Last Friday, I had the honor of meeting with Fellows in the Milbank Memorial Fund program where top state health department and elected leaders discuss policy issues facing their states. Their issues are mounting and complicated. Their role and the scope of their responsibilities are expanding. Per the National Association of State Budget Officers, health programs accounted for 31% of the average state’s budget in FY2025 though what’s included and how it’s spent varies widely by state.
Most are compensated below their private sector peers. All work long days. All share similar challenges:
- State legislatures are asking for simple answers to complex problems about costs, coverage and services.
- Governors are asking for solutions to politically-sensitive problems that don’t disturb voter confidence.
- Program leads in state health agencies want increased funding and less administrative oversight.
- Healthcare trade associations are amping-up their advocacy machinery to protect their interests and fend off election-year losses.
- And federal policies, rules and guidelines from HHS, CMS, VA, CDC, DOD, FDA, DOA et al are changing almost daily prompting court actions and regulatory chaos. In tandem. funding cuts via the One Big Beautiful Bill, uncertainty about programs like Rural Health Transformation and vaccine policy, and endless directives paralyze state health leader effectiveness.
The federal government played a back seat to states until the modern era. That changed as Medicare and Medicaid became the primary banks for healthcare. By design, states oversaw the delivery and financing of healthcare services within their borders, often experimenting with innovations in coverage to address growing access issues in underserved populations.
Today, states have a full plate: control licensing and scope of practice, insurer solvency and coverage requirements, retail pharmacies, public health programs, competition, price transparency, facility adequacy and safety (hospitals, nursing homes et al) and many much more. Since the conservative leaning Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization (2022), tricky issues like abortion rights and others have defaulted to states to adjudicate further taxing the state’s healthcare leadership and resources.
The road ahead for state healthcare regulators will be harder regardless of the state’s population, partisan leaning and resources. Spending levels are not sustainable, dissatisfaction with the health system is at an all-time high and neither political party has advanced solutions that achieve the triple aim: better care, lower cost and universal access. Reality:
- The healthcare industry changes faster than its laws and regs. As a result, policy changes are primarily focus on corrections to known flaws rather than systemic reforms that enable sustainability long-term.
- Short-term opportunities for healthcare investors benefit from the dysfunction. Winners in the industry leverage regs and rules that favor specialty care, consolidation, cost+ business models and profit maximization. Non-profit status protects favorable tax treatment at local, state and federal levels while day to day operations is indistinguishable from investor-owned competitors.
In 2009 in preparation for the White House Office of Health Reform Affordable Care Act deliberations with industry groups, I examined the structures, financing and clinical results of health systems in developed economies (OECD) of the world. Each was unique, but all operated at lower cost than the U.S. and all produced population-based clinical results that rivaled the U.S. Of the 12 I studied closest, the U.S, ranked in the bottom 3 on almost every measure except one: cost.
No two countries are alike like no two states are alike, but three structural elements were apparent in every system that outperformed the U.S.:
- Primary and Preventive Health Gatekeeping: Developed systems integrate public health (social determinants) with physical and mental health, nutrition, prophylactic dentistry and restrictive formularies. They enable primary care for all, and facilitate access to specialty services through gatekeeping for the substantial majority of citizens.
- Clinical standardization based on evidence: Every system of the world that outperforms the U.S. operates an independent NGO whose purpose is to monitor science and align diagnostics and therapeutics with what is proven to work. As AI-enabled clinical directives become mainstream tools in the U.S. system, adherence to what works best in what order (step therapies) will enable reduction in unnecessary care and engagement of individuals in self-care.
- Global budgets: Remarkably, countries that out-perform the U.S. set national budgets for their healthcare programs and ration care toward system-wide priorities. They spend 8-12% of the country’s total GDP (vs. 18% in the U.S.) and appropriate more resources to primary and public health and less to acute services proportionately.
The conundrum for Milbank Fellows is the obvious: big, structural changes like these require federal involvement. They’re common sense. They’re not about bad people; they’re about structural flaws in the status quo that need fixing.
