across the country have been setting up their own Prescription Drug Affordability Boards (PDABs) in an effort to try and rein in drug costs. Some act as advisory panels that develop policy, while others — including Colorado — are able to set upper payment limits. Enbrel’s price cap became the first in the nation, proving to be a test for other PDABs nationwide.The boards’ overall effectiveness and ability to lower medication prices in the states in which they’ve been established has come into question and became one of the reasons Democratic Gov. Abigail Spanberger (Virginia) vetoed bipartisan legislation to set up a PDAB in the state.“Drug manufacturers took a huge sigh of relief from this decision,” Andrew Twinamatsiko, a director of the Center for Health Policy and the Law at Georgetown Law, tells me.For now, Colorado cannot enforce the payment limit for Enbrel while the lawsuit continues. The ruling does not decide the entire case, but it pauses the state’s price cap until the court reaches a final decision.
What’s next: The court leans on a federal ruling that struck down a pharmaceutical price gouging law in Washington D.C., but Twinamatsiko said that structure of the law — which utilized international reference pricing — is different from how Colorado’s PDAB operates and “there are creative ways” the state could differentiate the two legally.
The tax and spending law known as H.R. 1 includes provisions to revise what is counted as a Medicaid payment error and to recoup more federal funds. The new rules, which go into effect in 2029, target payments with inadequate documentation.
Goals: To review the scope of improper Medicaid payments and the potential impact of H.R. 1 policies on states, providers, and patients.
Methods: Analysis of research, government data, proposals, final rules, and laws.
Key Findings and Conclusion:
Although the provisions aim to reduce erroneous Medicaid payments, error rates could rise due to new Medicaid work requirements and other H.R. 1 provisions that make eligibility determination processes more complex for states. More than 20 states already have improper payment rates that exceed the threshold, meaning they could face significant financial penalties when the provisions go into effect. Policymakers could help reduce payment errors and the financial risk to states by encouraging the Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services to share best practices with states, use state audit data to improve oversight, and streamline Medicaid regulatory requirements. Additionally, CMS and states already have processes in place — including corrective action plans — to address erroneous payments.
Introduction
The tax and spending law, H.R. 1 (originally titled the “One Big Beautiful Bill”), enacted in July 2025, includes more than $900 billion in cuts to Medicaid, the public health insurance program financed jointly by the federal government and states. Some analysts have projected that, along with the law’s other changes to Medicaid, these cuts — the largest in the program’s 60-year history — will cause more than 7 million Americans to lose their Medicaid health coverage.1 The cuts will also shift costs to states, weaken the fiscal stability of health care providers, and diminish patients’ access to care.2
Supporters of H.R. 1 have asserted that it contains measures to address fraud, waste, and abuse. One of these provisions requires the U.S. Department of Health and Human Services (HHS) to recoup federal dollars for erroneous Medicaid payments — such as payments made for medical services when billing paperwork was missing or Medicaid eligibility paperwork was incomplete — once those payments exceed a certain level. The most recent data from the Centers for Medicare and Medicaid Services (CMS) released in January 2026 indicate that the nationwide error rate is 6.12 percent, slightly more than twice the 3 percent rate allowed under H.R. 1.3 According to that report, 77.17 percent of erroneous payments are due to incomplete documentation (namely missing paperwork), which is not generally indicative of fraud or abuse.4
The Congressional Budget Office (CBO) estimates that the policy change will reduce federal Medicaid spending by $7.55 billion and cause 100,000 individuals to lose their coverage as states tighten their processes to avoid penalties.5 To reduce error rates to comply with the new requirement and avoid financial penalties, states could further restrict eligibility determination processes to add greater certainty to ensuring all documentation has been submitted or require prior authorization before a provider can provide care.
Cumulatively, the implementation of H.R. 1’s broader Medicaid changes — such as implementation of work requirements, more frequent coverage renewals for certain enrollees, and changes to provider taxes — could make reducing improper payments more difficult.6 These changes will increase the administrative burden for states and patients while decreasing the funding available for Medicaid programs. With more administrative requirements and fewer dollars with which to implement programs, the chance of error increases.
This brief defines erroneous Medicaid payments and explores whether improper payment rates are an accurate measure of fraud. We describe how H.R. 1 expands the definition of an erroneous payment while limiting the federal government’s ability to waive penalties on states with improper payment rates that exceed a certain threshold even if they are making good faith efforts to address the errors. We also present data showing the disproportionate impact on some states and offer alternative strategies for policymakers to better support states in reducing improper Medicaid payments.
Defining Improper and Erroneous Medicaid Payments
Improper Medicaid payments, as defined in statute, can be overpayments, underpayments, and payments where there is not enough information to determine whether the payment was correct — such as when medical billing codes are inaccurate, provider paperwork is missing, or applicants submit incomplete documentation. Improper payments also include payments made for individuals who were enrolled in Medicaid despite being ineligible, as well as payments for services that do not comply with Medicaid program requirements such as duplicative payments.
The federal government determines what’s “improper” by reviewing Medicaid fee-for-service claims, managed care payments, and eligibility decisions. “Improper payments” is a broad category, while “erroneous payments” — payments that are incorrect under program rules — represent a more specific subset within it.7 Sometimes the terms are used interchangeably.
How CMS Defines Improper Payments
Improper payments can result from a variety of circumstances, including:
Items or services with no documentation.
Items or services with insufficient documentation.
Items or services with documentation that does not substantiate the payment.
