Health Policy & Regulation
Do Hospitals "Launder" Billions in Medicaid Fraud? ft. Brian Blase
April 16, 2026
U.S. healthcare spending accounts for nearly a fifth of our GDP, yet systemic failures and physician burnout continue to reach historic highs. In this episode of Value Health Voices, Dr. Amar Rewari and Dr. Anthony Paravati sit down with Brian Blase, President of the Paragon Health Institute, to unpack the massive legislative shifts inside the newly passed One Big Beautiful Bill Act. Clinicians and healthcare leaders will walk away with a clear understanding of how new federal policies are fundamentally altering healthcare economics, Medicaid funding, and everyday clinical practice.
We explore the structural forces driving hospital consolidation, examining how government-subsidized demand and restricted supply have inadvertently inflated costs across the entire sector. Brian breaks down the controversial "legalized money laundering" of Medicaid provider taxes and reveals why enforcing site neutrality and Medicare payment reform could be the ultimate weapons against hospital monopolies. The conversation also tackles the heated debate over Medicaid work requirements, exposing staggering data on ACA exchange "phantom enrollees" that challenges the structural integrity of subsidized coverage. Will pushing for consumer-driven healthcare and expanding HSAs finally force high-priced providers to compete, or simply shift the burden to vulnerable patients?
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Episode Resources:
Hospital Funding Gimmicks and Federal Reimbursement
Brian Blase:
A hospital will go to the state and say, tax me a million dollars. That doesn't happen, so you know that this is not a real tax, but the state will then take that million dollars and spend it on the hospital system. That is just a million dollars going from the hospital system to the state and then back to the hospital system.
But the state will then invoice the federal government. They'll say, "Look, we made a million dollar expenditure." And the federal government says, "Great." If your federal reimbursement rate is 70%, the federal government sends the state $700,000 for that accounting gimmick. Really, they just got $700,000 out of thin air.
Introduction to Brian Blase and the Paragon Health Institute
Dr. Amar Rewari:
Welcome back to Value Health Voices, a podcast where we aim to make healthcare policy and economics more accessible to clinicians and healthcare leaders. Today, we have an episode with Brian Blase, who's the president of Paragon Health Institute. He's the former special assistant to the president for economic policy and the National Economic Council.
Dr. Anthony Paravati:
Brian has done a lot of work with the government in the White House. Even before the White House, he spent years on Capitol Hill leading health oversight investigations for the House Committee on Oversight and Government Reform. He also served as health policy analyst for the Senate Republican Policy Committee.
He comes to us now as the founder of the Paragon Health Institute, which he founded in 2021. Their focus is as a market-oriented health policy research center. One of the reasons we want to have him on the podcast is his intellectual approach to healthcare.
His fingerprints really are all over the healthcare provisions of the One Big Beautiful Bill Act, which passed in July of 2025—on July 4th, in fact. So we have him on, Amar. You and I are both physician executives. You have extensive health policy and healthcare finance experience. I am the physician executive overseeing a cancer program, while you oversee a radiation oncology department at your practice.
We wanted to have him on because this episode's theme is talking through a rigorous and evidence-grounded examination of Brian. As a person who has a major role in the U.S. healthcare scene right now, we want to look at his policy approach in the context of the bill, combined with the clinical realities that you and I see every day and the payment economics that practices are facing around the country.
Dr. Amar Rewari:
We want to discuss various topics from the One Big Beautiful Bill, specifically around the changes to the Affordable Care Act and the exchanges, as well as some of the subsidies, Medicaid, the work requirements, and some of the rural health transformation programs. We also will dive into Medicare payment reform, site neutrality, price transparency, and some concepts of economics. It's a pretty broad podcast diving into a lot of different topics that we like to cover on Value Health Voices.
Analyzing the Structural Failures of U.S. Healthcare
Dr. Anthony Paravati:
Healthcare is now about 19% of US GDP, which is roughly double what other peer nations spend. Yet, the US ranks near the bottom of the OECD in many of the most important metrics of a healthy health system. Plus, we've got physician burnout at historic levels.
Employers who fund their own healthcare plans are seeing their benefit spend grow faster than wages. Clearly, something structurally isn't working in the U.S. healthcare system. The question we're going to dive into with our guest, Brian Blase, is what is the primary reason for this structural failure?
