Eliminating the middleman in Medicaid Managed Care
If you find a wasteful government program, isn’t there an obligation to foster a public discussion about it? Physicians for a National Health Plan (PNHP) has developed an analysis that reveals the waste in allowing private health plans to manage Medicaid medical services. According to PNHP returning management of medical services to state control by eliminating the middleman could result in savings of over $77 billion nationally. In response. health care advocates in many states have initiated efforts to de-privatize Medicaid. These proposals are based on publicly available financial statements, and they are persuasive from a business perspective, but I feel compelled to add some detail on the level of redundancy and waste in the current funding process. My perspective is based on two decades of experience as a medical director and Chief Medical Officer at several national for profit and New York-based Not for Profit health insurance companies.
Few people feel warmly towards health insurance companies, yet we are often told that competition among insurers creates value for taxpayers and customers by lowering costs. The evidence suggests otherwise. Competition has not reduced overall health care spending; instead, rising medical expenses are routinely passed on to consumers and taxpayers. Insurers invest heavily in brand identity, emphasizing quality and customer service. In reality, performance on standard quality and service measures clusters within a narrow range of acceptability.
Since 1998, I have worked for Fidelis, Emblem, HIP Health Plan, Healthfirst, Coventry, Aetna, and UnitedHealth across commercial, ACA marketplace, Medicare, and Medicaid lines of business. Based on that experience, I can state unequivocally that there is little meaningful difference among health insurance companies. They perform the same functions, using the same processes, in largely the same way. Eliminating the extensive redundancies across insurers would be the single most effective step toward reducing waste in health insurance. The current focus on Medicaid is driven by the massive reductions in health care spending enacted in the One Big Beautiful Bill Act of 2026.
Let’s look at each of the redundant functions in greater detail:
Contracting: Let’s use New York State as an example. There are 78,000 physicians with close to 97% participation in Medicare. Medicaid has substantially lower fees and as a result only 70% of doctors accept patients with Medicaid. Many providers accept Medicaid as part of broader contract arrangements with the major health insurers. This broad contracting approach allows health insurers to market more robust networks which include almost all the hospitals. Each health plan contracts with each of the provider groups which include doctors, physical therapists, social workers and other professionals as well as hospitals nursing homes and other health care facilities. Each provider must negotiate and contract with the several plans that operate in its region every year. This is duplicate work by health plans as well as by the providers. Why not have one contract per provider with a single state agency?
Credentialling. Health plans limit payment to providers that are contracted and credentialed. When an insurer lists a provider in a directory this represents an assurance that services provided by that clinician will be covered and that the provider is qualified to perform the services listed. Each plan maintains peer review committees that involve practicing clinicians to determine who is in network, and more importantly who is not. The process involves detailed reviewing the credentials of new applicants and all the contracted providers on a three-year cycle. The focus is on verifying licensure, specialty status and reviewing malpractice cases and quality of care issues. When I changed jobs from one health plan to another, I reviewed the same malpractice cases again, and again. Why not have one credentialing program for the entire state? Eliminate the wasteful redundancy by merging the contracting and credentialling functions into a single administrative services contract? All clinicians who are qualified and who accept Medicare rates should be able to participate in Medicaid.
Marketing and enrollment. Health plans compete to persuade eligible residents to change from one plan to another. The benefits for each type of insurance are mandated by law and do not differ. The networks are entirely the same except in instances when the insurance company has leveraged its commercial contracts to allow Medicaid participation. Enrollees are choosing the best marketing program. The only useful function performed by the marketing department is encouraging potential enrollees to submit their documentation to establish eligibility. Ensuring Medicaid eligibility could be accomplished by other means. Under Medicaid, health plans are paid a base rate for every person they enroll and thus they have an incentive to enroll people who may not be eligible. That is an invitation to fraudulent enrollment that enriches the health plans. If the state ran the enrollment program, there would be no need for the redundant marketing and enrollment teams at the various health plans.
Claims: A key function of health insurers is to pay claims and deal with the inevitable complaints from providers and their patients. I have had a view into claims processing numerous health plans where the most egregious and most frequent types of complaints were referred to me. Claims systems are engineered to pay clean claims automatically, without much human oversight. I continue to be surprised by the variation between insurers’ approaches to the handling of claims that are not clean. These differences infuriate providers who want nothing more than to submit clean claims and be paid timely. Many staff at provider offices and at the insurance companies spend their time trying to resolve these issues. Much of that waste would be eliminated if the Medicare claims rules were universally adopted. Doctors would be very appreciative if all claims were submitted to a single system with a uniform set of rules.
