Top of mind in health care policy & financing
CMS announced a “major crackdown on health care fraud” that includes deferred Medicaid payments to Minnesota of roughly a quarter of a billion dollars, a 6-month nationwide moratorium on new supplier enrollments for Durable Medical Equipment for Medicare, and an RFI on reducing waste, fraud, and abuse.
Fraud is very bad; we should reduce it as much as reasonably possible while acknowledging that the optimal amount isn’t zero, and in areas like DME supply, personal care services, Home and Community Based Services, it’s important to acknowledge trade-offs between timely access to services and practices that reduce fraud, like utilization management.
The comment period for the CY 2027 Advance Notice for Medicare Advantage closed yesterday at 11:59 PM, and we’re expecting to see whether the expected average change in payments stays a paltry 0.09% no later than April 6th.
This past Monday, CMS’ Chief Policy and Regulatory Officer John Brooks argued that the low rate increase was long-run stability of the program to an audience at the National Association of Benefits and Insurance Professionals’ annual meeting. I’m somewhat sympathetic to this argument as a taxpayer, but based on the ads I’m seeing around DC, the MA plans are unmoved.
The House Ways and Means Health Subcommittee held a hearing on healthcare worker shortages. If you can read through to the policy discussions underneath the grandstanding, you can see the outline of an emerging policy around increased growth in graduate medical education slots, especially in rural areas, which is a major bottleneck to getting more doctors.
In the public markets, Humana shares slid further before partially recovering after Barclays analyst Andrew Mok expressed some skepticism about management’s MA margin assumptions. Kidney care giant Fresenius reported earnings and, like their competitor, DaVita, reported positive operating income in their value-based care segment, with headwinds in 2026 from the expiration of the enhanced premium tax credits.
Physician enabler Privia reported earnings this morning while I was writing, and MA plans Clover Health and Alignment Health report after market close today. HTN community members can get our immediate reactions in the #htn-earnings-coverage channel.
In the private markets, Coral Care, a two-sided marketplace + business in a box model for Speech, Occupational, and Physical Therapy, announced a $13 million Series A this week. The basic thesis here is that there is a lot of untapped therapist supply in the market that can be unlocked with the platform/biz in a box model. It’s reminiscent of the Gurley story about Uber ’s valuation, which ended up being very right.
In my view, it’s the right story for the moment. For a lot of reasons, there is a lot of therapist supply locked up in the market, and you can create value for everyone involved, including the platform, by making the market more efficient. We’ve seen some examples of this in ABA, and when you listen in on Medicaid Managed Care calls or State Agency webinars, there’s clearly a lot of demand for alternatives to the current business models.
Puts & takes
340B shows that clever policy can be fun, but direct taxes and subsidies are better in the long run.
When you're designing public policy, a central tension is that doing the good things you want generally costs money, that money needs to come from someone, and that someone usually doesn’t want to pay more in taxes. There are exceptions to this last part: congestion pricing in New York City seems to be pretty popular even among certain segments of people paying the “tax", for instance.
But as a rule, someone has to pay for your good public policy idea, and they are not going to like it. There are a few generally accepted approaches to dealing with this problem. One way is to think about fairness, redistributing something from the winners to the losers in a given situation.
Let’s say your public policy is bolstering the finances of safety net hospitals. You might look around and say, “There are hospitals in the market that are doing quite well. Tenet Healthcare, you just reported earnings and were telling your shareholders about your consolidated adjusted EBITDA margins of 21.4%, maybe you could kick in a bit.”
Tenet Healthcare and its shareholders, who get what’s left after taxes, would prefer not to pay these taxes, but on the other hand, Tenet Healthcare and its shareholders benefit from the existence of safety-net hospitals. Its earnings are somewhat a function of its winning the good payer mix and good service-line game vis-à-vis safety-net hospitals. So Tenet estimates its tax rate on earnings at about 24%, pays when the bill comes due, and goes about its business. Those taxes finance many things, including Medicaid, disproportionate share payments, and other programs that help safety-net hospitals.
A weird quirk of the U.S. healthcare system is that there are other “winner" hospitals that don’t pay any taxes at all, but that’s relevant only insofar as taxing the winners in this specific scenario isn’t really sufficient to finance the safety net hospitals.
Another approach that policymakers like, which is similar in spirit, is to have a third party, separate from the winners and losers, pay. You might try “sin taxes” on things like smoking, gambling, or alcohol. The key here is to find a group that isn't very sympathetic, and then make the case that they should bear the brunt of the financing costs. It can be helpful if this group is related, at least rhetorically, to the winners and losers, but this isn’t really a hard requirement, though it can help.
For instance, if you were looking for some money for safety net hospitals, you might think, “Those pharma companies sure do have a lot of profits.” They aren’t the proximate cause of the poor financial situation of safety net hospitals, but they also aren't very sympathetic and have lots of cash, so you might put pencil to paper and work up a scheme.
