The Real Medicaid Crisis Isn't Cuts—It's The Model Itself

Forbes

a day ago

WASHINGTON, DC: U.S. Speaker of the House Mike Johnson (R-LA) speaks to the media after the House ... More narrowly passed the "One, Big, Beautiful Bill" Act on May 22, 2025. Johnson was flanked by House Committee Chairmen who helped craft the legislation. (Photo by)
Hospitals and trade groups are sounding the alarm over proposed Medicaid reductions, warning of serious consequences to access and financial stability. The concern is warranted, but it's only part of a larger, more systemic problem that keeps getting overlooked.
If we want to protect access to care, especially for the most vulnerable, we have to move beyond the rhetoric of funding shortfalls. The root cause isn't this or that funding change. It's the broken business model that continues to siphon resources into unproductive spending. The real question isn't whether we can afford to keep expanding Medicaid. It's whether we can finally confront the inefficiencies that make even basic coverage feel out of reach.
Though Medicaid has historically been the least attractive payment mode for providers–characterized by low reimbursement rates and administrative burden–it provided a lifeline for many delivery organizations post-ACA. The expansion meant more patients came through the doors with some form of coverage.
But that window is closing. As the federal government reassesses eligibility and reduces its contribution, states are being asked to absorb the difference. That's a tall order. Many states are already grappling with budget constraints, and municipal systems are ill-equipped to fill the gap.
Trade associations warn that millions may lose coverage. But hospitals aren't just worried about patients, they're also worried about the bottom line. They're ringing alarm bells not just because coverage is vanishing for individuals, but because revenue is vanishing for them.
Medicaid cuts don't stand alone. They're the latest in a long string of policy changes that have slowly but steadily eroded confidence in the healthcare business model.
Each time CMS or Congress tweaks funding, adjusts metrics or rolls out a new pilot program, providers find ways to adapt. But they can do that without ever truly transforming the underlying business model. And it's the transformation that has been at the heart of many of the actions that CMS and Congress have taken.
We've seen this before: narrow fixes, more requirements, shifting incentives. It's become a pattern. And over time, these piecemeal adjustments have created a system so complex that even well-meaning changes produce unintended negative consequences.
The deeper issue isn't a specific cut, it's the habit of tinkering at the margins instead of addressing the foundational issues: lack of alignment around value, bloated administrative structures and incentives that reward volume over outcomes.
In my book Bringing Value to Healthcare, I estimated $500 billion per year in unnecessary healthcare spending. That figure was based on data from 2016–and there's little evidence the situation has improved. From duplicative testing to redundant administrative overhead, inefficiencies plague every corner of the delivery system.
When policymakers say we 'can't afford' to provide coverage, they're missing the point. We're already spending far more than we need to. We're just not using it effectively.
If we changed the underlying structure of the system, we could afford to provide coverage for every eligible American without increasing the total spend. The resources exist; we're just not deploying them wisely.
Medicaid expansion gave providers short-term relief, but it also prolonged the illusion that the current system could be made to work with just a few more adjustments. Every time we patch the model rather than redesign it, we lock ourselves deeper into a framework that no longer serves patients or the public good.
As I outlined in a recent column, the core cause of escalating costs is an underlying payment model with three fundamental flaws. First, it lacks transparency in cost and quality–either at the transaction level or across the continuum of care. Second, there is little accountability for outcomes that matter, with payment generally disconnected from the services provided. And third, without clear line of sight to outcomes and cost, consumer-patients have little ability to comparison shop for non-emergent care.
If we're serious about protecting access, improving outcomes and reducing cost, we need to change the model on these three points. That means paying for value, not volume. It means holding providers accountable for outcomes. And it means demanding transparency from systems that have been opaque for far too long.
Medicaid cuts may be painful, but they're not the root of the crisis. They're one more stress test on a business model that's already failed. If we don't want to keep reliving this same debate with every fiscal cycle, we need to stop managing symptoms and start curing the disease.
There is enough money in the system to provide meaningful coverage. But only if we stop pouring it into inefficiency. Until then, we'll continue to panic over the symptoms of our problems, without ever addressing their causes.