“Examining Healthcare Markets: Fraud and Competition”
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House Judiciary Subcommittee on Administrative State, Regulatory Reform, and Antitrust U.S. House of Representatives
Follow its sittingsScott Fitzgerald
Very good. Well, because it's an official hearing, I will call the hearing to order. Today's hearing will examine the effects of mergers, certificate of need laws, regulations, vertical integration, and fraudulent insurance practices on healthcare access and affordability in the US. I think we can all agree that there is something wrong with the American healthcare system. The price of care is sky-high, in part because of the design of and rampant fraud occurring in the Obamacare insurance system.
Obamacare promised affordable healthcare for everyday Americans, but it has not lived up to that promise. The price of Obamacare plans has increased at twice the rate of employer-sponsored plans. Instead of doing something about the artificially inflated prices, the Biden administration just handed out more subsidies. And because the Obamacare system does not trust Americans to make decisions about their own healthcare coverage, those subsidies go straight into the pockets of the insurance companies instead of the American people. Additionally, access to providers of care have never been more difficult.
This is doubly true for Americans in rural parts of the country, where they often must drive hours to get to the nearest hospital. And while it's easy to blame doctors or hospitals for increasing prices or shutting down operations in rural areas, in reality, the situation is far more complicated. Federal and state regulations make some forms of head-to-head competition more difficult for certain hospitals and outright ban it for others. For example, physicians are largely prohibited from owning hospitals. Federal regulations make it so complicated for physicians to own hospitals that it's nearly impossible for a group of doctors to open a small hospital in a rural area.
In a similar vein, certificates of need laws require healthcare providers to get permission from a state government before they can open a new location or expand their existing capacity.
This means that healthcare providers cannot quickly invest in improving the healthcare infrastructure in a community. They must ask for permission from the government first, and the answer is often no. There are also not enough doctors and nurses to care for American patients. As we will hear in testimony today, I believe, this shortage is not for a lack of willing and able students. It is a foundational structure of the American medical education system that is out of balance.
More graduate medical education funding, used largely to fund residency programs for physicians, go to big cities like New York and Boston. Programs in rural areas generally only get pennies on the dollar, if they get anything at all. These are just a few of the issues that plague America's healthcare system. But we didn't just come to North Carolina to articulate the problems, we came to gather solutions. And North Carolina has redefined its healthcare industry through investments in cutting-edge tech and research hubs, as well as a statewide rural health transformation program.
As a result, the state has received national rankings in healthcare innovation and quality. Its university health systems are also consistently ranked in the top percentile nationally each year. But at the same time, North Carolina ranks near the bottom in healthcare access, according to at least one study by Forbes. As one of the most rural states in the nation, it faces severe shortages of nurses and physicians, and despite multiple attempts by the Republican state legislature to repeal the state certificate of need law once and for all, the Democrat governor continues to oppose it. This morning, we will hear what health programs have been a success here in North Carolina and which ones are ripe for reform, and hopefully apply those to the states that we represent.
I want to thank our witnesses for appearing here today, and I look forward to hearing what each of you has to say. So we will move, we will move to the opening statements, and first we're going to have Dr. Brian Blase, president of Paragon Health Institute. Dr. Blase.
Brian Blase
Chairman Fitzgerald and members of the committee, thank you for the opportunity to testify. My name is Brian Blase, I am the founder and president of Paragon Health Institute. Paragon has spent the last several years documenting widespread improper enrollment in the Affordable Care Act's two main coverage expansions. We estimate that 14.3 million people were improperly enrolled in the ACA exchanges or Medicaid expansion in 2024, about one-third of total enrollment. We estimate the federal cost at approximately 65 billion dollars in that year alone.
Improper enrollment includes people unaware of their enrollment, people with duplicate coverage, and people who do not meet income requirements. Fraud flourishes when government programs combine enormous subsidies with weak verification and incentives to maximize federal payments. This is exactly what happened in the ACA exchanges. During the pandemic, Congress dramatically increased subsidies. For applicants who claimed low income, taxpayers covered the entire premium.
That created powerful incentives for improper enrollment. Insurers benefited. They received the full premium from the federal government. An enrollee who pays nothing is particularly attractive because the plan does not have to offer any value for the person to remain enrolled. Brokers benefited.
They received commissions for every month someone remained enrolled. Some brokers operating high-volume enrollment operations earned 6,000 dollars a day in commissions.
In one operation, a customer service agent admitted that half of the people enrolled had no idea that they were being enrolled in coverage. Applicants can benefit from misstating their income because reporting income in that range qualifies them for the largest subsidies. This is all a recipe for abuse. We estimate 5.1 million improper exchange enrollees in 2024, which grew to 6.5 million in 2025. We also see evidence of phantom enrollment.
The number of exchange enrollees who did not use their plan for anything tripled from 2021 to 2024. 35% of all exchange enrollees and 40% of fully subsidized enrollees didn't use their plan a single time. Federal taxpayers likely sent insurers more than $35 billion for people who never used their plan. At the request of this committee, the Government Accountability Office investigated the integrity of the exchanges. They found a complete mess.
GAO investigators created 24 applications using fictitious identities. 23 of the 24 obtained subsidized exchange coverage. While the problems of the exchanges are bad, they are worse in Medicaid. For traditional Medicaid populations, low-income children, pregnant women, seniors, and people with disabilities, the federal government contributes an average of $1.33 when the state spends $1 of its own money. For the Obamacare expansion population, the federal government contributes $9 for every state dollar.
Thus Washington contributes roughly seven times more for an expansion enrollee than it does for a traditional enrollee. That creates a terrible incentive. If a state makes an eligibility mistake for an expansion enrollee, federal taxpayers bear at least 90% of the cost. And if someone who qualifies through traditional Medicaid is improperly classified as an expansion enrollee, which California exemplified doing this, the state shifts substantial cost to Washington. Paragon estimates that 9.2 million Medicaid expansion enrollees, 46% of the expansion population, were likely ineligible in 2024.
The problem is not simply inadequate enforcement. It's a financing system that rewards states for getting eligibility wrong. Reducing improper enrollment, waste, fraud, and abuse in government health programs is vital to an affordability agenda. Fortunately, the One Big Beautiful Bill contained a host of reforms that will reduce wasteful spending in Medicaid and Obamacare. These include more frequent eligibility checks, work requirements for able-bodied Obamacare expansion enrollees, and steps to arrest the surge of corporate welfare in the program by limiting the legal Medicaid money laundering apparatus that enables states to raise spending to powerful special interests with federal dollars.
One other point. The main reason healthcare is increasingly unaffordable is high and rising hospital prices. Since 2000, hospital prices have increased nearly 300%. Hospital prices have risen three times as fast as inflation and twice as fast as worker wages. Government policy bears substantial responsibility for this.
Medicare often pays more for the same outpatient service when it is delivered in a hospital-owned facility rather than an independent physician office. The 340B program creates incentives for hospitals to acquire physician practices. Federal law restricts new physician-owned hospitals. Certificate of need laws, like the chairman mentioned, restrict entry and competition.