Items or services where the payment was to the right recipient for the right amount, but the payment process did not comply with applicable statutory or regulatory payment requirements.
With respect to Medicaid and CHIP, there is no record of the required verification of an individual’s eligibility factors, such as income.
According to CMS, the improper payment rate is not a “fraud rate” but rather a measurement of payments made that did not meet statutory, regulatory, or administrative requirements.8
More than 75 percent of improper payments — just over 77 percent in 2025, as mentioned above — are due to insufficient documentation, and most involve a state, contractor, or provider missing an administrative step.9 With additional documentation, these payments may be correct.
Calculating Improper Medicaid Payments
Each year, CMS conducts a payment error rate measurement (PERM) audit in 17 states — one-third of all states — so every state is reviewed once every three years. Each state’s improper payment rate is calculated by dividing the total value of overpayments and underpayments in a representative sample from three categories (Medicaid eligibility, fee-for-service, and managed care) by the state’s total Medicaid expenditures.10 CMS also publishes a national Medicaid improper payment rate, which was 6.12 percent in the most recent data.11 In 2025, these improper payments totaled $37.9 billion, including $10.8 billion (28.6%) from fee-for-service Medicaid, $27.0 billion (71.4%) from eligibility, and $0 from managed care Medicaid.12
Since 1983, federal law has set an allowable improper payment rate of 3 percent. When a state exceeds this threshold, the HHS secretary is required to recover the federal share of the excess erroneous payments as a penalty. However, the secretary has long had discretion to waive these repayments if a state was making a good faith effort not to exceed the allowable error rate, and the secretary has generally waived penalties.13
Medicaid Improper Payment Rate for Fiscal Year 2025
Medicaid appropriate federal payment rate: 93.88%; $573.6 billion
Percentage of improper payments resulting from insufficient documentation: 77.17%
Notes: Each year approximately 17 states are reviewed. The national improper payment rate is a combination of the more recent three cycles in 2023, 2024, and 2025. In contrast to the 3 percent allowable error rate for Medicaid, Medicare is allowed a 10 percent error rate.
What Is the Current Process for States to Address Error Rates?
States are required to develop a Medicaid corrective action plan (CAP) and submit it to CMS within 90 days of receiving their PERM error rate to address the errors identified in the PERM review.14 The CAP serves as the formal vehicle through which the state explains why errors occurred and identifies root causes across fee-for-service, managed care, and eligibility categories. In the CAP, which is intended to serve as a performance management tool, a state also commits to specific corrective actions designed to reduce future improper payments.
Once CMS approves the state’s PERM CAP, the state is required to implement the corrective actions in accordance with the approved schedule, usually over the course of multiple years. CMS collaborates with states by providing guidance, technical assistance, templates, and other supports.15 All states are required to keep CMS updated regarding the status of the CAP implementation, but states with PERM error rates above 3 percent are required to do so every other month according to federal regulations.16
A state is deemed to be making a good faith effort if it is meaningfully implementing its CAP in alignment with the underlying regulation even if the state has not yet fully eliminated improper payments. As mentioned, historically the HHS secretary has been allowed to waive penalties if the state was making a good faith effort; however H.R. 1 eliminates the option to do so.
Key Findings
H.R. 1 expands what’s considered an erroneous payment and restricts HHS’ authority to waive penalties.
The law alters erroneous payments, which are included in CMS’ PERM audits, in two primary ways: it expands the definition of an erroneous payment, and it adds restrictions to HHS’ ability to waive the penalty for erroneous payments.
Widening the scope of erroneous Medicaid payments. H.R. 1 expands the definition of erroneous payments to include payments made on behalf of individuals who the state does not know for sure are eligible for Medicaid because insufficient information is available to prove their eligibility (such as someone whose documentation was not saved correctly at enrollment or renewal). Expanding the definition in this way risks overstating improper activity by the states by equating administrative uncertainty with fraud.
Restricting HHS’ authority to waive penalties. The law also limits which erroneous payments can be waived: HHS can waive up to the total amount paid in overpayments on behalf of eligible individuals, or payments where there is not enough information available to prove eligibility. HHS can no longer waive penalties for payments made on behalf of individuals who were ineligible for Medicaid, or for services provided to patients with insufficient information to confirm their eligibility. Guidance from CMS will clarify how this will be implemented. Ultimately, this change takes away HHS’ flexibility to waive financial penalties when states are making good faith efforts to address their errors.
H.R. 1 also expands the type of audits that can be used to determine Medicaid erroneous payment rates. Whereas historically these audits have been conducted by CMS, the law gives the secretary authority to conduct audits directly or to use state audits, such as the Medicaid Eligibility Quality Control program.17
These erroneous payment provisions take effect in fiscal year 2030, which begins on October 1, 2029. In November 2025, CMS indicated that it plans to issue further guidance to states on how to implement this section of the law.18 That guidance has not yet been released and could come in the form of preliminary guidance or a proposed regulation. H.R. 1 does not require CMS to use a specific regulatory pathway for implementation.
H.R. 1’s erroneous payment provisions will have a disproportionate impact on some states.