It will require a thoughtful, national plan to transform the U.S. system. States can be the stimulus for change, especially through interstate initiatives and knowledge-sharing akin to the Milbank Fellows Program.
Ultimately, it will require a federal Manhattan Project that subordinates the proprietary wishes of the industry special interests and political gamesmanship by partisans to achieve a system that’s sustainable, effective, efficient and operates with and for the people served.
States are the frontline for system reform in U.S. healthcare.
Paul
PS: Much thanks to Milbank Memorial Fund President Debra Lubar and Fellows Program Lead Morgan McDonald inviting me to participate. Prompted me to reflect on state challenges and White House effort (2009-2010) to transform the system. It’s unfinished business.
Sections in today’s report
- Quotables
- Economy
- Hospitals
- Insurers
- Physicians
- Polling
- Population Health
- Prescription Drugs
Quotables
WSJ on higher education: “Cornell University on Tuesday became the latest elite school to propose a course-correction as it navigates one of the toughest periods in the history of American higher education.
In a more-than-200-page report commissioned by Cornell’s provost, a special faculty committee outlined what it called an unprecedented crisis facing universities, thanks to disrupted federal funding, an erosion in public trust and rapid AI-led technological change. The committee’s recommendations included diversifying funding sources, embracing a range of ideologies and developing a new tuition model. “
PK Note: The parallels between higher education and healthcare are uncanny!
In 200-Page Report, Cornell Confronts the Crisis in American Higher Education – WSJ
The Economist on unnecessary surgery: “EACH YEAR, according to the World Health Organization, over 300m operations are conducted worldwide. Patients in the rich world are more likely to go under the knife—about 60% of people in England are expected to undergo surgery at least once in their lifetime. Some of these procedures are clearly life-saving, such as organ transplants and emergency Caesareans. But as the number of other operations continues to grow, some in the field are starting to ask an awkward question: how many are really necessary?
Answers have long been hard to come by, in part because few randomized controlled trials (RCTs), the gold-standard type of research used to assess medications, were conducted on surgical procedures. That made it difficult to know if patients got better more often with surgery than they might have without. This is now changing. The number of surgical RCTs funded by Britain’s National Institute for Health and Care Research increased from 34 in 2011 to 188 in 2023, and national surgical-trials programmes are active across Europe as well as in Australia and Canada.
The results are upending the field. Removing an inflamed appendix, an operation that around 5-10% of people have had at some point in their life, has turned out to be no better for most patients than a course of antibiotics…
If so many operations are unnecessary, how to explain the fact that patients often leave the operating table feeling better? In a study published in 2022 in JAMA, a journal, researchers pooled data from 100 surgical trials covering 32 interventions. They found that two-thirds of the improvement patients felt after surgery was due, on average, either to the body healing on its own or else to the placebo effects of feeling cared for and prepped for surgery. Only one-third of the benefit, in other words, came from the procedure itself…”
Many surgical interventions are little better than placebo
Harris on healthcare workforce stability: “The Harris Poll’s 2026 Healthcare Workforce Barometer, commissioned by Strategic Education, Inc. and Workforce Edge, finds that more than half of the healthcare workforce is still looking to leave their jobs. And among the youngest workers, that number climbs to 70%.
The timing couldn’t be worse. The Health Resources and Services Administration projects the U.S. will face a shortage of nearly 500,000 critical healthcare workers by 2038. Already, 1 in 3 nurses is over the age of 50. The workers healthcare needs to keep are the ones most ready to go. “
Why 70% of Gen Z Healthcare Workers Are Job Hunting https://theharrispoll.com/articles/why-gen-z-healthcare-workers-plan-to-leave-their-jobs/
Politico summary of House Democrats’ health plan: Per Politico’s review of the 84 page plan:
- Reversing the Medicaid cuts enacted under H.R. 1 is at the top of the agenda…
- The agenda calls for reinstating the enhanced ACA premium tax credits that Congress allowed to expire at the end of 2025…
- Members broadly agree on pursuing universal coverage, and the agenda proposes large expansions of the Medicare and Medicaid programs…
- The agenda proposes reining in corporate monopolies and regulating large healthcare companies…
The agenda would aim to limit Americans’ total healthcare costs to 8% of income.. - Protecting abortion access remains a core priority…
- Politico described several healthcare workforce and payment proposals as bipartisan, including reversing declining Medicare physician pay, adding residency slots, removing caps on nursing and medical student loans, and expanding site-neutral payment policies.