This is, in essence, the 340B pricing program, which allows federally qualified health centers, Ryan White HIV/AIDS grantees, specialized public health clinics, and certain flavors of hospitals, including children's hospitals, critical access hospitals, and disproportionate share hospitals, to buy certain drugs at steeply discounted prices and then sell them for a profit. It’s essentially a tax that pharmaceutical manufacturers pay to finance safety-net hospitals, with lots of extra steps.
The part of the Health and Human Services Department that administers the 340B program is the Health Resources & Services Administration, and they are pretty transparent that this is what’s going on:
The 340B Program enables covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.
I.e., the goal of the program isn’t to get cheap drugs into the hands of safety-net patients, though that is a byproduct; it’s to allow hospitals to get discounts at the expense of manufacturers, the profits of which help finance safety-net hospitals. So, the safety net hospitals don’t just sell the drugs to their uninsured and medicaid patients, but also Medicare and commercially insured patients. Consider this chart from the USC Schaeffer Institute:
If you can buy a drug for $1000 and sell it for $3000, that is a nice business to be in. Naturally, hospitals with a “no mission without margin” attitude will want to be in that business, even if they don't meet the spirit of the 340B program eligibility requirements. Pharma manufacturers, who hate the program on the merits, point to health systems that you wouldn’t really call “safety net,” bringing 340B-eligible facilities under their umbrella so they, too, can have approximately 67% gross margins on some of their pharmacy business.
Earlier this week, Axios reported that HRSA has a “new sense of urgency” around changes to the program, with an RFI that went out earlier in February soliciting comments. This is after a judge blocked a proposed rebate model that effectively eliminates hospitals' profits from the 340B program. The proposal elicited strong feelings among hospitals, and they are ramping up their lobbying and commenting efforts to keep the program in place and unchanged. The pharma lobby is working just as hard in the opposite direction, to change the program from a profit center for hospitals to an actual discount (or rebate in this case) program for uninsured and Medicaid patients.
It's appealing, if you’re a policymaker, to come up with clever, complicated policy designs like 340B, which does some alchemy to convert a hospital into a highly profitable pharmacy. You get the financing you want for safety-net hospitals without having your constituents (unless they happen to own shares in the pharma manufacturers) pay more taxes. The benefits are acute for the hospitals, and the costs are relatively diffuse among the whole population. Unfortunately, the segment where these diffuse costs are felt most acutely also happens to have a lot of political influence at the moment, which leaves the financing mechanism vulnerable to dramatic changes. Complexity isn't always a vice, but as a matter of good public policy hygiene, I think it's better to just subsidize the safety net hospitals directly through higher taxes rather than a too-clever-by-half program like 340B.
The Hickpuff Review
What I'm reading in health care policy and financing
HTN published a guest post by Janine Knudsen, MD, a senior advisor at the Common Health Coalition, and Shoshanah Brown, MS, MBA, a strategic advisor at Popai Health, offering a useful framework for deploying AI in safety-net environments.
A structural constraint shaping current AI development is that most tools are designed for physicians and delivery systems organized around traditional clinical encounters. In safety-net and Medicaid environments, however, outcomes frequently depend on a different set of functions: sustained patient engagement, identification of social barriers, referral coordination, and longitudinal follow-up. These responsibilities are largely carried by community health workers, care managers, patient navigators, and care coordinators — roles whose workflows, information needs, and constraints differ substantially from clinician-centered models. AI systems that fail to align with these operational realities may produce limited impact despite considerable technical sophistication.
The final report from CMMI on the Accountable Health Communities innovation model was a pleasantly upbeat surprise this week. The model focused on
social determinants of health, or health-related social needs,or as I guess we're calling them now, upstream drivers of health, and showed impressive results:
Ankit Patel, a former CMMI senior adviser, shared his views on how to fix CMMI models, including running more experiments under Fee For Service and testing more hospital models, such as Maryland’s successful global budget experiment.
More from Health Tech Nerds
Weekly Health Tech Reads 2/22/26. Read here.
HTN Radio
Designing and delivering home-based care for dual-eligible populations with Jukebox Health. Listen here.
The Grand Round Up, February 23rd. Listen here.
Reengineering ACOs for competition and better outcomes with Liz Fowler and Purva Rawal (ex-CMMI). Listen here.
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1 The deferred Medicaid payment amount for Minnesota, $259.5 million, is approximately in line with the 2.2% improper payment rate CMS reported for Minnesota in 2025 vs the national rolling average of 6.12%. CMS also notes that “While CMS’ improper payment reporting programs are designed to protect the integrity of CMS programs, improper payment measurement is not a measure of fraud, and not all improper payments are attributable to fraud or abuse. Rather, it is important to understand that improper payments are payments that do not meet CMS program payment requirements. They can be overpayments, underpayments, or payments where insufficient information was provided to determine whether a payment was proper. In some programs, improper payments involve a situation where a state or contractor misses an administrative step that had it been properly completed would have resulted in a proper payment.“