The following table illustrates the state rates during the most recent audits, including which states had rates over the 3 percent threshold, making them subject to penalties under the new law starting in 2029. As mentioned, the most recent national Medicaid PERM rate is 6.12 percent.19
H.R. 1 already puts extensive strain on state budgets, shifting costs for Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and other programs from the federal government to states. The erroneous payment provision contributes to this by adding yet another potential reduction in federal funding and further jeopardizing states’ fiscal stability. In response, states may adopt stricter approaches to eligibility determinations, such as requiring complete documentation or prior authorization before payments are made. These changes could delay treatment for patients, add additional medical debt or uncompensated care if care is not covered, add additional administrative burden for patients and providers, and put states out of compliance with federal application processing times.
Although the provision is intended to reduce erroneous payments, error rates are likely to rise as states implement other H.R. 1 provisions that make processes more complex — such as adding Medicaid work requirements and doubling the frequency of eligibility redeterminations for individuals eligible for Medicaid under the Affordable Care Act Medicaid expansion. These changes increase the risk of errors, and states may not have sufficient time to fully adjust before the new erroneous payment rules go into effect in 2029.
Recommendations for Reducing Fraud, Waste, and Abuse
Given the potential negative impact of the H.R. 1 provisions on states, policymakers have an opportunity to identify other options that could be more effective at reducing erroneous Medicaid payments. The Medicaid and CHIP Payment and Access Commission (MACPAC), Government Accountability Office (GAO), and National Association of Medicaid Directors (NAMD) have each offered recommendations to reduce unnecessary spending in Medicaid.20
About Medicaid Program Integrity
When designed and implemented well, program integrity initiatives help to ensure that:
eligibility decisions are made correctly
prospective and enrolled providers meet federal and state participation requirements
services provided to enrollees are medically necessary and appropriate, and
provider payments are made in the correct amount and for appropriate services.
Of these, NAMD’s recommendations are particularly helpful to consider as state Medicaid agencies share the federal government’s commitment to safeguarding Medicaid funds. Program integrity efforts depend on effective collaboration between state Medicaid agencies and CMS. NAMD recently outlined five core areas of recommendations to improve program integrity in Medicaid:
Strengthen the federal and state partnership through training, technical assistance, and structured collaboration. Expanding access to the Medicaid Integrity Institute and strengthening peer-to-peer learning opportunities are two options. Other strategies include enhancing the role of the Fraud, Waste, and Abuse Advisory Group and convening key program integrity partners, including Medicaid agencies, program integrity units, and others.
Provide targeted support for high-risk service areas that present elevated program integrity risks. Suggestions include developing national risk indicators for high-risk services and providers, and offering more targeted guidance on monitoring strategies, including more frequent provider reverification and clearer documentation expectations.
Improve data sharing and national visibility. Enhancing use of CMS’ nationwide dataset, the Transformed Medicaid Statistical Information System (T-MSIS), could allow program integrity efforts to be driven by actionable nationwide data — rather than a single state’s data. Agencies could then identify cross-state billing patterns, detect emerging fraud schemes, and flag providers operating across multiple jurisdictions.
Enhance information sharing on providers and enforcement actions across programs. This would involve shifting from passive data collection to actionable intelligence across multiple programs, such as Medicaid, Medicare, and Veterans Affairs.
Expand access to tools, technology, and analytic capacity to support program integrity efforts. Predictive modeling, data analytics, interoperable systems, cross-program datasets, and artificial intelligence tools — with appropriate safeguards — could help states develop a more complete picture and effectively identify suspicious patterns.
Additional details regarding these recommendations are available from NAMD.21
Of note, these strategies — as well as those set forth by MACPAC22 and GAO23 — are collaborative, not punitive. They focus on ensuring states have the resources they need to effectively prevent and address erroneous payments. They acknowledge that as fraud schemes grow increasingly complex and span multiple programs and jurisdictions, stronger coordination, expanded data sharing, and more closely aligned federal and state/territorial strategies are needed to effectively identify and address emerging risks. Both states and CMS can play key roles in helping this happen effectively.
In contrast, H.R. 1’s erroneous payment provisions — combined with the law’s broad Medicaid cuts — create considerable financial risk for states without pairing that with the supports necessary for states to effectively address erroneous payments. As a result, states may need to limit coverage or erect barriers to services for beneficiaries, who are the least likely actors to commit fraud against Medicaid.24
HOW WE CONDUCTED THIS STUDY
This study was conducted by analyzing the underlying statute of the One Big Beautiful Bill (H.R. 1) that was signed into law on July 4, 2025; reviewing CMS data on Medicaid program integrity, including the most recent data from FY2025 that was released in 2026; analyzing relevant regulations that govern requirements related to improper payments and Medicaid corrective action plans; reviewing the preliminary and interim guidance released by the Centers for Medicare and Medicaid Services (CMS) to date to implement H.R. 1; reviewing previous guidance from CMS regarding erroneous payments; reviewing recommendations from advisory bodies such as the Medicaid and CHIP Payment and Access Commission (MACPAC) and the Government Accountability Office (GAO); considering recommendations from entities such as the National Association of Medicaid Directors; and conducting a literature review.
Hospital and health system executives at the HealthLeaders CEO Exchange prioritized growth and governance for a changing healthcare landscape.
KEY TAKEAWAYS
Hospital CEOs are investing in ambulatory care through integrated access points and strategic partnerships that expand services outside the hospital campus.
Leaders are standardizing enterprise functions where it creates value while preserving local decision-making so hospitals can respond to the needs of their communities.
Leadership continuity and succession planning are vital as organizations prepare for a future that looks considerably different than the past.
The HealthLeaders CEO Exchange offered a window into how hospital and health system leaders are viewing strategy during a time of unavoidable industry transformation.