And Medicaid financing arrangements have directed enormous subsidies to hospital systems. These policies reward consolidation, restrict competition, and insulate hospitals from the market forces that force efficiency in other sectors of the economy. In my written testimony, I discussed reforms to reduce government subsidies and promote choice and competition in healthcare. Thank you, appreciate the opportunity to be in North Carolina at this field hearing this morning, and I look forward to your questions.
Scott Fitzgerald
Dr. Brian Miller. Dr. Miller is a practicing doctor at Johns Hopkins Hospital, an associate professor of medicine at Johns Hopkins University, and a visiting fellow at the Hoover Institution. Dr. Miller.
Brian Miller
Thank you, Chairman Fitzgerald and distinguished members of the committee. I appreciate this opportunity to talk about hospital competition and, more accurately, consolidation. I'm a practicing doctor. I also serve as vice chairman of the North Carolina State Health Plan, which is a nearly five-billion-dollar organization that covers three-quarters of a billion state employees, their families, and retirees. I should note that here I'm in my personal capacity and my views don't necessarily reflect those of, wait for it, Hopkins, Hoover, the Medicare Payment Advisory Commission, or the State Health Plan.
So, that aside, I have sort of three comments and three primary points to make for you. The first is that hospital consolidation is bad. Sounds sort of like Sesame Street. But it is. Who is it bad for?
It's bad for consumers, taxpayers, and employers. And why is that? Health systems have purchased basically most of the other hospitals and doctors. What's that mean? We've had over 2,000 mergers in 25 years.
That's a pretty big number. And nearly four-fifths of hospitals work, oh sorry, four-fifths, I see I got confused, four-fifths of physicians work for hospitals or corporations, so there isn't independent small business. Hospital mergers raise prices by 7 to 9 percent, and out-of-state merger, so when an in-state hospital merges with an out-of-state one, can raise prices by as much as 17 percent. Higher prices for hospitals mean higher out-of-pocket costs and higher insurance premiums without clear additional value. Mergers are also bad for patients.
You get higher prices and you lose, as my friends at the Department of Justice would say, non-price competition. You say, what's this mean in healthcare? What it means is that in a study of 246 hospitals that were part of mergers, there was no change in medical quality, like 30-day readmission or mortality. So this is a profound lack of economies of scale and systems design. Consumers also lose out on service delivery innovation.
I think we can all agree that the consumer experience of care leaves something to be desired. It hasn't really changed much. An example being emergency room boarding crises, where patients are sort of stuck in the ER waiting for hospital admission. We've heard about that for actually probably about 50 years since my late father was practicing. And we've been told that if only there were more money, it would be solved.
Well, we have shoveled trillions of dollars in and it still hasn't be solved, hasn't been solved. I'd posit that'd be solved if there were more competition. Hospital consolidation is also bad for workers. In fact, it is a textbook example of employer monopsony power suppressing workers' wages, in this case, nurses. And then I would also posit that employed physicians, who now represent about four-fifths of physicians are employed, are similarly stuck in an episode of the TV show Severance with no escape.
Second point is that law and regulation got us where we are today. It's a long, long list. So my colleague Dr. Blase mentioned the lack of site-neutral payment. So we have incentivized hospital-physician consolidation as we pay more, and I kid you not, if a hospital owns a clinic and it is more than 250 yards away from the primary hospital, purchased before 2015, or if it's on-site. That sort of nonsensical rule is just the sort of regulation that drives up costs.
We've also made competition illegal unless the government gives you permission. Some 35 states still have certificate of need where bureaucrats determine if a facility or even a capital purchase like an MRI machine is needed. Personally I'd rather ask the radiologist or the surgeon if we need another MRI machine. Most importantly, we have systematically destroyed rural healthcare as we have made small business in care delivery illegal through Stark Law. Stark Law is about physician self-referral and we have banned it in Medicare but we have allowed a 20 billion dollar a year corporation to engage in self-referral.
If you look at a small town of say 5 or 10,000 people, if you're a large health system you do not have an incentive to build a two physician practice and deploy capital. A physician does. Health systems typically do not invest in small micro-community hospitals. Physicians would, but it's illegal. And I would also posit don't we want frontline workers to own the business?
Because in contrast, lawyers are the only ones who can own law practices but physicians cannot own a hospital and bill Medicare. But there are things that we can do. First of all, employers can use benefit design to drive competition. At the North Carolina State Health Plan we are doing this ourselves with a new preferred network for 2027 to give employees time travel back to 2011 and save on costs. We also have a no cost elective surgical benefit and pay for travel for patients.
Competition authorities like the FTC can expand their competition policy advocacy and comment regularly on CMS Medicare and Medicaid rules. I expect that there are probably a lot of anti-competitive provisions which CMS would benefit from. We can also add a managed care exception to Stark Law. Managed Medicare and Medicaid have utilization review to address induced demand, so let's let them do that. Let's make small business great again.
We need this innovation. And then instead of the wrath of Khan, let's modulate the Medicaid FMAP or say Medicare inpatient outpatient payment rates to create incentives for state legislatures to get rid of anti-competitive laws. There are more details in my written submitted testimony and I look forward to your questions.
Scott Fitzgerald
Thank you doctor. We now introduce Ms. Martin. Ms. Catherine Martin is Vice President of Health Affairs for the University of North Carolina system. She previously served as a policy advisor in the North Carolina General Assembly. Ms. Martin.
Speaker 9
Good morning Chairman and distinguished members of the committee. This fall, high up in the North Carolina mountains, Western Carolina University is launching a nurse-led clinic that offers primary and behavioral healthcare to residents of Haywood County. Patients of this clinic live in poverty. Most are elderly and suffer from chronic diseases like diabetes and cardiovascular conditions. Transportation is limited for them, making it increasingly difficult for some to travel to doctors' appointments or seek preventative care.
Enter Western Carolina University's Catalyst Clinic, a bridge clinic that will bring much needed care directly to patients in Haywood County. Better still, the clinic will feature rural interprofessional training for students in medicine, nursing, pharmacy and social work among others. Western Carolina's Bridge Clinic is one of many innovative healthcare workforce initiatives I help support in my role as Vice President of Health Affairs for the University of North Carolina system. The UNC system, which includes 16 public universities, a major academic healthcare system, two medical schools, and 12 nursing schools, is North Carolina's key producer of healthcare professionals. Our reach and our impact are a major reason why the North Carolina General Assembly has entrusted our state agency with 91 million dollars of flexible state funds to expand education and training rural for physicians, pharmacists, dentists, nurses, and other core healthcare providers.
Kimberly Martin
It is an incredible privilege to also build upon the rural training foundation our universities are already setting in motion across the system and have for a very long time. As you know, North Carolina is the second most rural state in the nation with one in three residents living in remote mountain or farming communities. By contrast, fewer than 3% of our state's physicians are practicing in those areas. The state also faces a large shortage of nurses with 12,500 vacancies forecast over the next decade. Data show that state healthcare shortages are not due to lack of talent.
Hundreds of students graduate from North Carolina medical schools every year, but only a handful are matched into a rural residency program. That is because North Carolina doesn't have enough residencies in the places where doctors are needed most. We know that doctors are two to five times more likely to practice where they train. It follows then that if we need care in rural areas, then we need to establish residencies in the small towns and remote regions where we want physicians to settle and stay. By that same logic, we also need to train more pharmacists, dentists, nurses, and other critical healthcare providers in rural training tracks.