Brian, thank you so much for joining us. You've spent years arguing that the root cause of many of these health system failures starts with the government. Now we are in the post-One Big Beautiful Bill Act era. A lot of the frameworks and policies that you've pushed for have now been largely enacted. Help us understand where the U.S. healthcare system is going and what our chance is at remedying some of these weaknesses.
The Role of Government in Distorting Supply and Demand
Brian Blase:
Thanks for having me on. In any market, you look at the supply side and the demand side, and government policy has screwed up both. On supply, we restrict medical professionals' ability to practice to the top of their license. We make it very difficult for physician-owned hospitals to compete with traditional hospitals.
There's a variety of payment policies from government programs, principally Medicare, that have led to a lot of consolidation. We see horizontal consolidation with hospital systems merging together, but also vertical consolidation with hospitals acquiring physician offices. You even see these big insurance conglomerates. So you have government restricting supply.
On the demand side of the market, you have government advantaging third-party payment mechanisms. The biggest tax expenditure in the tax code is for employer-sponsored health insurance, which advantages spending from an insurance company rather than directly from the individual. We have a variety of other payment policies that also subsidize the demand side of the market.
We'll talk about the Medicaid policies in a bit, but you have Obamacare and the major subsidies in Obamacare. The government is inflating demand, and particularly in an inefficient way where people aren't spending their own money. The way to reform the U.S. healthcare system is to reduce the government role on both the supply and demand sides.
On the supply side, we need as much competition as possible. We need to reduce or eliminate policies that protect incumbent actors and allow them to remain inefficient. In some cases, these subsidy programs provide incentives to remain inefficient. On the demand side, we need to restore the patient as the financial engine and empower them. We need to rationalize these subsidies which inflate costs and give more control to the patient.
Evaluating the Affordable Care Act's Impact
Dr. Amar Rewari:
We're going to dive right into some specific topics regarding these policies. From a clinical perspective as a physician, I see that many patients gained insurance through the ACA exchanges and the Medicaid expansion. I'm curious: what problem did the ACA solve, and what problem do you believe it actually created?
Brian Blase:
It did reduce the number of people without health insurance. It did that mostly through the Medicaid expansion. It's only been the last few years with expanded COVID-era subsidies that the Obamacare exchanges have really seen significant enrollment.
Obamacare was a very big, complicated law that did a lot of stuff. The two key provisions that expanded coverage were expanding the Medicaid welfare program to able-bodied working-age adults and creating a much higher payment rate for states. In Medicaid, the federal government provides an open-ended reimbursement of state spending.
The Affordable Care Act Medicaid expansion offered a very high reimbursement, which incentivized states to adopt it. The exchanges are where people purchase health insurance if they don't get it from Medicare, Medicaid, or an employer. It's often referred to as the individual market.
Obamacare put a lot of regulations in place. The principal one was that insurance companies had to accept all applicants during the open enrollment period and couldn't charge sicker applicants more than healthy applicants. That by itself would lead to severe adverse selection, meaning healthy people don't buy insurance and sicker people overwhelm the market, causing it to collapse.
Obamacare included two provisions to prevent adverse selection: the individual mandate tax penalty and a set of subsidies. It turns out the individual mandate didn't matter much. It was very unpopular, was eventually eliminated, and had virtually no impact on the market. The subsidies were very impactful.
What Obamacare really did in the individual market was turn a less regulated, unsubsidized market into a very heavily regulated, very subsidized market. Unfortunately, a lot of the plans in the ACA are narrow network. They do exclude a lot of the best hospitals and doctors in certain parts of the country.
Reforming ACA Exchanges and Addressing Enrollment Integrity
Dr. Anthony Paravati:
Coming a little bit closer to the present day, the One Big Beautiful Bill Act paved the way for several concrete changes to the exchanges. It eliminated automatic re-enrollment for premium tax credit recipients, requiring annual re-verification of eligibility. It also shortened the enrollment window and ended income-based special enrollment periods.
The CBO estimated that these provisions would cause around 3 million current marketplace enrollees to lose coverage. Brian, do you think they're on the mark, or are they overestimating it? Help us understand your perspective on the implications of these changes.
Brian Blase:
First, let's set the baseline. From 2015 to 2021, there were about 11 million people in the exchanges. In 2021, one year into the pandemic, President Biden signed legislation that significantly expanded the underlying subsidy. It made coverage fully subsidized for enrollees claiming income between 100% and 150% of the poverty line.
