A System Wide Diagnosis For America’s $5 Trillion Healthcare Problem

Posted by Rita Numerof, Contributor | 4 hours ago | /healthcare, /innovation, Healthcare, Innovation, standard | Views: 7


From the passage of the One Big Beautiful Bill to CMS’s newly announced strategic direction, from executive orders on pharmaceutical pricing to ongoing scrutiny of PBMs, Medicaid and the 340B program, there’s no shortage of movement across the healthcare landscape. At first glance, these efforts may seem disconnected. Actually, they reflect a growing recognition of a system-wide problem: the incentives that govern our healthcare system are broken. Fixing them requires more than incremental change.

If we’re serious about delivering better health outcomes at lower cost, we must embrace a new business model, one that aligns incentives, promotes transparency and holds every stakeholder accountable for the value it provides.

Each segment of the healthcare ecosystem–payers, providers, PBMs and pharmaceutical companies–is operating from its own silo, maximizing its share of the revenue pie without regard to outcomes or long-term sustainability. That siloed behavior is a fundamental flaw in a sector that now costs the United States $4.9 trillion annually.

The result is a system that punishes reform and rewards inefficiency. Hospitals expand expensive outpatient facilities to maintain margins. Insurers make money by denying claims. PBMs chase rebates that inflate drug costs. And pharmaceutical manufacturers operate in a reimbursement landscape that discourages the use of cheaper generic and biosimilar drugs. Even 340B, originally intended to serve vulnerable populations, has become a revenue tool divorced from its original purpose.

We can’t keep patching a system that was never designed to deliver value. Now is the time to step back and evaluate how all the pieces interact and redesign the model accordingly.

The healthcare delivery system revolves around a business model that puts volume over outcomes. That underlying structure remains largely intact despite numerous tweaks and new initiatives over the years.

CMS’s new strategy emphasizes accountability and site-neutral payment, both necessary steps toward rationalizing where and how care is delivered. But change cannot stop at policy guidance. Provider organizations must take the next step by investing in models that focus on results, not just compliance.

That means rethinking how care is delivered, particularly in rural and underserved areas. As I wrote in a May column, rural hospitals cannot survive under today’s centralized, hospital-centric model. We need a distributed, tech-enabled system that integrates clinics, pharmacies and telemedicine in a tiered structure.

It also means providers must be held to evidence-based standards and be willing to compete based on performance. The government’s job is to set expectations, not to micromanage care.

Payers likewise need a reset. Trust in insurers is at historic lows. And it’s more than a PR problem; it’s a structural one. The traditional payer model is built on controlling costs by restricting access. Prior authorization, step therapy and opaque coverage decisions have become tools of denial rather than value management.

As I noted in a February column, insurers need to move from gatekeepers to health partners. That shift requires transparency, consistent communication and a willingness to align financial incentives with long-term health outcomes. Some companies have taken early steps, like reducing prior authorization for high-performing providers, but these efforts remain too narrow.

Utilization management should focus resources where scrutiny is needed, instead of imposing blanket barriers. When done right, insurers can reward evidence-based, cost-effective care while simplifying the patient experience. Ultimately, payers that adopt a value-based model will be most likely to remain profitable. Those that cling to denial-based cost control will lose both trust and relevance.

The dysfunction in drug pricing is no secret. PBMs, originally intended to negotiate better prices, now profit from opaque rebate structures that reward high list prices and block competition from lower-cost alternatives. As I detailed in a recent column, this model harms consumers, distorts prescribing behavior and inflates costs without improving access or outcomes.

It’s no coincidence that generics, despite comprising nearly 90% of prescriptions, account for only a small fraction of total drug spending. The system must be redesigned to reward clinical and economic value instead of volume. That means eliminating rebate-driven incentives, mandating transparency and tying formulary placement to outcomes rather than backroom deals.

PBM reform must be part of a broader effort to move the entire pharmaceutical supply chain towards value-based principles. This includes making sure manufacturers are reimbursed appropriately for true innovation, while allowing low-cost generics and biosimilars to compete on fair terms.

Lastly, Medicare, Medicaid and programs like 340B are essential to supporting vulnerable populations, but they can’t be immune from scrutiny. We spend more than enough on public healthcare. The problem is how that money is used.

As I argued in July, Medicaid in particular has become a proxy for universal coverage without addressing the underlying inefficiencies that drive cost. Meanwhile, 340B, originally a limited safety-net program, has ballooned into a multi-billion-dollar revenue stream for hospitals, often with little connection to actual indigent care.

CMS’s new strategic direction is a promising departure from past approaches. By linking payment models to cost and outcomes, it opens the door to meaningful change. But success will require the agency to stay focused on results. Accountability must be built into every public dollar spent, from reimbursement to subsidies to drug pricing. Without it, reform is impossible.

In the American healthcare ecosystem, each stakeholder is doing what the current model rewards, to the detriment of patients and taxpayers. Funding patches and other temporary solutions can’t fix it. We need a fundamentally different business model, one grounded in outcomes, transparency and competition.

Each player must change the way they operate and be willing to take responsibility for creating and communicating value. With a better business model, we can have better results for patients, taxpayers and companies. The path forward isn’t easy. But it is clear.



Forbes

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