With these dollars from the state legislature, that is exactly what the UNC system has set out to do. Alongside our universities and affiliates, we are working to place more health profession students and medical school graduates into rural areas by developing, expanding, and sustaining rural physician residency programs, clinical training programs, and interprofessional learning opportunities that allow students from various healthcare fields to treat and care for patients as a team. There are two major benefits to the structure of our fund at the UNC system that allows us to be successful so far. First, our state funding is flexible, operating under a definition of rural that is more relaxed compared to federal rules. This has helped us to build training opportunities in counties that have severe healthcare shortages but would otherwise have been excluded under the federal definition of rural.
Second, our fund is designed for innovation, supporting more creative training tracks such as the nurse-led catalyst clinic at Western Carolina University. Those opportunities are helping us to be more efficient, leveraging our faculty and resources to meet the needs of rural communities we already serve while also allowing students to gain experience in areas where there are major healthcare shortages. This includes building new infrastructure for nursing programs. Thank you for this opportunity to give a brief overview of our work and I look forward to answering any questions you may have. Thank you.
Scott Fitzgerald
We're going to do this a little bit out of sequence, so everything you've said so far we'll assume is truthful. Well, I want to thank the witnesses for their opening statements. But we're going to swear you in now, okay? So would you please rise and raise your right hand? Do you swear or affirm under penalty of perjury that the testimony you are about to give is true and correct to the best of your knowledge, information, and belief, so help you God?
I do.
Mark Harris
Let the record reflect that the witnesses have answered in the affirmative. Thank you and please be seated. So we will open the floor now for our five minutes of questioning from every member. And because we have a little bit of flexibility based on the amount of witnesses and members that are here, if we have, if there's a second round or a follow-up question, we certainly will entertain that. So and we will start with Congressman Harris.
Well, thank you, Mr. Chairman, for holding this field hearing and thank you to all of our witnesses for your willingness to come and participate in this what I consider to be a critical, critical conversation not only to North Carolinians but to all Americans. And it's true, and I think the opening statement that the chairman led pointed out that North Carolina is leading the nation in addressing healthcare challenges, particularly in the rural healthcare space. I want to take a moment just to highlight some of the important work being done. Currently, North Carolina has one of the largest nursing shortages in the country, as was alluded to a moment ago. And NC Nursecast, that's based at UNC Chapel Hill, estimates that the state could have a shortage, as we've heard, of 12,500 registered nurses and 5,000 licensed practical nurses by 2033.
And Ms. Martin, I just want to come to you first, if I may. Can you explain the impact of nursing shortages on both healthcare accessibility and cost for individuals that are living in rural parts of our state of North Carolina?
Kimberly Martin
Thank you for the question, Congressman Harris. I think that's a really important question. Nursing is the most trusted profession, one of the most trusted professions, and has been for almost 25 years, and they are so critical to filling gaps in more rural counties of North Carolina. The Sheps Center has produced a primary care clinician index that has been established since 2017 and they've just recently updated it. And it really looks at primary care clinicians when you factor in what the ratio is for one primary care clinician for 1,500 population per county.
North Carolina counties have improved mostly and most of those county improvements is because of an influx of nurse practitioners or other advanced practice providers that are choosing to practice in those areas of the state.
Mark Harris
Gotcha. So in 2023, the state of North Carolina appropriated $40 million to help address the nursing workforce shortage, utilizing 12 nursing schools the UNC system has equipped to address the shortages and it's been reported that to date all 12 schools are on pace to produce a 60% increase of net new nurses to the state by 2029-2030. And this amounts to a gross increase of 707 nurses in the workforce, but a net increase of approximately 580 nurses due to historic in-state retention factors. And these numbers far surpass the state's legislative mandate, which is 50% increase. Can you take a moment and talk about the UNC system office's work with the North Carolina General Assembly and what efforts have led to what I consider to be very successful results?
Kimberly Martin
Yes, thank you for the question, Congressman Harris. So this really dates back to 2021 when the Sheps Center was funded by our state's Board of Nursing to produce the Nursecast model. It's a very complex supply-demand model that looks at LPNs, RNs, by region of shortages, by Medicaid region across the state, dating back to 2021 through the next decade through 2034. And that projected shortage or that baseline is 12,500. So in response to that model that was built, the legislature asked all of the nursing schools and the community college system with their associate programs of what it would take to increase nursing degrees by 50%.
And in turn, we, the system office, received a $40 million appropriation. It was actually very flexible, could be used for to expand any healthcare-related degree programs, but because of that data, we went all in on nursing. So as I mentioned before, 12 of our 16 public universities have nursing programs. We issued a competitive RFP to really field what is actually needed, what core resources are needed to effectively expand capacity. One of the biggest hurdles, I would say, to expand capacity is really clinical placements, finding preceptors at hospitals and other clinical adjunct faculty to assist a university to effectively expand enrollment and admissions into their program.
And so these are the resources that we're providing the schools and they're doing a tremendous job implementing them.
Mark Harris
Thank you, Ms. Martin. Mr. Blase, I want to move on for just a quick moment and 30 seconds we've got left. You've written that ACA's subsidy design discriminates against working families, particularly those with employer-provided coverage. That interest me. Could you talk about why that is the case?
Brian Blase
Yeah, thank you for that question. It's a really important and underappreciated component of the ACA. If most people get their insurance through their employer. If you get your insurance through your employer, there is a tax benefit. The premium is not subject to federal income or payroll taxes and for the typical family, for typical individual, the amount of that benefit is about $2,000, maybe a little more than $2,000.
The ACA has the individual market, which it made much more expensive with a lot of regulation and contains subsidies for people to afford that coverage. The typical subsidy that somebody gets when they purchase an ACA plan is about $8,000. So it is about four times more benefit that the government is giving for workers if they do not get coverage through their employer. So it's a significant discrimination and it's an incentive for small employers to stop offering coverage. And that is really would be a detriment to the federal budget because of how expensive the Obamacare subsidies are.
Gentleman's back. Congresswoman from Wyoming.
Harriet Hageman
Thank you. I do want the record to reflect that none of the Democrats have shown up for this hearing and have not invited a witness to address what I think are some incredibly important issues, not only from the standpoint of providing medical care in this country, but the waste, fraud, and abuse that we have been subjected to over the past several decades. Waste, fraud, and abuse exist in nearly every sector across our country, ranging from public welfare programs to foreign aid, costing American taxpayers hundreds of billions of dollars, if not more. Healthcare is certainly no exception. The consequences of fraud in this industry, however, are disproportionate to others given what is truly at stake.