- The agenda would also expand the Trump administration’s rural health fund, double funding for community health centers and look to eliminate medical debt.
Politico
Kaplan on Generational tension over property taxes: “…After all, since Texas has no income tax, sales and property taxes are key in funding municipal services, like schools. So as revenue from older homeowners dries up and cities continue to face budget shortfalls, he expects his local government to make up for the cuts in other ways — including taxes on his home-to-be.
“You’re stuck there, and you’re looking at an inevitable property tax increase, because a group of people are voting to opt themselves out,” he says. Almost 40% of homesteads in Texas pay no property taxes for school districts. That includes about 61% of older and disabled homeowners, up from 44% in 2024. Scriber’s family and friends over the age of 65 all seem sympathetic when he brings up the issue — at first. They agree that increasingly foisting more of the cost of a functional society onto younger generations could be a problem, but then they start thinking further.”
Inside the Generational Tax Battle Dividing Baby Boomers, Millennials – Business Insider
Health Affairs on MA Quality Score Methodology: “For three decades, US health care graded itself through an annual archaeology project, digging through sampled charts to reconstruct what happened to patients the year before. That era is ending on a published schedule, and its replacement asks a more honest question: Can you demonstrate, from the clinical record itself, that care happened?
For the next few years, the answer will depend on plumbing as much as medicine. That is tolerable if it is visible, corrected, and temporary. It is corrosive if everyone pretends the scores mean what they used to mean. Plans should build now. Regulators should grade the transition out loud. The same care should eventually mean the same score, and the fastest way there is admitting that today it does not.”
Economy
Study: ambulatory surgery profitability by ownership category: “For this economic evaluation, we obtained financial and operational information for 2024 (most recent year available) from the Pennsylvania Health Care Cost Containment Council and the Pennsylvania Department of Health for all ASCs in Pennsylvania reporting complete data…
Among 257 ASCs reporting complete data, 204 (79.4%) were for-profit and 53 (20.6%) were nonprofit. ASCs exhibited remarkably high profitability in 2024, with 14 nonprofit facilities (26.4%) reporting margins above 51% and 49 for-profit ASCs (24.0%) reporting margins above 29%. Nonprofit ASCs accounted for 51.5% of net income while representing only 20.6% of facilities, 32.2% of patient volume, and 35.8% of patient revenues. Nonprofit ASCs were larger (median [IQR] visits: 4598 [2953-6786] vs 3613 [2002-6215]; median net patient revenue: $8 480 000 [$4 428 000-$17 540 000] vs $4 739 000 [$2 228 500-$8 461 500]; P < .001), with median (IQR) full-time employment double that of for-profit ASCs (27.0 [12.0-45.0] vs 13.5 [7.0-23.5] workers; P < .001). Nonprofit ASCs also had significantly higher median [IQR] per-visit net patient revenue ($1721 [$1226-$3311] vs $1297 [$701-$2120]; P < .001), per-visit net income ($592 [$128-$1326] vs $197 [$43-$404]; P < .001), and profit margin (37.8% [7.9%-51.4%] vs 16.4% [6.4%-28.9%]; P < .001).
Although nonprofit ASCs represented only one-fifth of facilities and one-third of patient volume, they accounted for more than half of total net income in Pennsylvania’s ASC market and exhibited significantly higher profit margins than for-profit ASCs, while continuing to maintain their tax-exempt status.