Across two days of roundtable discussions in Avon, Colorado, executives shared approaches for remolding their organizations around care models that emphasize access, leadership structures that give local teams room to execute, and partnerships that create value for patients and communities.
Here’s a look at the conversations that took place and what they mean for the immediate future of hospital decision-making.
Growth follows the patient
Ambulatory care strategy has become imperative for providers wanting to grow in the current environment in which care isn’t bound by the hospital’s four walls.
Several CEOs spoke about creating integrated care sites that combine primary care with behavioral health, dental services, rehabilitation, and optometry. Others discussed hybrid emergency department and urgent care facilities that simplify access for patients who are unsure where to seek treatment. Mobile care services and virtual specialty were also highlighted as organizations look for ways to expand access across urban and rural markets.
One executive described an approach that challenged years of competition between neighboring organizations.
“Historically, the CEOs hated each other,” the executive said. “When she and I both became CEOs, within six months of each other, we were like, ‘Let’s start a different path.'”
The relationship led to a shared walk-in clinic that has since become a wider ambulatory strategy across the region. The model increased access, generated revenue for both organizations, and strengthened relationships with community leaders, according to the executive.
Another participant described their organization’s philosophy as “no wrong door,” with patients entering the system through whichever service best fits their needs while gaining access to additional care during the same visit.
The discussion reflected how executives are focusing on bringing care closer to patients through flexible access points that improve convenience and support long-term financial performance.
Balancing scale and local leadership
As health systems continue to grow, CEOs are rethinking ways to preserve decision-making close to the communities they serve.
Executives at the Exchange described centralizing functions such as marketing and revenue cycle while allowing local leaders to shape implementation based on market conditions. Several attendees said enterprise standards provide direction, though each hospital requires flexibility to address its workforce and patient population.
One executive summarized their philosophy in three words: “Implementation is local.”
That perspective echoed an earlier discussion on systemness, where leaders debated which functions benefit from standardization and which remain stronger when managed locally. Participants acknowledged that scale can improve efficiency, though additional layers of governance can also slow decisions and weaken ties to the community.
Accountability starts with setting clear expectations for local leaders and sharing what works across the organization.
Leadership evolves with the organization
Roundtables at the Exchange also revealed how leadership expectations continue to change.
Executives spoke about building stronger relationships across finance, operations, and clinical teams through greater transparency and more frequent collaboration. Several described spending time with frontline employees and creating environments where staff feel comfortable raising concerns. Those efforts, participants said, strengthen trust and improve execution.
Leadership continuity also emerged as an important advantage. Executives said longer CEO tenures help strengthen relationships with physicians, employees, community organizations, and elected officials while giving strategic initiatives time to mature.
When change does happen, internal succession planning can mitigate organizational turbulence, with leadership development serving as an investment in long-term organizational stability.
Ultimately, one message became clear by the end of the Exchange: Hospital leaders are looking well past incremental improvements.
“The hospital models are dead,” a rural hospital executive said. “Everybody’s trying to do CPR on the old model versus thinking about what’s the new model.”
Whether it’s ambulatory expansion, virtual care, partnerships, leadership structures, or organizational design, CEOs are strategizing through the lens of what comes next.
Yes, I’m still talking about it: Last week at our CEO Exchange in Avon, Colorado, even more became very clear: if you’re still thinking of a hospital as a destination, you’re already behind.
I’ve been watching health system strategy evolve, but the conversations I heard in the Rockies felt like a definitive pivot. The “four walls” of the hospital are officially a thing of the past. CEOs are now designing systems around an ambulatory-first, “no wrong door” philosophy.
We heard about integrated care sites that mash together primary care, behavioral health, dental, and even optometry under one roof. One of my favorite moments was hearing two CEOs who, historically, were supposed to spend their careers hating each other, decided instead to build a shared walk-in clinic.
It turns out that when leaders stop protecting their turf and start looking at what the community actually needs, everyone—including the bottom line—wins.
But how do you scale that without losing your soul? That’s the part that always gives the C-suite a headache. The consensus in the room was pretty straightforward: centralize the “boring” stuff like revenue cycle and marketing (hey, I didn’t say it!!), but keep decision-making local. As one executive put it, “Implementation is local.“ If the people on the front lines feel like they’re just taking orders from a corporate office three states away, your strategy is dead on arrival.
Also today, a reality check on the relationship between nursing and HR.
Jennifer Spinelli, director of system talent acquisition at Beebe Healthcare, joins us on HL Shorts to discuss a disconnect I’ve seen play out in a hundred different ways. You have nurse leaders who are feeling the immediate, visceral burn of a staffing gap on the floor, and TA leaders who are trying to balance that urgency with the cold reality of the labor market.
How do you bridge that gap without someone ending up frustrated? It comes back to transparency and shared data. When everyone is looking at the same map, it’s a lot easier to agree on the destination.
Both stories point to a new era of healthcare leadership that values partnership over competition and operational alignment over corporate mandates. Whether you’re building a new clinic or a new workforce pipeline, the most successful leaders are the ones willing to tear down the silos they spent years building.
To avoid losing funding, many states are pursuing proven cost-saving strategies like downsizing inpatient care rather than untested approaches, some experts say.
Listen to the article7 min
The Rural Health Transformation Program is beginning to reshape how hospitals in rural America deliver care. But with nearly a trillion dollars in Medicaid cuts looming and pressure to show results or risk losing funding, many states are pursuing the safest path available: paying hospitals to downsize.