The Biden administration also didn't prioritize eligibility reviews; they prioritized maximizing enrollment. From 2021 to 2025, enrollment more than doubled to 24 million people. At Paragon, we've done a lot of work analyzing this growth and found that much of it was improper.
Many people in that fully subsidized category claimed that income and got a subsidy that paid the entire premium, but they weren't actually eligible. Last summer, CMS released data on the number of enrollees who didn't use their health plan a single time. In a normal private market, about 15% of people won't use their insurance in a given year. In the ACA market in 2024, it was 35% of all enrollees. Among those with a fully subsidized plan, 40% didn't use their plan a single time.
Starting in 2023, these subsidies went directly from the government to the health insurance company. The individual gets enrolled, and the subsidy goes straight to the insurer. A lot of brokers and enrollment intermediaries did really manipulative, fraudulent activity to enroll people who weren't aware they were being enrolled.
We created the term "phantom enrollee." We think in 2024, there were three to four million phantom enrollees. These aren't just people who don't use their care; these are people we don't think are real or who are unaware they are enrolled. That's the backdrop for the reconciliation bill. It put in place regulations that the Trump administration had put forward, codifying them into law. These provisions were intended to make sure only eligible people qualify for subsidies and that the amounts advanced to insurance companies are correct and not excessive.
Tackling Administrative Failures in Subsidized Coverage
Dr. Amar Rewari:
Let's dive into those fictitious applications. The GAO recently tested the ACA exchanges by submitting intentionally fictitious applications, and 96% of them were approved for subsidized coverage. Do you see this primarily as an administrative verification problem, or is there a deeper structural issue with the exchange design?
Brian Blase:
It is indeed a number of them. In 2024 and 2025, the GAO submitted 24 applications and 23 were approved. I testified at a House Judiciary Committee hearing in December next to the GAO when they presented those findings. It's both a structural and an administrative problem.
The structural problem is that if you create incentives that lead to improper enrollment, you're going to get improper enrollment. If people pay zero, there is no check that the enrollment is correct. They're not getting anything deducted from their income or seeing anything leave their checking account. That's why the phantom enrollee problem is such a big deal.
It's also an administrative failure. There should be checks in place to prevent fictitious people. The GAO submitted fake social security numbers and fake birth dates. They made these people up, and 96% got approved.
Dr. Amar Rewari:
So the economic principle you're talking about is pretty much a lack of moral hazard.
Medicaid Reform and the Introduction of Work Requirements
Dr. Anthony Paravati:
Let's talk Medicaid for a moment. I've seen you argue that Medicaid has expanded well beyond its original intent, covering populations that are not categorically poor nor medically vulnerable or disabled. The One Big Beautiful Bill addressed this by putting in place mandatory work requirements for those aged 19 to 64, requiring roughly 80 hours per month of qualifying activities.
The CBO projected this would reduce federal Medicaid spending by about $326 billion over 10 years, but also said as many as 4.8 million adults might become uninsured by 2034 because of it. Is this an overstatement?
Brian Blase:
There's a lot to unpack there. I do think the CBO significantly overestimated the coverage loss from work requirements. But first, let’s look at the numbers. In states like New York and California, almost 40% of the state population is on the Medicaid welfare program.
Medicaid was designed as a safety net for the most vulnerable: low-income children, pregnant moms, and people with disabilities. Now, almost 40% of residents in some states are on it. Medicaid is a joint federal-state program where the federal government provides an open-ended reimbursement. Usually, for traditional enrollees, the state spends a million dollars and gets $600,000 back from the federal government.
Obamacare created a new class of enrollees with a much higher rate. For the first three years, the federal government paid 100% of the cost. From a common sense perspective, states were spending on this group and the entire bill was paid by federal taxpayers. Consequently, they enrolled a lot of people who weren't eligible and spent an enormous amount of money.
Today, the reimbursement rate is 90%. If a state spends a dollar of its own money on an expansion enrollee, they get $9 from the federal government. If they spend a dollar on a pregnant woman or a child, they get only $1.33. They get seven times more financing for an able-bodied adult than for traditional spending.
Paragon encouraged Congress to equalize those reimbursement rates because it doesn't make economic or moral sense to advantage able-bodied adults over children or the disabled. We didn't have the votes to equalize the rates, but Congress did create a work and community engagement requirement. I think the number of people removed from the program will be much lower than the CBO estimates. All the incentives—for insurers, providers, and states—are still aligned toward maximizing enrollment.