Every healthcare dollar lost to fraud is one that could have been spent to the benefit of American citizens, whether by supporting direct access to care, researching diagnostics and treatments for life-threatening conditions, or acquiring new medical technologies to enable greater efficiencies. The National Healthcare Anti-Fraud Association estimates that financial losses originating from healthcare fraud are in the tens of billions of dollars each year, with this conservative estimate placing losses at around 3% of total healthcare expenditures. To give a few specific examples, earlier this summer, the DOJ's 2026 National Healthcare Fraud Takedown resulted in charges against 455 defendants for their alleged participation in healthcare fraud and opioid abuse schemes involving over $6.5 billion in false claims and significant patient harm. On September 4th, two men were sentenced to prison for their roles in a $34.8 million healthcare fraud conspiracy in which they billed Medicare for thousands of orthotic braces sent to beneficiaries who did not need them. Just last week, a man in California was sent to prison for his role in a healthcare fraud scheme in which nearly $270 million in fraudulent claims was submitted to the California Medicaid program.
Dr. Blase, can you tell us more about the extent of the Medicaid fraud problem and how much it actually costs taxpayers each year?
Brian Blase
It is extensive and one of the main problems with Medicaid is that many states are complicit in the fraudulent spending. For the Obamacare expansion population, the federal government covers 90% of the cost.
So a state, if it reduces $10 of fraud, would need to send $9 back to the federal government. That gives states very bad incentives, and so they often look the other way on fraud and abusive schemes. In total, we estimate that improper payments in Medicaid exceeded $1 trillion over the past decade.
$1 trillion in 10 years, just in this one program.
Yes.
Harriet Hageman
Well, I there are a lot of things I'd love to talk with you about today and hopefully we will have an opportunity to address some of this, but so much of the response to the fraud that we see is reactive. Dismantling fraud rings and charging perpetrators after the fact. And I think over the last nine months, not just in the medical field or in the healthcare space, but what we've seen coming out of Minnesota and Maine and California and Illinois, just across the board, the nature of the fraud is just astronomical. But what are the challenges that hinder us from addressing healthcare fraud more proactively? How do we stop this fraud from occurring in the first place?
Is it completely revamping the incentive program for our states? Is it requiring additional, you know, I don't want to just expand the bureaucracy. That doesn't help anything. How do we actually stop the fraud from occurring in the first place?
Brian Blase
Yes, so it's a really important question and certainly the prosecutions that we're seeing, that is a good use of government resources, but the reason we have so much healthcare waste and fraud is because of bad incentives. It has allowed brokers to sign people up without their consent. On Obamacare, the main fraud has been driven by zero premium plans. The subsidy covers the full premium. So let me give you two policy recommendations.
So the subsidy goes to the health insurance company and the broker gets a commission every month the individual's enrolled. So we estimate that there were three to four million people that we call phantom enrollees, had no idea that they were covered in the program, and they didn't use their plan obviously a single time. There should be a minimum premium payment. A minimum premium payment, which I think could be $25 a month, would get at a lot of that fraud. On Medicaid, the problem is that when states, the fundamental problem with Medicaid is the more the states spend, the more the federal government sends to states.
So there should be limits on what the federal government sends to states. In the intervening period, the federal government should do aggressive audits of states and actually make recoveries when those audits find fraudulent and improper spending.
Speaker 13
Okay. Well, up here we have Wisconsin and Wyoming both represented. I'm not sure about some of the other states. Neither of our states expanded Medicaid. Neither one of our states did that.
And now I know that there is going to be a push potentially in both of our states as well, but I think that your point about incentivizing states to be better stewards of the money or not getting the money in the first place are really good points. I might have an opportunity to ask additional questions, but thank you.
Russell Fry
Dr. Blase, I think when I look at this, so I think I'm going to ask questions that I think are pretty rudimentary and easy for us in this room to understand, but for the people who might pay attention now or later to this hearing, what does the traditional Medicaid, who is covered under traditional Medicaid?
Speaker 11
Gentlewoman yields back. Gentleman from South Carolina, Mr. Fry is recognized for five minutes.
Russell Fry
Thank you, Mr. Chairman, and much like Wyoming and others, South Carolina has not expanded Medicaid.
Brian Blase
There's four categories: low-income children, seniors who are low-income, people with disabilities on the SSI program, and pregnant women.
Russell Fry
And how much is the federal responsibility of a traditional Medicaid population?
Brian Blase
On average, the federal government covers about 57% of the cost. So another way to think about that is states spend a dollar.
Russell Fry
Correct, 57%. And I'm going to move fast because we got five minutes, but so 57% of the cost is borne by the federal government and the state picks up the other on average, I guess 43, is that correct?
Correct.
Russell Fry
So there is at least some incentive by the state there to make sure that the dollars that they are spending are appropriate.
Correct.
Russell Fry
Who is the expanded Medicaid population? We talk about states that have expanded Medicaid, who does that cover?
It's 90%.
Russell Fry
So we cover, let me make sure I understand this for the people watching back home, we cover more, the federal government's responsibility for able-bodied adults is higher than the people who the program was intended for.
It is much higher.
Isn't that really backwards?
Russell Fry
Right, like think about the purpose of Medicaid, right, why it was created to begin with. And now we have these expanded populations. And so I think going back to what was talked about earlier, there's really a perverse incentive by states to not really check verification, to check fraud in their states if they have an expanded population, is that correct?
Speaker 18
Yeah, I mean there's no skin in the game, right? The state has virtually zero liability on their books because, yes, so one dollar of state spending generates nine dollars of federal spending, and states often develop financing gimmicks and schemes for that one dollar.
Russell Fry
Correct, let's talk about that for a second actually. I want to go into that. What kind of schemes do you see? I know we covered some of those in the big beautiful bill, but what kind of schemes do you see where states completely remove their financial liability to the expanded population?
Brian Blase
The biggest one is called the provider tax. It is not a tax. It is often developed by say a hospital system. The hospital system goes to the state, state tax me a million dollars. The state then takes that and spends that million dollars back on the hospital system.
That is just an accounting gimmick, but what that does is allow the state to invoice the federal government for that million dollars. So the state will get, for the expansion population, 900,000 dollars for that financial gimmick.
Russell Fry
Congress apparently authorized that before we were all here. Shifting real quick into fraud and into the enhanced premium tax credits, how much waste, fraud, abuse, improper payments did you in your research find in those enhanced subsidies?
Brian Blase
Probably about a quarter of total spending. So in 2025, we estimated it at 27 billion dollars.
Russell Fry
27 billion dollars. Who is the, as far as the fraud and the abuse that was in that system, who are the biggest culprits? I think you said earlier brokerage firms were a big bad actor in this.
Brian Blase
Well, the insurance companies are the big beneficiary because they get the premium paid by the federal taxpayer, and then the brokers get a commission, so they have incentives to improperly enroll people because they're going to get a cut of that monthly premium.
Russell Fry
How widespread do you think that activity was from the standpoint of the brokerage firms?
Brian Blase
It was massive. It was really in the state of Florida, my state that I live in now, I mean we excel in healthcare fraud, and in Florida we have five times as many people signed up in the lowest income category than are eligible.
Speaker 17
What is the specific fraud scheme that you saw that was particularly alarming?
Brian Blase
So there were two. These brokers would go to areas where there were low-income individuals, homeless individuals. They would sign them up for an Obamacare plan. There were also social media scams where they would advertise cash and gift cards. They would get people to call a number.
People would ask about their cash or gift card. They were told that first they had to sign up for health insurance. So they got enrolled in Obamacare plans that way.