Congress established the $50 billion, five-year fund under the One Big Beautiful Bill Act to improve healthcare access, quality and outcomes in rural areas — and to win over a handful of Republicans who threatened not to vote for the bill over concerns it would gut Medicaid funding and take out rural hospitals in the process.
The funds are meant to improve rural healthcare access, which has been declining in the U.S. for years. More than 100 rural hospitals have closed in the past decade, and more than one-third are at risk of closing, according to the nonprofit Center for Healthcare Quality and Payment Reform.
The OBBBA will reduce Medicaid spending by an estimated $911 billion over the next decade and increase the number of uninsured people by 10 million, according to the Congressional Budget Office. The RHT program, meanwhile, could offset 37% of the estimated cuts to federal Medicaid spending in rural areas, or about 5% of the total estimated cuts to federal Medicaid spending, according to a KFF analysis of the CBO’s estimates.
In light of the massive funding cuts, the RHT program may not live up to its promises, experts say.
“If we weren’t facing a trillion-dollar cut in the Medicaid program over the next 10 years, this could be a once-in-a-generation policy,” said Bradley Cunningham, a regulatory and policy analyst at the Association of American Medical Colleges.
In December, all 50 states received their first-year awards, totaling $10 billion and averaging roughly $200 million per state. The program caps direct care spending at 15% of funds, steering the bulk of the remaining money toward infrastructure, technology, workforce and new care models.
However, states only had about seven weeks to prepare their applications. So, their plans largely focus on proven cost-cutting strategies rather than innovation, and now they’re locked into whatever they proposed.
“They had to prioritize speed over thoroughness,” said Aaron Bujnowski, a managing director with the healthcare industry group at consultancy Alvarez & Marsal.
As a result, rural health systems in at least 25 states will need to rightsize to receive funding, NPR reported in April. That can mean cutting services, such as dialysis or labor and delivery, or subsidizing conversions to the Rural Emergency Hospital designation, which requires eliminating inpatient care.
That could affect academic medical centers and other large providers, as they often absorb patients when rural facilities cut services or close. The wave of rural hospital closures over the past decade has already pushed patients to urban academic health systems, increasing volumes and straining capacity.
The point was driven home by an AAMC member who ran the only academic medical center in his state, said Leonard Marquez, senior director of government relations and legislative advocacy at the AAMC.
“He looked at me and said, ‘If my rural hospitals are not healthy, I cannot be healthy,’” Marquez said.
Five buckets, 50 plans
States are taking sharply different approaches to the RHT program. Bujnowski identified five broad categories: Downsizing and REH conversion, as in Kansas and Montana; workforce development, including Maine’s expanded scope of practice for physician assistants; technology and alternative payment models, with 42 of 50 states including some form of value-based care expansion; social determinants of health, including food-as-medicine programs in Arkansas and Pennsylvania; and states that are still refining their plans.
The applications for funding were “so divergent” that it’s difficult to discuss the program in holistic terms, Cunningham said.
Moreover, the program’s clawback authority, which allows the CMS to reduce a state’s funding in subsequent years if it fails to demonstrate outcomes, is weighing heavily on states’ decision-making.
Read More in Hospitals
Because of this, states have strong incentives to pursue proven models rather than untested approaches, as they must demonstrate measurable progress in the first year or risk losing funding in the second.
That dynamic likely limits innovation and spurs cuts because reducing services will quickly lead to direct and measurable progress. So, states are more inclined to expand capitated primary care payments or subsidize REH conversions — interventions with existing track records — than attempt something novel without a demonstrated history of results.
Still, not everyone sees the service cuts as a loss.
Framing the program as incentivizing hospitals to shrink is misleading, said Robert Parris, a managing director who leads government-focused healthcare advisory work at consulting firm Huron. What’s actually happening, he said, is that communities are getting more of what they need and less of what they don’t.
“It’s more about reallocation as opposed to taking away,” Parris said.
The program is also shifting how leaders think — from what services a facility can provide within its own walls to what care the surrounding population actually has access to, said Paul Johnson, a managing director who works directly with rural hospital clients at Huron.
Many hospitals had these changes on their wish lists for years, but they couldn’t justify the investment because they were focused on surviving the next budget cycle.
“It’s almost like a license for them to pivot into things that they know they’ve had to do,” Johnson said.
Programs over people
But with nearly half of rural hospitals operating in the red, the 15% direct-care cap doesn’t replace what they lost from Medicaid cuts, forcing difficult decisions about which services to keep.
Hospital boards are weighing four options, Bujnowski said: Close services, convert to a Rural Emergency Hospital, develop truly innovative payment models or improve access to technology like digital health tools.
In many instances, the first two offer the clearest path to continued funding under the RHT program.
The need to demonstrate outcomes, as well as the looming threat of funding clawbacks, could also cause hospital leaders to become overly focused on program management at the expense of the communities they serve.
“The most common mistake could be to put programs over people,” Bujnowski said.
The best leaders will ensure their initiatives stay aligned with what patients in their communities actually need. Boards should ask what sustained, community-appropriate care looks like beyond 2030, when the program’s funding runs out.
“That should be your North Star,” Bujnowski said.
But whether the program’s limitations allow for genuine transformation — or simply a managed, federally-funded downsizing — is a question that won’t be answered for years.
For more than half a century, physicians ranked among the most trusted professionals in America. Even before modern medicine, when treatments usually failed, patients admired their doctors’ knowledge, dedication and compassion. Today, that trust has eroded, with profound implications for the future of U.S. healthcare.