Nearly all nonprofit ASCs were system-owned, whereas fewer than one-third of for-profit ASCs were system-affiliated. Facility-level financial measures derived from Medicare cost reports, particularly balance-sheet measures, may be less reliable for system-affiliated ASCs.”
Cherry Bekaert on private equity market for healthcare: “Optimism defined U.S. private equity heading into 2026. Then the second quarter arrived. Deal count held firm, but aggregate value did not — sponsors deployed $461 billion in the first half of 2026, a 10.6% drop from a year earlier.
A Federal Reserve on hold, energy-driven inflation and increasing uncertainty over AI effects on exit valuations pushed buyers away from large, financing-dependent deals.
Sector concentration was extraordinary. B2B assets generated $40.6 billion of exit value, roughly 45% of all realizations and nearly double the sector’s 25.9% five-year average, against $10.3 billion for healthcare and $8.9 billion for information technology (IT)….
Underlying these emerging trends is the reality that capital is abundant, but patience is finite. And the force of AI cuts through each emerging trend, hollowing out yesterday’s winners while underwriting the winners of tomorrow. The managers who convert conviction into realized returns, and who can prove value rather than merely claim it, will define private equity dealmaking through the rest of the year and beyond.”
Private Equity Mid-year 2026 Report | Cherry Bekaert
Hospitals
Vizient quality awards: The Bernard A. Birnbaum, MD, Quality Leadership Award is based on the Vizient Quality and Accountability Study. The study scores hospitals in six domains: safety, mortality, effectiveness, efficiency, patient centeredness and variation in care, according to a Sept. 24 news release from the company.
The data comes from the Vizient Clinical Data Base, the Hospital Consumer Assessment of Healthcare Providers and Systems survey and the CDC’s National Healthcare Safety Network. The clinical database covers more than 1,600 hospitals across more than 250 health systems in 49 states.
PK Note: of 127 recognized in 7 categories, none is owned/operated by an investor-owned system.
Study: Hospital-insurer brinksmanship: “We studied 14,918 relationships between 3,772 unique hospitals and 92 unique in-market insurers to better understand the relationships among organizational characteristics (including market conditions), public brinkmanship, and departicipation. We documented 1,249 episodes of public brinkmanship, corresponding to about 8% of hospital-insurer relationships, for contracts ending between August 2021 and July 2025. About 28% of these public threats culminated in withdrawal. Profitable hospitals, for-profit hospitals, and hospitals commanding relatively high prices were most likely to engage in public brinkmanship; national insurers were more likely to engage in brinkmanship than single-state or regional insurers. We observed brinkmanship in about 16% of relationships where the hospital system and insurer each controlled roughly 25–45% and 30–45%of local beds and commercial lives, respectively. Our findings emphasize the importance of local contexts in shaping hospital-insurer relationships. Policy makers should assess the effectiveness of aggressive negotiations as a means to control costs and the impact of brinkmanship and departicipation on consumers’ access and experiences.”
Real-World Brinkmanship In Hospital-Insurer Negotiations | Health Affairs
Health Affairs on PE ownership: “PE firms typically rely on debt to make health care acquisitions, aiming to resell in a short time period after achieving profitability targets. The strategy has moved deep into health care over the past decade: PE firms have made more than 6,000 health care acquisitions valued at more than $750 billion; they own a growing share of US hospitals, nursing homes, physician practices, hospices, emergency medicine, and behavioral health markets.
The evidence on what tends to happen afterward has accumulated quickly. Research has found higher risk of hospital closure and bankruptcy, higher prices tied to rollups of physician practices, and higher mortality among nursing home residents after PE acquisition. In a survey of health policy experts published in Health Affairs Forefront, majorities said PE hospital acquisitions worsen quality of care. Others have cautioned that the picture is more mixed, and that quality outcomes vary by sector and deal structure.