Russell Fry
We sit in Charlotte where a man in June was charged with defrauding the North Carolina Medicaid program out of hundreds of thousands of dollars. This is part of the Justice Department's crackdown over the summer. What steps can Congress meaningfully take to eliminate this? It seems that the incentive right now is that, or the structure right now is that a claim is made on the system, a claim is paid, that we find the fraud after the fact, and then that we chase it, hoping that there's some dollars that we can recover. It seems to me that the more prudent step here would be to head that off on the front end.
What steps can Congress take to eliminate this?
Brian Blase
So in Medicaid, most of those program decisions are made at the state level. What the federal government does is determine basically the broad rules of how states have to operate their programs, but then the financial structure. And what the Congress should do, and you started this in the One Big Beautiful Bill. So you limited provider taxes, you eliminated a lot of corporate welfare through these state-directed payments, which were the payout from this scheme. Congress made significant steps in the One Big Beautiful Bill on Medicaid financing reform.
I think the next big item for Congress is to get rid of Obamacare's 90% match rate. To come back to your first question, it makes no sense for the federal government to discriminate against the most vulnerable, creates a host of bad incentives. Congress should equalize the reimbursement rates across all populations. The ideal solution would be capped amounts. Congress would determine what the budget should be for the program and then allocate that money across the states in an equitable manner.
One of the questions that we didn't talk about is how inequitable federal financing, Medicaid financing is. There are some states like New York that get magnitudes more spending because they've maximized the use of these gimmicks and they just have really expansive welfare programs versus your state of South Carolina, which is much more fiscally responsible.
Speaker 14
Thanks for sharing that. Appreciate that. I know Chairman, my time's up and if there's an appropriate time I may ask questions later. Thank you.
Gentleman yields back. Gentleman from Missouri, Dr. Onder.
Robert Onder
Well thank you. Yeah, this topic we're exploring today is not only essential to the future of American healthcare, but also the fiscal viability of our country. You know, as a physician over the past 30 years, I have witnessed in real time this incredible consolidation of our healthcare system. Now, you know, this consolidation will happen when one competitor in a marketplace has a better product, provides more convenient services, lower prices. The competitors will lose market share if someone's doing things better than they are.
Witness the success of Walmart or Amazon in the retail marketplace. But I would submit to you the consolidation we've seen the last 20 years is not someone building a better mousetrap. It is the direct result of government policies like we've been talking about here today. Those policies cumulatively have inexorably driven consolidation to the detriment of patients, of taxpayers, and employers, and of course our national budget and national debt. You know, horizontal integration, you talked about this Dr. Miller, but between '98 and 2017, we have seen 1,500 hospital and healthcare system mergers.
The 10 largest health systems account for one in five hospital beds in the United States. Today 60% of physicians work for hospitals or health systems, and in my region for primary care it's more like 90%. The largest single employer of physicians in the United States is United Healthcare. How did this all come about? Government policy.
If you pay one competitor in a marketplace more than another, guess who's going to win out. The hospitals are paid more for the same services, again Dr. Miller as you pointed out. Expansion of the 340B program under Obamacare further incentivized this consolidation. And since 2001 under the Medicare fee schedule, physicians have seen a 33% decrease in real reimbursement while hospitals get inflation adjustments. We hear about the doc fix from time to time in our budget debates.
And of course hospital-acquired practices are the most expensive place to get care. Meanwhile, we keep competitors out of the marketplace. Obamacare placed severe restrictions on new or expansion of physician-owned hospitals. In many states, including my own Missouri, we have dysfunctional archaic certificate of need laws that prevent competition in the healthcare marketplace. And there's a nonprofit exemption in our antitrust laws.
And since 77% of hospitals in the US are either nonprofits, so-called, or government-owned, they are all exempt. And then of course vertical integration, where I think another, again another side effect of Obamacare, the medical loss ratio in which insurers are required to spend 80% of their premium dollar on healthcare. Well guess what you do, you buy or form your own PBM, overpay your PBM, and that money that you're paying yourself counts toward your medical loss ratio. An incredibly dysfunctional system, and I could go on. What, I want to, Dr. Blase, you know, the whole point of Obamacare was allegedly to get more, quote, get more people insured.
I heard that from hospitals, universities, countless times. Can you explain how Obamacare, both the Medicaid expansion and the exchanges, have displaced private insurance?
Brian Blase
Yeah, it was called the Affordable Care Act. Clearly hasn't made healthcare more affordable. It, for a large time we referred to it as the Medicaid Expansion Act, because it really the key part of Obamacare was the states that expanded Medicaid and had much greater enrollment in the expansion than expected. And actually the 90%, which we talked about, it was worse at the beginning, the federal government covered 100% of the cost for the first three years. So there was Medicaid expansion up to 133% of the poverty line.
Above that was the exchanges with the insurance regulations and a series of subsidies. The exchanges proved to be much less popular than Obamacare's drafters thought. Enrollment was about 60% below expectations until the COVID-era subsidies blew it out. But basically the exchanges have and the Medicaid expansion to some degree reduces the incentive for employers to offer health insurance.
What we have really seen in terms of the private market is a decline in small businesses offering health insurance. They have been about a one-third drop in small employers that have offered health insurance. Large employers are still offering health insurance. If they don't, they have to pay a significant tax penalty under Obamacare, but there has been a huge shift in small employers and many of the workers of small employers have moved into Medicaid expansion or the exchanges.
Robert Onder
And we're out of time, but the way I sometimes summarize it is that is that employers have dumped low-wage workers onto Medicaid and middle-wage earners onto the exchanges. But okay, thank you very much.
Scott Fitzgerald
Gentleman yields back. Recognize Congressman Moore for his five minutes.
Jeff Moore
Thank you very much. You know, healthcare is one of the most important parts of our economy. It's one of the largest expenses for American families. And despite decades of increased federal spending and regulation, we still see that healthcare remains too expensive and too difficult to access, not only here in North Carolina, but in other states as well. Part of the problem I would submit, and I think this was touched on by a couple of the other folks, is that we moved too far away from a healthcare system that's driven by competition and toward one shaped by government regulations and subsidies.
And I gotta say, Congressman Fry, the stat that we just found out that a fourth of the spending is estimated to be waste, fraud, and abuse, that's unbelievable that it is that high. And I think that that sort of is an exclamation point of what we need to be looking at. One of the areas that I've also seen as a concern are with the PBMs or pharmacy benefit managers when it comes to impacting cost on medications. You know, currently the three largest PBMs control roughly 80% of the PBM market. The largest PBMs are increasingly integrated in health insurance and pharmacies.
So Dr. Blase, let me just ask you this. How does that level of concentration and vertical integration affect competition in the prescription drug market?
Brian Blase
I mean, we know from study after study that consolidation, whether hospitals merging or the vertical integration, is a primary driver of price increases.
Jeff Moore
So what practices do PBMs use, if any, to steer patients toward affiliated pharmacies or products?
Brian Blase
Yeah, well PBMs have different levels of cost sharing. They have formularies where they try to incentivize lower-cost products. But one of the problems is this rebate structure with PBMs and there's a lot of lack of transparency with the rebate structure. And if PBMs are trying to maximize rebates, that actually leads to incentives for higher-cost medications.