Gallup polling shows just 44% of Americans rate the quality of care they receive as “good” or “excellent,” the weakest showing since Gallup began asking the question in 2001. Meanwhile, trust in doctors’ honesty and ethics has dropped 14 points since 2021, falling to its lowest point this century.
At first glance, you might assume that this decline resulted from recent developments: COVID-19, political polarization and rising vaccine skepticism. Instead, today’s drop in confidence is the predictable result of decisions set in motion some 20 years ago.
How the arc bent
To understand why patients now rate their doctors so poorly, we need to trace the full arc of modern medicine: how trust was built, how it peaked and why it declined.
The arc began with the arrival of antibiotics in the 1920s and ‘30s. Before then, doctors more often offered patients hope and compassion rather than cures. But with the availability of sulfa drugs and, later, penicillin, a doctor’s visit was more likely to prolong a life than shorten it.
The second half of the 20th century became medicine’s golden era. In this next section of the arc, breakthroughs in surgery, transplantation, chemotherapy and vaccines were paired with broader access through employer-sponsored insurance and the creation of Medicare and Medicaid. Life expectancy climbed year after year, and public confidence in doctors soared.
But every arc bends. By the 1990s, the daily demands of clinical practice had shifted. Acute problems like pneumonia or broken bones — conditions that often could be treated in a single encounter — gave way to chronic illnesses such as diabetes, heart failure and hypertension. These conditions demand lifelong management: frequent monitoring, medication adjustments and repeated follow-ups.
As chronic disease became more common, and as patients and patients struggled to manage these ever-present conditions, the result was an epidemic of heart attacks, strokes, cancers and kidney failures. Costs soared while clinical outcomes stagnated.
Insurers, caught between surging costs and payer resistance, had only one lever to pull: rationing. They rolled out high-deductible plans, imposed prior authorization requirements and denied more claims. Doctors, meanwhile, reassured by high patient satisfaction scores, resisted transformation. Most kept practicing in small, siloed offices under fee-for-service, a payment model that rewards volume over outcomes. Many who sought stability and greater reimbursement sold their practices to hospitals or private equity firms. Few found the relief they hoped for.
Why patients feel differently now, why doctors denied it
As the gap between patient needs and physician capacity widened, access to care steadily eroded. Appointments that once took days to schedule began stretching into weeks or even months, both in primary and specialty care. And when patients finally got through the door, visits felt hurried. With doctors averaging just 17 minutes per encounter, there was little time to listen fully, explain thoroughly or follow up afterward.
The consequences were predictable. Delayed appointments allowed medical problems to worsen. Rushed exams led to misdiagnoses. And for patients left waiting, worrying or returning with complications, the logical conclusion was that their doctors didn’t care.
Even as patients noticed the increasingly compromised quality, most medical professionals clung to the belief that small fixes could repair the system and restore the doctor-patient bond. They lobbied for a few more dollars from Medicare, a little less billing paperwork and fewer insurer-imposed prior authorizations. But with less than half of Americans now confident in the quality of care they receive — and premiums projected to rise nearly 9% next year — physicians can see that major healthcare reform is required. The era of denial is ending.
Patient confidence has now collapsed. A minority of Americans rate their care as excellent, and the data back them up. Life expectancy remains the same in the United States today as it was in 2010. And healthcare now consumes nearly one-fifth of the nation’s GDP, with half of Americans struggling to afford their medical bills. The question clinicians are asking is what can we do? Other industries provide answers.
Lessons from business turnarounds
Clay Christensen observed that companies and their leaders resist transformation until it is too late, and disaster strikes. Intel’s recent struggles illustrate how even once-great companies can go from the world’s best to an “also ran.” The lesson for the medical profession: that recognize the crisis early enough and embrace bold strategies are the ones that survive.
Their approach and ultimate success fall into two categories:
They maximize operational excellence to close the gap between demand and capacity. In the 1970s, for example, Southwest couldn’t match the major carriers on brand reputation, so it had to become cost effective. It chose to maximize collaboration. Pilots, flight attendants and ground crews operated as a tightly integrated team, following consistent steps at every airport. Planes turned around in 10 minutes, not 30. That efficiency allowed Southwest to schedule six flights a day (one more than the competition) without purchasing more planes or adding staff.
They embrace new technologies that can increase quality and lower cost. Take Netflix as an example. What began as a DVD-by-mail service pivoted early to streaming. Even before broadband was widespread, Netflix bet on the future. The model slashed costs, improved accessibility and delivered higher-quality viewing. Subscriptions stayed affordable, households remained loyal, and the company reshaped an entire industry.
Healthcare can learn from this. In this scenario, doctors would join together to achieve economies of scale, collaborate across specialties to avoid duplication of services and minimize resource waste through clinical care coordination. Moreover, they would apply the principle of specialization to create high-volume centers of excellence capable of providing consistently high quality with far greater efficiency and significantly lower costs.
Medicine could emulate this approach. Physicians would embrace generative AI, take financial risk under a capitated model, find ways to better control chronic disease and empower patients to take on more of their own care. This would decrease demand on doctors, free-up time for their most complex patients and reduce burnout. But this scenario won’t happen if the payment methodology remains “pay-for-volume,” or if new technologies are relegated to administrative tasks rather than applied to improve clinical effectiveness and efficiency.