Utilization Management: All health plans employ utilization management to control medical expenses. What they seek to avoid is paying for services that are of unproven value. About 95% of services requested are medically necessary and ultimately approved. Most doctors consistently request only services that are medically necessary, while a small number of doctors frequently abuse their privilege. What has emerged is a system for punishing the entire class for the behavior of a few. The consequences of this process, especially when prior authorization is involved, can lead to dangerous delays in diagnosis or treatment. Most initial denials are overturned when the information required to meet criteria is provided on appeal. Although doctors and health plans strive to get it right the first time, gaps in transmission of clinical information occur. I have long proposed a gold card system that would allow providers with good track records instant approvals. The data necessary to support such a program would be easily available if the utilization management function were controlled by a single entity. In my opinion, almost all utilization management could be accomplished by retrospective review. Pool the data to identify the outliers and subject them to prior authorization and financial penalties. The current prior authorization process places insurers in a clear conflict of interest. Holding the patient hostage to questions about accurate and complete communication and disputes about medical necessity is bad medicine and poor public relations.
Investigating real fraud: One of the important challenges in health care is fraud by providers. Every health insurer has a team that investigates physician fraud waste and abuse. I have identified thousands of cases in which providers billed the health plan for services never rendered, procedures that may be necessary once but repeated on every visit, and more rarely, surgery that did not appear to be indicated based on the medical records. The more egregious cases are referred to the state attorney general who all too often tells us that they are swamped with similar cases and cannot act at this time. The network management team often cancels efforts at censure or recovery. We are told that the offending doctor is part of an important specialty group, and we can’t exclude him without excluding the entire group or going through costly litigation. Most cases involved modest amounts for each patient or each visit. These providers perform the same excess billing for all the insurance plans. The net result? Many providers continue to participate in multiple Medicaid plans. Current estimates of the percentage of medical claims attributed to fraud are 3-10%. Health plans are not empowered to act and are inclined to retain doctors so ask to have the most robust networks and therefore pass the added expenses on to the taxpayer. I suggest this function would be more efficient and effective if moved to a more well-staffed attorney general’s office.
Quality Improvement: Health Insurers will point to their work in quality improvement as a major reason for them to remain in business. The New York State Department of Health defines a detailed set of measures for quality of care by health plans which are reported annually. The results of the Quality Assurance Reporting Requirements (QARR) are designed to help consumers make plan selection based on quality. If you examine the QARR ratings available online, there is not a lot of difference between the plans on the clinical indicators reported. Health plans maintain data systems to track these measures and work with doctors and directly with their patients to promote adherence to the measures. Each doctor’s office interacts with multiple health plans which have slightly different approaches and economic incentives. It would be substantially easier and less costly to have a unified quality management program interacting with the doctor on behalf of all the patients in their practice. A unified quality management function would have a single point with each provider. Most quality improvement initiatives by health plans are based on contacting the patient and encouraging them to follow the doctors’ recommendations. Studies show that messages from a person’s primary care physician are four times more effective in nudging adherence to quality measures than messages from the health plan. It would be far less costly to incentivize primary care physicians to outreach to their patients.
Care coordination: Health plans have strong incentives to reduce emergency room visits and hospitalizations by enrollees with the most serious medical conditions. They accomplish this through case management programs. Enrollees are identified by claims algorithms and hospital discharge requests and managed by teams of nurses and social workers overseen by physicians. We coordinated home visits by nurses, transportation, appointments with specialists, and a variety of services that allowed patients to remain healthy and functional in their homes. I look back with pride at the achievement of clinicians working with me. We published our results, mostly to make certain that we would obtain funding for additional nurses to reach out to more enrollees. At every health plan where I worked, we identified many enrollees we were unable to help because of staffing. I don’t believe health insurers are well positioned to coordinate services in the home. Each primary care physician or specialist must interact with multiple health plans to care for their sickest patients. The doctors’ business models all too often require the patient to come into the office. We need to find ways to pay doctors for their time and effort in keeping patients health at home. A centralized approach for care coordination might cost the same, but with more direct involvement of the physician, would have better outcomes.
Profit: All health insurance plans operate each of their insurance offerings on a for-profit basis. The Affordable Care Act mandates that at least 85% of premium revenue be spent on medical expenses. Health insurers spend a great deal of time scrutinizing administrative expenses that can be re-categorized as medical expense. At the end of the year, that leaves 15% for the administrative expenses outlined above and profit. Profits translate into returns for shareholders and bonuses for executives. There is no incentive to hold down the cost of health care. A state medical contracting agency would be in a better position to hold the line on cost increases and identify better opportunities for coordination of services that would reduce emergency room visits and hospital admissions.
According to the PNHP proposals, removing redundant services and profit would create a pool of funding that would allow for an increase of the Medicaid fee schedule to the level of Medicare and the elimination of copayments and deductibles. Health insurers have failed in their promise to deliver quality and value to the taxpayers, providers, employers, and their subscribers. Eliminating the middleman, first in Medicaid, and then in other types of insurance is a relatively simple step to developing a more equitable and reasonably priced health care system.
Thank you for this helpful site, which I will read with interest.