Jeff Moore
What does that do with respect to say, you know, independent pharmacies and those that are particularly in rural communities like I represent?
Jeff Moore
Dr. Miller, what are you all seeing at the state health plan on this issue?
Brian Miller
We actually just recompeted our TPA and PBM contracts and so we actually had a unique strategy. We bid out components of the PBM functions so that various market participants could compete. Previously we had CVS Caremark as our sole PBM, which I think is safe to say did not work well for us. Because in the PBM marketplace, when you have three market participants that control functionally the entire market, if you're trying to buy pharmacy benefits, you have three choices and the three large choices look very similar. And if you're an independent community pharmacist trying to compete with the PBM, which also incidentally owns say 10,000 drugstores, sort of hard to compete.
And I think one of the things that actually we could do to address this is if you go back and look at the prior PBM merger decisions from the FTC, their sort of interpretation of what would happen when all these PBMs merged to pharmacies, pharmacists and access and price were probably incorrect, so we should probably ask the FTC to do a retrospective merger review.
Jeff Moore
Well of course the and the FTC just reached a settlement with CVS Caremark and some of the things that that settlement are to really increase transparency when it comes to the amounts that are paid, reduce the patient's out-of-pocket cost and ensure that community pharmacists are treated fairly. And so I've actually supported legislation that would do those things. Let me go back to Dr. Blase just a minute. What steps do you think Congress should to do in light of that settlement, in light of what even Dr. Miller just mentioned, to require additional transparency or competition reforms that may help the process?
Brian Blase
I think Congress should repeal the medical loss ratio in Obamacare. I think that's led to a lot of the vertical consolidation that we're seeing. And I think fundamentally we need much more transparency, both with PBMs where it's probably the area where we have the least insight, but just price transparency throughout the healthcare sector.
Jeff Moore
You know, when I'm out talking to folks, I hear about affordability, it's a real issue. And we talk about housing, fuel prices, but also healthcare. And when it comes to healthcare, if you go back and look at over time since the passage of the Affordable Care Act, it it seems by all the data that I've reviewed that it's done anything but make healthcare more affordable. So I do think it's something that we hopefully will look at and I appreciate your answer to the questions with that, Mr. Chairman, I yield back.
Scott Fitzgerald
Gentleman yields back. Now recognize gentleman from North Carolina, Congressman Edwards.
Chuck Edwards
Thanks so much. Thank you to all of our witnesses for being here. I'm neither an attorney nor a doctor, but I do represent a district in North Carolina that has been tragically affected by consolidation, which is the reason that I appreciate the opportunity to be waved onto this hearing today. The cost of healthcare continues to place a significant amount of pressure on our families, employers and and taxpayers. Although there's no single cause, this hearing gives us an opportunity to examine several ways that government policy, market concentration and fraud might be contributing to our problem.
Hospital consolidation is an important part of that discussion. The district that I represent has one major hospital system that used to be seven hospital systems. Health systems argue that mergers can improve capital, improve coordination and help struggling rural facilities remain open, but we've not seen that happen in NC-11. These potential benefits should be recognized at the same time when a small number of systems controls most of a market, patients may face higher prices as is the case in my district, employers and health plans may lose negotiating leverage as has been the case in my district, and healthcare workers may have fewer employment options as has been the case in my district. We've seen these questions play out in NC-11 following HCA's healthcare acquisition of Mission Health in 2019.
Mission Hospital is essential to the people that I represent. It provides emergency, specialty and extreme care that many patients cannot obtain anywhere else in the region.
Speaker 21
That makes it especially important that Mission remain accessible, affordable, and capable. Since the acquisition, Mission has experienced repeated immediate jeopardy findings involving patients' rights, nursing services, infection control, and other serious deficiencies. HCA is also involved in separate litigation concerning its obligations under the Mission sale agreement and allegations regarding its contracting practices and regional market power. HCA contests those allegations and the cases remain ongoing. Mission is one example of the broader challenge before us today.
Policy makers simply must determine how to preserve access to essential hospitals while ensuring that consolidation does not eliminate competition or weakens accountability after a transaction closes. We must also examine policies that may limit new competition, including certificate of need laws and federal restrictions on physician-owned hospitals. We should consider whether the medical residency system is producing and distributing enough physicians, particularly in rural communities like the one that I represent. Finally, this hearing will address the concentration among pharmacy benefit managers and fraud within the Affordable Care Act marketplaces. Our goal should be a healthcare market that rewards quality in addition to protecting patients and taxpayers and gives families meaningful choices.
I look forward to hearing from our witnesses and the opportunity to ask meaningful questions. I realize now my time's about to expire. I will not have time to ask the question I wanted to now, but hopefully... Okay, great. Well, thanks.
Dr. Miller, I'll pose this to you. Mission Hospital in Asheville has experienced repeated immediate jeopardy findings, but Medicare termination, which is CMS's only recourse as I understand it, is an extremely severe remedy that could disrupt care across Western North Carolina. Do you have any ideas or could you tell us, should CMS have additional graduated enforcement tools for hospitals, such as daily civil monetary penalties, directed corrective action plans, independent monitoring, or temporary management? Or you may have some other ideas in how we hold these consolidated hospitals more accountable.
Brian Miller
Yeah, so because Medicare's a public option health benefits program, it's probably a good idea, and especially with Mission being the large system in the area, frankly the only large system in the area, it's probably good to have an option, all those options, monitoring, civil monetary penalties, etc., instead of kicking the hospital out of the system. You know, a couple of additional points. One is Mission is now part of HCA, which pays taxes. So it's the small part of the health systems, the hospital systems that do actually pay taxes. A lot of these organizations are tax-exempt.
I think that the concerns that folks have about Mission would probably be a lot smaller if, say, we could go build a hospital pretty easily. We can't because of certificate of need. Dr. Blaze can open a hospital and bill Medicare, but Dr. Miller here can't. Right? That doesn't make any sense.
And then of course Stark and physician self-referral law. Mission can self-refer and in fact require physicians to do that as employment. But, you know, if we went out and created a practice, Dr. Onder and I did, we would not be able to engage in self-referral for integrated care delivery for, say, labs, X-rays, etc., which is nonsensical. So I'd say yes, CMS should have more tools, but we should also allow folks to own and operate businesses and compete, and that competitive pressure would then ensure that most of those problems don't happen.
Scott Fitzgerald
Gentleman yields back. I'm going to recognize myself. Ms. Martin, your testimony highlighted something that I think matches the experience in many of the congressional districts that we represent. There's kind of this geographic mismatch between physicians and nurses and the training that they require. And then also there's a mismatch on where the needy patients are as well, right?
So this leads to that undersupply of nurses that you discussed earlier. So what other challenges are out there and what are you guys facing when it comes to just finding the correct and educated personnel to place into those slots that are desperately needed?
Kimberly Martin
Thank you for the question, Congressman. I would say that our state legislative funds, it's called the UNC System Healthcare Access Fund, is responding to federal flaws with how CMS graduate medical education funds flow. Right now, funds largely flow through large urban health centers and it's really discretionary in how they want to pay for slots for resident training. That being said, I will say UNC Health, ECU Health, other of our large hospital systems in the state do good work with rural training, but at the federal level, 80% of GME graduate medical education funding is financed by Medicare and Medicaid and the VA. So there have been reforms.