Of course, there is a third possibility: doctors cling to denial.In this scenario, they keep running faster and faster on the treadmill, cutting more corners each year and hoping small fixes will make a difference.
If this is the path medicine follows, annual costs will outpace inflation, quality will continue to decline, and the gap between healthcare prices and what patients can afford will widen. To fill in the void, entrepreneurs will seize the opportunity and develop generative AI tools that replace (rather than complement) physicians. When that day comes, doctors will regret not acting while they still could.
This week we’re highlighting a trio of stories that shed new light on issues An Arm and a Leg has been tracking closely:
A sharp investigation from our partners KFF Health News on who’s actually filing medical debt lawsuits.
How one state is cracking down on aggressive medical credit card marketing.
Some new, encouraging data suggesting more seniors can afford their medications.
Let’s go!
In at least one state, doctors are now suing patients more than hospitals are
One of the most perplexing realities we’ve come across while reporting on the U.S. health care system (and there are MANY) is this: Hospitals routinely sue their patients over medical debt, yet recoup very little money in the process. So why do they bother?
In fall 2023, we published a two–part investigation with Scripps News and The Baltimore Banner digging into that question.
Since then, we’ve been tracking efforts by advocates, lawmakers, and federal agencies to rein in the most aggressive medical debt collection practices — like destroying a patient’s credit, garnishing their wages, or foreclosing on homes.
And now, in at least one state — Connecticut — KFF Health News and the CT Mirror found that public pressure persuaded many hospitals to stop suing patients over medical debt altogether. Cool!
And recent legislation targeting aggressive medical debt collection practices doesn’t cover non-hospital health care providers. Neither do medical debt protection laws in most other states.
As one Connecticut state senator put it, lawmakers will need to to “go bigger if that’s where the heart of the matter is.”
On a brighter note, Connecticut has passed another law looking out for people facing medical debt…
New rules around CareCredit and other “medical” credit cards
Last week, Governor Ned Lamont signed a bill limiting the aggressive and confusing marketing of medical credit cards inside doctors’ offices and veterinary offices.
Connecticut joins California, Illinois, and New York in passing laws to protect patients from these financial traps.
Health care providers are increasingly pushing medical credit cards as an alternative to in-house payment plans. CareCredit, the biggest player in the field, says these cards are accepted at more than 285,000 locations, including many hospitals.
The appeal for providers is pretty straightforward: Outsourcing billing to a third party reduces administrative burden.
According to Patricia Kelmar, senior director of health campaigns with PIRG, patients frequently don’t understand what they’re agreeing to — whether they’re handed a form at the front desk or an iPad in the exam room.
“It’s just not the place to be looking at terms and conditions,” she says.
As we covered in a previous First Aid Kit, those terms and conditions usually include something scary: deferred interest. In most states, medical debt tied to medical credit cards also isn’t protected by the same consumer laws that cover regular medical debt — New York being the notable exception.
Connecticut’s new law adds meaningful friction that could make it harder for patients to sign up for something they don’t understand:
Health care providers can no longer submit or help fill out applications on a patient’s behalf.
Provider logos are banned from credit card marketing materials, making it clearer the card isn’t affiliated with the doctor or hospital.
Providers can’t charge these cards for services covered by Medicaid.
Kelmar, who’s collecting stories from patients, says it’s a step forward — and a pretty unlikely one, given that Synchrony Financial, which operates CareCredit, is based in Stamford, CT.
Apizza, anyone?
A law from 2022 is making a real difference for seniors
A new study in JAMA finds that legislation capping out-of-pocket prescription costs for seniors has helped many stay on top of their medications.
And, as Undark explains, those good results may be only the beginning. The law was only beginning to phase in during 2024; the full out-of-pocket cap took effect in 2025, and the study’s authors expect even stronger results to follow.
The Trump administration has announced that it will significantly expand access to so-called catastrophic health insurance plans, which are policies with comparatively low monthly premiums but deductibles so high they often leave families effectively uninsured until a medical crisis strikes. CMS described the move as giving Americans “flexibility” and improving access to “affordable healthcare coverage.” But what I call them are “junk plans”.
Back in October, I warned that these plans (often called short-term, limited-duration insurance plans, or STLDIs) were poised for a comeback as enhanced Affordable Care Act subsidies expired and millions of Americans faced sharp premium increases. Well, now these plans are, in fact, a reality.
The Affordable Care Act outlawed most of these junk-style plans because the law requires insurers to cover health care services people need, including prescription drugs, hospitalization, mental health care and maternity care. The ACA also forced insurers to spend most premium dollars on medical care instead of executive compensation, advertising and shareholder returns.
But the ACA never fully solved the deeper affordability crisis in American health care. Premiums have steadily become much too high. Deductibles and other out-of-pocket requirements have put care out of reach for millions as insurers have continued to shift more costs onto patients while simultaneously becoming larger, more powerful and more profitable. The shortcomings of the ACA and the decisions by the President and congressional Republicans have created the perfect opening for catastrophic plans to return.
Affordability’s all the buzz, but Trump’s sweeping payment rule emphasizes consumer choice over cost control.
When families are staring at monthly premiums they can no longer afford, a cheaper option — even one loaded with massive deductibles and coverage gaps — starts looking attractive. That is exactly what insurers are counting on.
In my old job at Cigna, I helped market plans like these. In my book Deadly Spin, I called them what they often really are: “the illusion of coverage.” These policies were designed to look like insurance while minimizing the likelihood insurers would actually have to pay significant claims. Companies like UnitedHealth Group and other insurance and health care conglomerates make enormous profits on catastrophic-style plans because the deductibles are so high and the restrictions so extensive that relatively few claims ever get paid.