The Debate Over Work Requirements and Health Outcomes
Dr. Amar Rewari:
I want to look at the other side of the work requirement issue. In Arkansas, they implemented work requirements and saw about 18,000 people lose coverage. Research from the University of Michigan suggests that Medicaid expansion actually increases employment by improving health outcomes. KFF also showed that a majority of Medicaid adults under 65 are already working, in school, or have documented barriers to work. What are your thoughts on those counterarguments?
Brian Blase:
The Arkansas work requirement was only in effect for a few months before the courts ruled it was inconsistent with the purposes of Medicaid. I believe work requirements promote work to the extent that people value the benefit. We know from studies by economists like Amy Finkelstein that the typical enrollee might only value the program at 20 cents on the dollar if they had to pay for it.
The real question is how the social safety net should be designed. Right now, the federal government is prioritizing able-bodied adults with seven times more funding than the traditional population. Resources are being reallocated away from traditional recipients, who now face longer wait times. It is reasonable for the government to impose requirements on able-bodied working-age people to receive welfare.
Rural Health Transformation and Eliminating Medicaid "Money Laundering"
Dr. Anthony Paravati:
The One Big Beautiful Bill also includes the Rural Health Transformation Program, which is about $50 billion total. When you compare that to the estimated $1 trillion in Medicaid cuts over 10 years, it's about five cents on the dollar. Is this $50 billion fund going to do much? What concrete benefits should Americans expect?
Brian Blase:
Before I talk about the fund, I want to address Medicaid money laundering, which is my favorite reform in the bill. A lot of what was done on the Medicaid financing side addresses corporate welfare. I wrote my dissertation on Medicaid provider taxes. It is the only tax where the recipient lobbies the government to assess it on them.
For example, a hospital asks the state to tax them a million dollars. This isn't a real tax. The state takes that million and spends it back on the hospital system. Then, the state invoices the federal government for a million-dollar expenditure. If the reimbursement rate is 70%, the federal government sends $700,000 for that accounting gimmick. They just got $700,000 out of thin air.
Medicaid is supposed to be a joint financing program, not a system where states engage in legalized money laundering. These funds are channeled to politically powerful providers. Over the past several years, Medicaid has paid hospitals rates far in excess of Medicare—sometimes approaching commercial rates.
Reducing corporate welfare is not what I consider a cut; it is a common sense program integrity measure. Even Joe Biden, when he was vice president, called these things "schemes." The proposal enacted in the One Big Beautiful Bill was actually an Obama administration budget proposal.
Overall, there were reductions in Medicaid spending of probably close to $900 billion over a decade. However, Medicaid spending grew astronomically during the Biden administration due to improper enrollment and these money laundering schemes. These reforms just take us back to a pre-Biden spending baseline.
The reforms enabled the Rural Health Transformation Fund. Members of Congress are very concerned about rural healthcare providers. Hospital systems often hide behind rural providers to protect their interests. Targeting assistance to those rural areas while making the program more efficient is a significant policy improvement. Ten billion dollars a year for rural providers is a lot of money.
Reforming Medicare Payment Systems
Dr. Amar Rewari:
It’s interesting how these policies are repurposed across political aisles. I wanted to segue into Medicare payment reform. The One Big Beautiful Bill provisions were more limited than the House initially proposed. It included a temporary one-year 2.5% conversion factor update for 2026. Where do you see the Medicare payment misalignment as most severe? Is it the fee schedule, the RVU structure, or a lack of outcome-linked payments?
Brian Blase:
Medicare’s history is cost-based reimbursement. For the first 17 years of the program, costs escalated uncontrollably because when you just reimburse costs, they skyrocket. The new system created rate schedules for inpatient, outpatient, physician, and ambulatory services.
Government health policy sets prices throughout the entire sector because private insurers typically link their payments to a percentage of Medicare. This leads to enormous problems. If you have an innovation, you have to lobby the government to get it on the fee schedule. It also leads to a "race war" between specialties trying to get favorable updates for their codes.
There is six times more lobbying in healthcare than in the Defense Department. We know historically that specialists have been better compensated than general practitioners because of the RUC mechanism. Another big problem is that you have much higher payments when the exact same service is delivered in a hospital outpatient department than in a physician office. That creates incentives for hospitals to buy up physician practices, which is one of the biggest trends we see.