North Carolina's going through this reform with our state funds where we're directly targeting funds for rural residency programs to launch, develop, expand, or be sustained. And there's other nuances to this, in addition to the federal how the federal funds flow to large hospital systems. If a small hospital system receives funding from the federal level because of their hospital classification type, like a critical access hospital, sole community hospital, because of their hospital classification type, they do not receive full GME reimbursement to train residents, so they have to often rely on larger urban partners to be a rotation site or serve as a sponsoring institution. So what our funds are doing is that we are helping others come to the table that may have been GME naive, have not trained residents before, to be able to become accredited, to be a sponsoring institution to train residents. Other federal barriers that I would say that prevent or sort of have contributed to the, you know, maldistribution of physician training and placement is really because of the requirement for what it takes, not just the location, but the percentage of training time to be fully reimbursed by CMS.
Physicians have to be under federal new federal rules, physicians have to train 50% in a defined rural area. That rural area definition is the entire county has to be classified as rural. So in my remarks earlier, that's why I mentioned the federal definition of rural is more stringent than our state definition. So with our state definition and our funds, we're relaxing the required percentage training time and we're also relaxing the definition of rural because that's the catalyst to creating more rural training opportunities for residents.
Yes, thank you for the question. So we have, as part of this whole effort, we have contracted with a technical assistance team that's housed at University of North Carolina Chapel Hill, and they have had incredible expertise and work actually with the Health Research Services Association, HRSA, with the development of rural residency program development grants and teaching health center grants. And those expertise, that expert team has worked with states like Missouri, Wisconsin, and others to really learn from what is working in other states and at the federal level and implement that with flexible legislative dollars.
And we were discussing before the hearing started, my state of Wisconsin has also implemented some of the things that are going on in North Carolina. Are you aware of other states throughout the nation that have kind of this ability to identify what's working and implement that?
Scott Fitzgerald
Very good. Thank you for that answer. Dr. Miller, if I could come back to you, in 2020, and some of this might, there's a little bit of redundancy because we've already talked about some of the topics, but North Carolina Hospital Association warned against the State Assembly proposed repeal of the state's certificate of need law. Specifically, they stated that repealing North Carolina's CON law will likely raise healthcare costs and not lower them. So what have we seen so far?
Can you give us kind of an update on that?
Brian Miller
I mean, I think we have 25 years of solid economic research that shows that certificate of need, when in place, raises costs, restricts access, and reduces quality. And I would say the recent, we've made a positive step where there was a recent repeal of certificate of need for inpatient rehabilitation facilities or IRFs for acute rehab after hospital stays. So that's a positive step in the right direction. There's no reason for you to have to seek state permission to build a healthcare facility. Just on the face of it, it defies common sense.
Scott Fitzgerald
So this, if you go back to the 70s and the 80s, this was all in response to the quote-unquote cost-plus reimbursement, right? So can you just explain why in cost-plus system that certificate of need laws may have made economic sense? I mean, what were they, what were they thinking back in the 70s and 80s when they put them in?
Brian Miller
So they were worried about in the 70s and 80s where you had induced demand. So in the hospital stays, for example, you were just paid per day cost-plus. And so if you were in the hospital and you didn't want to leave, they'd just say, oh great, you can stay another day and the hospital would bill like another thousand or two thousand dollars. And so in that setting, you know, building more hospitals would result in higher costs. Now we have the DRG system where the hospital is paid a set amount for a hospitalization.
So if you stay longer, it actually can reduce the hospital's profitability. So those incentives have changed, so certificate of need does not make sense. And also, when you don't have certificate of need, you can actually have price competition in a world with price transparency. So if you go, if Dr. Blase and I go shopping and we need a CT scan or an MRI and it's 300 dollars at one place and 500 at another, we can make those trade-offs and insurance design can work with that.
Scott Fitzgerald
Let me, let me just get your opinion also. I know Dr. Blase was asked a lot of questions about just the GAO and Obamacare and the subsidies. What's your take on kind of where we're at and how this has unraveled on us the way it has?
Brian Miller
I think it's really uncomfortable for a lot of people to admit that there's a significant magnitude of fraud in ACA markets or Medicaid markets. And a lot of this is simply that we need to have eligibility systems. Dr. Blase has mentioned this. We need sort of routine checks. You need routine audits of providers.
You need good policy to police bad broker behavior, right? We want brokers. Brokers are an intermediary that we should have as one of many choices for people to shop. But we also need to address incentives. And so when you have bad incentives, unsurprisingly, bad things happen.
Scott Fitzgerald
Very good. I'm going to yield back. Congressman Fry, you said you had a follow-up on your earlier questions.
I did.
Harriet Hageman
I have just a couple of things. I always say that government is always trying to fix its last solution. And I don't think there's any better definition than Obamacare. I would like to ask in terms of the work that the three of you do, and as you know, we passed the Rural Healthcare Transformation Act or FUND. Do you provide advice or review plans or anything like that to help states to be able to maximize the benefits associated with that fund?
Do would any of you be willing to work, for example, with the state of Wyoming and leaders there to make sure that they're maximizing what they're doing?
Speaker 23
Yeah, Paragon has, we launched last year a state health reform initiative and we did a paper on how states could maximize both what they receive from the federal government and some of the things they could do as states that have certificate of need laws. There was an incentive put in place by CMS to get rid of those CON laws to get additional funding. We put a paper out along those lines, but yes, we would be happy to do that at Paragon.
Harriet Hageman
Okay. And I think that one thing that gets lost in the discussion about not allowing physician-owned hospitals is what happens on our Indian reservations. And we have a very difficult time providing healthcare to our tribal members. And one of the things that I think could incentivize physicians and healthcare providers is if they were able to own those facilities. And we have really disincentivized that and it's really hurt our Indian populations.
And so I just want to throw that marker out there. I think that's something that we specifically need to address when we try to address these healthcare issues. One last thing is if we were to do another reconciliation package, are some of the things that you are recommending, would we be able to do those with reconciliation?
That was an active consideration, active policy under consideration during the one big beautiful bill. You can reduce Obamacare's 90% FMAP. Yes. And you could affect Obamacare subsidies. That would be reconcilable.
Russell Fry
All right. And one last thing as the PBMs have been really devastating to small independent pharmacies, including in Wyoming. So we have a pharmacy that one half of it is where he sells his drugs and medications and the other half he sells guns. So maybe, you know, that's a business model that others can pick up on to try to deal with the fact that PBMs have been so devastating to our pharmacies. Thank you all for being here today.
Brian Blase
Gentlewoman yields back. Congressman Fry, follow-up.
Thank you, Mr. Chairman. Dr. Blase, I want to come back to you real quick. So let's go to the free state of Florida and do a hypothetical because I want to get this and make sure we all understand it. You are a data brokerage firm and I am just a citizen. Walk me through the process of signing up for Obamacare.
What does that look like from my standpoint and yours?
So I put out an advertisement that you respond to. You call me. And the way that this worked is I was not, well, you drive around Florida, you see lots of signs for free Obamacare plans, call a number.
Yeah, the billboards and the signs and all this stuff.