Supporters of these plans frame them as “consumer choice.” But choice is a misleading word when many Americans are being financially cornered into skimpier coverage because comprehensive insurance has become unaffordable. People do not think they will get cancer before it happens. No one expects a devasting car crash or for their kid to come down with a confusing illness. The danger with junk plans is that people undoubtedly only discover how weak their coverage is after their lives have already been turned upside down.
And so, both parties in Washington deserve criticism. Republicans are now openly expanding access to catastrophic-style plans. But Democrats also bear responsibility for defending a post-ACA system that still leaves millions of Americans underinsured and financially exposed. Expanding coverage was enormously important. But coverage alone is not enough if using that coverage can still bankrupt you. We need a comprehensive update to the consumer protections in the ACA – expanding junk insurance is not that – and Republicans know better.
The real danger now is that America slowly normalizes a health care system where people are expected to carry insurance cards that offer little meaningful protection until disaster strikes. Once that becomes acceptable, legitimate insurance and junk insurance become indistinguishable.
With commercial medical costs projected to increase 9.0% in 2027, patients are feeling the financial squeeze from administrative friction generated by the payer-provider AI arms race.
KEY TAKEAWAYS
PwC projects a 9.0% commercial medical cost trend for group plans in 2027, driven by structural inflators like AI-enabled documentation tools, rising specialty pharmacy costs, and IDR payments.
As payers aggressively deploy AI-driven pre-payment reviews to combat rising costs, providers are automating their defenses, creating an expensive administrative arms race that fails to lower systemic costs for the consumer.
To navigate this financial squeeze without alienating their communities, health systems must shift away from back-end collections and prioritize transparent, empathetic pre-service financial clearance.
Last year, PwC projected a 8.5% medical cost spike in the commercial group market. Unfortunately, the professional services company’s forecast for the next year does not suggest there will be any relief for rising healthcare costs.
According to PwC’s latest Medical Cost Trend: Behind the Numbers report, the 2026 group cost trend has been retroactively adjusted upward to 9.0%. Looking ahead to 2027, health plan actuaries expect that 9.0% growth rate to sustain in the group market, alongside an 8.5% increase in the individual market.
With historical deflators, like biosimilars and site-of-care shifts now fully embedded into the baseline, the cost environment heading into 2027 represents a structural shift rather than a temporary spike, according to the report.
Five Cost Inflators in 2027
Health plan actuaries point to five distinct inflators driving medical costs higher across the commercial sector.
1. AI-Enabled Revenue Optimization
While revenue cycle leaders may say that payers started the battle of the bots, provider use of AI-powered scribes and ambient documentation tools are leading to higher E/M levels and higher-severity DRG assignments. Consequently, health plans are seeing higher billed allowed amounts and increasing per-member-per-month trends without a corresponding change in actual care utilization or contracted rates.
2. Provider Reimbursement Pressures
Hospitals continue to face elevated labor expenses and rising input costs for drugs and supplies. To offset these structural costs, health systems are leveraging market consolidation to negotiate higher commercial reimbursement rates.
3. Surging Pharmacy Costs
Pharmacy trend continues to outpace overall medical trend. Spending on cancer medicines alone reached $143 billion in 2025. Additionally, high-cost GLP-1 therapies are expanding well beyond obesity treatment, securing FDA approvals for cardiovascular disease and chronic kidney disease.
4. Behavioral Health Utilization
Between 2018 and 2024, behavioral health visit rates increased by 62.6%. Unlike other medical categories that are driven by unit cost, the behavioral health trend is actively fueled by sustained increases in patient utilization.
5. IDR Arbitration
The No Surprises Act’s Independent Dispute Resolution (IDR) process has become a significant revenue driver for providers. Providers won roughly 88% of payment determinations in the first half of 2025. A 2025 report found that IDR had generated $5 billion in costs, including $2.24 billion in direct payments to providers.
Looking at the Bigger Picture
While AI has been sold as a tool to improve efficiency, the technology has so far driven an expensive administrative arms race rather than acting as a systemic cost deflator. On the health systems side, providers are using AI-powered scribes and documentation tools to capture greater complexity and patient acuity. Meanwhile, health plans are deploying their own technology to auto-triage complex claims, detect billing anomalies, and flag provider outliers before funds are ever released.
Administrative friction between providers and payers ultimately causes patients to delay or interrupt necessary clinical care. It is critical that payers and providers work together to prevent this, according to Ryan Thompson, Chief Revenue Cycle Officer at Providence.
“It’s incumbent on both payers and providers to identify what we can do differently to mitigate that friction that causes patients to interrupt or delay care,” Thompson says.
This puts revenue cycle leaders in a tricky position, where they are expected to drive collections from cash-strapped patients without alienating local communities by focusing solely on revenue optimization.
To counteract the 2027 cost trajectory without damaging patient trust, health systems must prioritize transparent, pre-service financial clearance. Ryan Klein, Senior Director of Patient Access and Financial Experience at UW Health, emphasized that leaning into empathy and flexibility ultimately protects both the patient and the bottom line.
“An experience-first approach, I don’t think it undermines revenue goals,” Klein stated. “I think it just simply sets up the patient to contribute to their out-of-pocket liability in the way that best works for them.”
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HENRY KOTULA 