When it comes to responding to the challenges posed by PE in health care, state legislatures got there first: By early 2026, at least 79 bills addressing PE or investor-owned health care had been introduced across 25 states, and several states enacted new ownership-transparency requirements, sale-leaseback restrictions, and corporate-practice-of-medicine enforcement…
Taken together, these bills show that Congress’s argument over PE in health care is no longer about whether the industry needs guardrails—both parties have members backing some form of federal response—but about which lever to pull. Given divided government and the difficulty of moving stand-alone health care bills, none of these proposals is likely to become law in the current Congress. But they matter anyway. They signal where CMS rulemaking, state legislatures, and negotiating positions in the next Congress are likely to head, and they force a question policy makers can no longer avoid: not whether PE belongs in health care, but on what terms.”
Congress Weighs How, Not Whether, To Rein In Private Equity In Health Care | Health Affairs
Insurers
Insurers announce provider credentialing collaboration: Last week, UnitedHealth Group subsidiary UnitedHealthcare, Cigna Group subsidiary Cigna Healthcare and Centene announced a partnership with third-party vendor CertifyOS to launch a national shared credentialing program. The partnership will also include other insurers, such as Blue Cross and Blue Shield carriers, CertifyOS CEO Anshul Rathi said.
“The initiative, which begins Nov. 1, is being billed as a way to save providers and insurers time and money across all lines of business. What once took months will now take eight to 10 days.” Rathi said.
CertifyOS https://www.certifyos.com/
Study: Plan switching among MA and dual eligibles: Key Takeaways: “We characterized the share of fully dually eligible beneficiaries (FDEs), partially dually eligible beneficiaries (PDEs), and non–dually eligible beneficiaries (NDEs) who made an MA-to-MA or MA-to-traditional Medicare (TM) switch each year.”
- Voluntary MA-to-MA switching rose from 2016 to 2022: 12.49%→22.49% (FDE), 17.36%→30.11% (PDE), and 9.92%→13.39% (NDE).
- MA-to-TM switching was rare in 2022, at 3.73% (FDE), 1.62% (PDE), and 0.91% (NDE), despite increasing MA churn overall.
Plan Switching Among Medicare Advantage Enrollees Dually Eligible for Medicaid | AJMC
Gallup on employee trust in organizational data management: “Trust in leaders’ use of employee data is closely connected to employee engagement, a measure of employees’ involvement and enthusiasm for the workplace. Forty percent of engaged employees have a great deal of trust in leaders to use employee data responsibly, compared with 13% of employees who are not engaged and just 4% of those who are actively disengaged…
Most employees are not highly concerned about how their organization collects and uses employee data. About one-third say they are very or somewhat concerned, while two-thirds are not too concerned or not concerned at all.
Concern is closely related to trust in leaders’ responsible use of employee data. Among employees who trust leaders a great deal, 13% are very or somewhat concerned about organizational data use. That figure rises to 30% among those who trust leaders somewhat, 46% among those who do not trust them much and 65% among those who do not trust them at all.
Concern also differs substantially by engagement, from 25% among engaged employees to 50% among actively disengaged employees.”
Employee Data Use: One in Five Trust Leaders a Great Deal
Population Health
Milbank on nurse practitioners in workforce: “Our recent Health Affairs article projects nurse practitioner (NP) workforce growth by building on a 2018 forecast that estimated an annual NP workforce growth of 6.8% through 2030. Given signals that growth was outpacing those projections, we applied similar methods to updated data. ..we found that the NP workforce will grow at nearly 11% annually from 2023 to 2030 — 10 times the projected growth rate of physicians (1.1%). Future shifts in reimbursement policy, federal caps on graduate education loans, and changes to scope-of-practice or immigration regulations could all influence these projections.
This NP workforce surge is largely driven by younger NPs. The number of NPs under age 40 grew 389% between 2010 and 2023, consistent with graduation data from the American Association of Colleges of Nursing (AACN) showing the number of NP graduates nearly doubled between 2014 and 2023. By 2023, new graduates constituted 11% of the total NP workforce, compared with just 2.3% for physicians. Along with the large influx of early-career NPs, we also saw increased workforce participation among mid-career NPs and steady participation among late-career NPs, the latter reflecting a low retirement rate. These trends reflect faster NP workforce growth relative to prior estimates.”