Speaker 18
They just need your name and date of birth. And many people have been signed without their social security numbers. I think CMS reported that there were a million people enrolled this year that didn't have their social security numbers. Yeah. And in some states, there has been this feature called enhanced direct enrollment where if an individual is already enrolled, the broker can go in, not contact the consumer, and just switch them from one plan to the other.
Russell Fry
So one of the problems... And that's posed problems actually for like when you go in, you've had coverage say before and now you don't and you had no idea that your coverage was switched, right?
That's correct. So on the back end, who is verifying this, the eligibility of these people?
Brian Blase
It was supposed to be the exchange. If you go back to the fall of 2013 when they launched healthcare.gov, the website didn't work and that was just the front end of the website. They actually never built the back end proper features of the exchange. So there's just been a very poor structure in place for verification. And the Biden administration made this all worse.
They really did pursue an enrollment at any cost strategy. And there were a lot of complaints that they were getting in 2023 and in the first part of 2024 that they really did ignore.
Russell Fry
I think there were some internal memos if I remember under the Biden administration that basically was like if somebody applies, assume that they're telling the truth. Is that, I mean, that's, I'm paraphrasing, but is that an accurate reflection of their...?
Brian Blase
Yeah, I mean, they relied on self-attestation. They didn't have proper income verification. And if you get subsidies in one year and you don't file your tax return... So they're through the tax code, so you need to file a tax return. If you don't file your tax return, you're supposed to get removed from the subsidies the following year.
The Biden administration allowed people to not file tax returns for multiple years and remain covered by the program.
Speaker 25
So once you were on, you were not getting off even though, I mean, that's what was required.
Essentially, yes.
Russell Fry
That's kind of alarming. And I'm actually somewhat disappointed that colleagues on the other side of the aisle wouldn't be here for something like this because I think if we're trying to talk about protecting the program of Medicaid itself and making sure that it survives the test of time and the pressures that are on it, this isn't a partisan issue. This is a uniquely bipartisan one that requires some help from the other side to recognize that there is fraud in the system. There are people who game it. It goes from states to hospitals to brokerage firms all the way down and of course individuals.
We see this happen a lot. So I appreciate your... I'll say one, there's a whole consultant class too whose business model is figuring out how to maximize payments from the federal government. So states and hospitals contract with consultants that make lots of money and their business model is not trying to figure out how we can get more value from the Medicaid program. It's just how can we draw down more federal money into the state and then disperse it to the medical industrial complex and the consultants get a fair amount of money from this too.
Thank you for that. Mr. Chairman, I yield back.
Scott Fitzgerald
Gentleman yields back. Let's, we'll sneak in one more question here with Congressman Onder.
Robert Onder
Yeah, Dr. Blase, you, Paragon, have written extensively about the enhanced COVID-era Obamacare fraud and perverse incentives. In other words, health insurers have folks on the books, they're receiving the premiums, they're not delivering any care. Don't we have a similar dynamic in Medicaid as well because after all most states have implemented Medicaid managed care? So if you don't rigorously audit eligibility, throw off people whose incomes are too high, who have moved out of state, maybe are even dead, the insurers have no incentive not to keep accepting that per member per month premium and just, in return, providing no care because the patient perhaps doesn't even exist or lives on the other side of the country or has private insurance. What do we need to do?
We've, I know we are cracking down on eligibility in the Working Families Tax Cut Act, but what do we need to do to move that along?
Brian Blase
So I think part of what we need, we need to understand the extent of the problem. So we know in Obamacare, CMS put out the information that 35% of all enrollees and 40% of fully subsidized didn't use their plan a single time. And that's more than twice what we would see in a normal market. We need to get that data for Medicaid. I agree with you.
If you look at surveys of Medicaid beneficiaries, about a third of them have no idea that they're enrolled in the Medicaid program. Yeah. So there's going to be another, I suspect the number is probably at least as large of Medicaid enrollees that have managed care plans. And the problem with the managed care you identified correctly is that the government is paying an amount every month to the insurance company regardless of whether the enrollee receives any care or not. Now some people are healthy, they're not going to receive any care, we expect that in a normal insurance market, but what we're seeing in Obamacare is well beyond what you would see in any insurance market.
And for states, especially the expansion population, it's nearly free money with the 90-10 match, so the states have relatively little incentive to... Some states, we're in North Carolina. North Carolina expanded Medicaid. North Carolina applied a hospital fee on the 10% share. When North Carolina expanded, they said if we have to pay anything from the state general fund, we will unexpand.
Now think about what that means from a state perspective. They're saying we're only going to do this if the federal government bears 100% of the cost of this. Got it. Oh, so did North Carolina then unexpand when the FMAP changed from 100 to 90?
No, so they expanded, North Carolina expanded when the FMAP, because they expanded a few years ago, so the FMAP had already gotten to 90%, but they in the statute that expanded Medicaid said the 10% share will not be paid by the state, it won't be from the general fund, it'll be a hospital tax.
Robert Onder
A real tax as opposed to the other hospital tax we were about to... So no, it's the illusory tax because then the hospitals get the money, they came, this was a hospital proposal. So you know it's not a real tax. Got it. If I could ask Dr. Miller a question as well.
Thank you. Dr. Miller, when hospitals and other market players oppose reform of CON, when they oppose physician-owned hospitals, they, I think they say a couple of things, or even for that matter when they oppose site-neutral payment, they say a few things. They say one, sort of like public schools, we have to take everybody, whereas physician-owned hospitals, private hospitals, they're going to cherry-pick, that's one thing they say. And the other thing they say is we do so much charity care, you have to do all these good things for us, pay us more, keep out our competitors so that we can continue to do charity care. What say you?
Brian Miller
The evidence suggests that those aren't true. So for starters, half of physician-owned hospitals are actually just general acute care or community hospitals. Community hospitals don't exist as a business without Medicare and Medicaid. In fact, there was a study looking at physician-owned hospitals that opened after the ACA ban passed and they all went bankrupt within five years because you need Medicare and Medicaid. I think the other thing that people forget is one, there's evidence that tax-paying hospitals, which include HCAs and Tenets, do higher charity care.
3.4% as opposed to 2.3% for so-called nonprofits. Yeah, and physician-owned hospitals also pay taxes, so that's a huge contribution to the community. If, and one thought on Medicaid, actually two thoughts. One is we could use technology to improve the eligibility process. So if you qualify for Medicaid and you're poor or you don't have a house or you have severe mental illness and you can't hold a job, right, we should make it easy for you to get on Medicaid and technology can facilitate that.
And then when you now have new income and another job and the state gets that and the IRS gets that information, we should make it easy to take people off Medicaid at that point.
That's a technology problem. And then for the Medicaid managed care payments, we could actually subject Medicaid managed care programs to RAC audits. I believe that there's a proposed bill on that.
Very good. Thank you. I yield back.
Scott Fitzgerald
Gentleman yields back. Well, that's a lot to take in in an hour and a half, but we appreciate everybody's time. So that concludes today's hearing. I want to thank the witnesses for appearing before the subcommittee today. And without objection, all members will have five legislative days to submit additional written questions for the witnesses or additional materials for the record.
So without objection, the hearing is adjourned.