Site Neutrality and the Drivers of Hospital Consolidation
Dr. Amar Rewari:
The concept of site neutrality comes into play here. It’s the principle that Medicare should pay the same amount for the same service regardless of whether it's in a hospital or a physician's office. Right now, hospitals capture facility fees that can be two to three times higher. The One Big Beautiful Bill did not include broad site neutrality reform. Is that still an unfinished item on your agenda?
Brian Blase:
Definitely. It’s one of the most important reforms out there. In 2024, we held a bipartisan event on this. I moderated a discussion between Kathleen Sebelius and Alex Azar, along with policy organizations from both sides of the aisle. The policy community is aligned; the issue is taking on powerful hospital systems.
The 340B program is another major distortion. It was intended to help safety net hospitals by allowing them to buy drugs at a discount and profit by billing at a higher rate. It has become one of the main reasons for consolidation because hospitals buy up independent practices, like oncology practices, to capture those drug administration profits. Site neutral reform and 340B reform would be two of the most important moves in this space.
Dr. Amar Rewari:
Hospitals argue that these higher outpatient payments subsidize money-losers like trauma centers, nutrition, and nurse navigation. Do you have any comments on that?
Brian Blase:
I’m generally skeptical of those arguments. It’s an inefficient way to run a program. You don’t want to be overpaying for some things and underpaying for others because it leads to resource misallocation. Nonprofit hospitals have been doing quite well, and they have incentives to inflate their costs because so much policy is about subsidizing those costs.
The ACA reduced uncompensated care, but we still have these legacy subsidy programs. There is a lot of room for streamlining and consolidating these various government subsidy programs for hospitals.
Consumer Empowerment Through Price Transparency and HSAs
Dr. Amar Rewari:
Moving into price transparency, healthcare demand is different from consumer goods. Urgency removes the ability to shop and there is information asymmetry. The One Big Beautiful Bill expanded HSAs and individual coverage HRAs—tools that assume consumer-driven decision-making. Which structural obstacles do these actually solve?
Brian Blase:
On HSAs, the legislation made all bronze and catastrophic plans HSA-qualified, allowed HSAs to be used for direct primary care, and covered certain telehealth services before the deductible. To your broader question: what is the role of the consumer?
If everyone had no deductible and everything was paid by someone else, there would be no incentive to shop. But with high deductibles, families have an incentive to shop for routine services. There are also expensive shoppable services like knee replacements or cataract surgery.
The best model I’ve seen is a reverse deductible. The plan pays first-dollar up to a certain amount, and anything above that is the responsibility of the consumer. It gives people an incentive to find lower-priced providers and forces high-priced providers to compete. This worked well for public employees in California and for Safeway.
I also think employers should be shopping for health insurance. My theory in 2019 was that price transparency would help employers monitor the insurers they hire. I haven't been wowed by the results yet. The healthcare industry has been reluctant to embrace transparency, and hospitals and insurers haven't been fully compliant.
Addressing Healthcare Equity Through Supply-Side Reform
Dr. Amar Rewari:
Many progressive economists believe expanded government coverage is necessary for equity. What is the strongest argument they make that you take seriously, and where does it break down?
Brian Blase:
The place it breaks down is that programs like Medicaid aren't very high quality. I’m actually enrolled in an ACA exchange plan myself. Paragon offers an ICHRA, but you have to use that to purchase an exchange plan. My family has a plan right now that doesn't cover many providers.
We have an issue with my daughter, and it is difficult to find a provider to accept the coverage. We have the flexibility to just pay cash and go out of network, but many people don't. When these programs are expanded to cover more people, you have to spread the financing thinner, which leads to lower-quality care.
Fundamentally, we need to expand the supply of healthcare for lower-income people. We need lower-cost alternatives. Many states restrict what nurse practitioners and physician assistants can do, yet studies show they can perform many tasks as well as physicians. If we are serious about improving access, we need to focus on the supply side, not just further subsidizing the demand side.
Dr. Amar Rewari:
Improvements in primary care are way overdue. There is a lot we could do for advanced practice providers to better the health of low-income people. Thank you, Brian Blase, for coming on today.
Brian Blase:
You're welcome. Happy to be on.
Dr. Anthony Paravati:
Thanks, Brian.
Dr. Amar Rewari:
Thanks.
