Directing Medicare Event, Insurers on the Hill, and Dr. Oz Confronting Medicaid Fraud

I start the newsletter with a recap of yesterday’s Paragon event attended by more than 700 people, Directing Medicare: Past, Present, and Future. I then provide some of the highlights from two congressional hearings with five major health insurance company executives last week. I conclude the newsletter with two Medicaid updates—large-scale Medicaid waste and fraud in California and a Paragon PIC showing that Medicaid spending continued to soar in 2024 even as enrollment significantly declined.

Before that content, here is a summary of the key health care policies contained within the Consolidated Appropriations Act of 2026, which passed the House of Representatives last week and will be considered by the Senate later this week.

Directing Medicare: Past, Present, and Future

Yesterday, Paragon hosted a wide-ranging and substantive conversation between Chris Klomp, the chief executive of the Center for Medicare at Centers for Medicare & Medicaid Services (CMS), and Paragon’s Demetrios Kouzoukas, who was in that role from 2017 to 2021. The discussion focused on incentives, markets, and how Medicare can better harness competition and choice while improving sustainability for both enrollees and taxpayers.

A recurring theme from Chris was the importance of convening stakeholders and aligning incentives across payers, patients, and clinicians. Chris said that prior authorization issues are often a symptom of insufficient trust between groups that are actually aligned, and he outlined a goal of having 80 percent of codes that require prior authorization negotiated and resolved in real time.

The conversation also covered drug pricing, including Chris’s defense of the administration’s most-favored-nation (MFN) deals. Chris stressed that MFN does not impose price caps on new drugs: manufacturers remain free to charge any launch price but cannot charge Americans higher prices than patients abroad. He noted that pharmaceutical stock prices increased following the announcement and that the United Kingdom raised drug prices for the first time in decades shortly afterward—signals, in his view, that the policy protects innovation.

Chris and Demetrios agreed on a deeper structural challenge: Medicare lacks reliable market prices, making it difficult to know whether the program overpays or underpays for services. Medicare often pays for inputs rather than outcomes—an approach that would be irrational in most markets. Both emphasized the need to move away from administered pricing and toward more market-based signals wherever possible.

Chris also highlighted several policy wins from 2025, including progress on minimizing prior authorization burdens, extending the Medicare Part A trust fund, advancing site-neutral payments, and reducing low-value spending—pointing to reforms to skin substitute payments that he said will save roughly $20 billion per year.

The discussion turned to Medicare Advantage following the release of a new CMS analysis on coding patterns and a lower-than-expected advance notice rate update. Chris underscored that Medicare Advantage plays an important role in the program and that his focus is on enrollee experience and long-term sustainability. He emphasized that risk adjustment is necessary to prevent adverse selection and explained CMS’s focus on program integrity to ensure that purpose is served well.

Chris closed by returning to a core principle: CMS ultimately serves two stakeholders—enrollees and taxpayers—and better incentives can allow the health sector to improve care while reining in costs.

Congressional Oversight of Health Insurers

Last week, the House Energy & Commerce Health Subcommittee and the House Ways & Means Committee summoned the CEOs of five major insurers to testify. The hearings highlighted growing bipartisan concern with the role of private insurers in escalating costs, vertical consolidation, and fraud in U.S. health care. Many of the concerns voiced reflected issues Ryan Long raised in a recent Prognosis.

In their opening remarks, Chairman Jason Smith and Chairman Brett Guthrie said they want to look beyond short-term fixes and inflationary subsidies and toward policies that lower costs through competition, transparency, and reduced waste. Several exchanges stood out:

• John Joyce (R-PA) warned that the Affordable Care Act’s medical loss ratio (MLR) rules incentivize insurers to acquire PBMs, pharmacies, and other provider groups and then pay those affiliates higher rates. Joyce demanded insurer transparency on which subsidiaries receive premium dollars as medical or quality expenses, as well as affiliate versus non-affiliate reimbursement rates and pharmacy dispensing fees—emphasizing that such consolidation fuels cost inflation and accelerates rural pharmacy closures.
• Alexandria Ocasio-Cortez (D-NY) highlighted concerns about vertical consolidation, walking through a chart of CVS’ ownership across the care continuum.
• Jodey Arrington (R-TX) pointed out that ACA premiums have skyrocketed since the ACA’s inception and emphasized the 6.4 million improper enrollees in the exchanges.
• Buddy Carter (R-GA) and Rep. Dan Crenshaw (R-TX) showcased Paragon figures to show how insurer profits have soared since the ACA and how ACA premium growth has significantly outpaced inflation. These concerns were echoed by Rep. Nathaniel Moran.

Despite Post-COVID Unwinding, Medicaid Spending Rose by $58 Billion in 2024

Medicaid spending continued to surge in 2024 even as enrollment fell following the end of COVID-era continuous coverage requirements. This pattern is consistent with a program in which spending has become unmoored from serving eligible enrollees and increasingly driven by manipulations of the system that result in waste, fraud, and abuse. Open-ended federal matching, weak eligibility enforcement, state-directed payments, and state financing gimmicks are driving spending growth disconnected from patient need.

This Paragon PIC draws on the newly released National Health Expenditure Accounts data. Total Medicaid expenditures—federal and state combined—rose from $874 billion in 2023 to $932 billion in 2024, a 6.6 percent increase. That surge occurred despite enrollment dropping by roughly 8 million people as states resumed eligibility checks following the expiration of the COVID public health emergency. As a result, per-enrollee Medicaid spending jumped 16.6 percent in a single year—the fastest growth since at least the 1980s and more than five times the rate of inflation.

California Medicaid Fraud: Hospice Abuse and the Ambulance IGT Scheme

California continues to offer some of the most alarming examples of how Medicaid’s financing structure enables large-scale abuse. CMS Administrator Dr. Mehmet has posted three videos this week highlighting explosive growth in government-financed hospice services in Los Angeles, where utilization has reportedly increased by a factor of seven in a short period. Dr. Oz also pointed to evidence that organized foreign-based crime rings have exploited hospice and home health billing, including by corrupting doctors. Dr. Oz and the CMS team deserve enormous credit for tackling the growth of waste, fraud, and abuse throughout government health care programs—after years of program integrity being neglected—and making major recoveries on behalf of taxpayers.

Another problem in California relates to its ambulance reimbursement scheme—an intergovernmental transfer (IGT) arrangement that dramatically inflates federal payments. As a recent National Review article explains, California pays government-operated ambulance operators roughly three times what private ambulance operators receive for identical Medicaid transports. Private operators are paid roughly $339 per transport, while the payment to government-run providers exceeded $1,000 in 2023, rose again in 2024, and could climb much higher if California’s latest request is approved.

State and local governments have exploited this disparity by taking nominal control of ambulance services and subcontracting the work back to private providers, allowing governments to retain the difference between private-sector costs and inflated federal reimbursements. Contrary to claims that these schemes are merely “legal but troubling,” such massive payment differentials that favor government providers likely do not comply with Medicaid law. Federal statute requires Medicaid payments to be economical and efficient. Paying government ambulance providers multiples of what private providers receive for identical services is prima facie evidence that such payments are neither economical nor efficient.

Paragon’s policy brief, The Local Loop: How States Turn Medicaid into a Government Provider Payday Scheme, documents how IGTs enable these abuses across provider types. We recommend that CMS deny California’s pending requests—and reject any IGT arrangement that produces large payment disparities between government and private providers. Requiring payment parity and enforcing the statutory requirement for economical and efficient payments is essential to restoring Medicaid integrity and protecting federal taxpayers.