2026 Cancer Progress Report: Remarkable progress against cancer has led to a steady decline in cancer mortality and an increase in the number of individuals living longer, fuller lives after a cancer diagnosis. In the United States, the overall cancer mortality rate declined by 35% between 1991 and 2024, resulting in more than 4.8 million cancer deaths averted.
The steady decline in overall US cancer mortality is largely driven by decreased smoking rates and subsequent declines in lung cancer deaths, a trend that has accelerated in recent years due to advances in early detection and treatment. Declines in death rates for colorectal cancer (CRC) and female breast cancer over the past three decades have also played a key role in reducing the overall US cancer mortality rate.”
AACR CANCER PROGRESS REPORT 2026https://cancerprogressreport.aacr.org/wp-content/uploads/sites/2/2026/09/AACR_CPR_2026.pdf
CMS to prioritize outcomes in quality measurement: “The Centers for Medicare & Medicaid Services (CMS) is launching an initiative with a founding group of 37 state partners to focus on how quality is measured in Medicaid and the Children’s Health Insurance Program (CHIP). The effort will put health outcomes — not processes and paperwork — at the center of how success is defined. CMS and its partners will prioritize measures that demonstrate meaningful improvements in prevention, chronic disease management, and behavioral health…
CMS’ new effort, Investing in Health Outcomes, allows states to commit to a voluntary Medicaid Quality Pledge built around four principles:
- Prioritize health outcomes over process, with a focus on prevention, chronic disease management, and behavioral health.
- Streamline quality measure inventories to reduce burden without sacrificing accountability.
- Advance digital quality measurement, using near-real-time data instead of claims and chart abstraction where feasible.
- Align financial accountability with outcomes-oriented measures.
These four principles represent a north star vision for Medicaid quality, which will serve as the basis for future state implementation efforts.”
CMS Refocuses Medicaid Quality on Health Outcomes, Launches Innovative Partnership With 37 Stateshttps://www.cms.gov/newsroom/press-releases/cms-refocuses-medicaid-quality-health-outcomes-launches-innovative-partnership-37-states
Study: Low value services (LVS) variation in orthopeadics: “We examined geographic variation in 5 orthopedic LVSs across hospital referral regions (HRRs) and assessed whether regional rates were correlated across services in a cohort of veterans enrolled in traditional Medicare.
So-called low-value orthopedic procedures, such as vertebroplasty for patients with asymptomatic spinal fractures, may be performed on veterans at dramatically different rates from one place to another, analysis of Medicare data showed.
In some hospital referral regions, certain low-value procedures were performed on one-quarter of Medicare-enrolled veterans at rates above 72 per 100 persons, while the same procedures were done elsewhere on hardly anyone…
However, high rates of one low-value service did not often correlate with high rates of other procedures in the same region…”
Geographic Variation in Low-Value Orthopedic Services Among Medicare-Enrolled Veterans https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2854272
Prescription Drugs
Study: OOP Costs and Medication Adherence: “…little is known about the impact of OOP medical costs on adherence. This study examines the relationship between patient all-cause OOP medical costs and medication adherence. Results:
“OOP medical costs were associated with a significant decrease in medication adherence across all cohorts. A $1000 increase in patient all-cause OOP medical costs reduced the odds of adherence by 7.3% for statins, 7.4% for diabetes medications, and 11.6% for RASAs. The negative impact of OOP medical costs on adherence was greatest in the diabetes-RASA-statins cohort.
Interventions aimed at improving medication adherence should focus on patient OOP prescription drug costs but should also consider the potential impact on adherence of total patient OOP costs incurred for all medical services.”
The Association Between Patient Out-of-Pocket Medical Costs and Medication Adherence | AJMC
