Crucial Conversation: Medicare & Medicaid at a Crossroads

Our most recent Crucial Conversations opened by framing Medicare and Medicaid as central fiscal drivers, with Medicare spending exceeding $1 trillion annually, Medicaid approaching $900 billion (federal and state combined), and the two together representing roughly a quarter of federal outlays; national health expenditures are projected to grow about 5–6% annually, and the Medicare Hospital Insurance trust fund faces projected insolvency within the next decade.

Against this backdrop, Darin Gordon, Operating Partner, Distinguished Executives Council, Cressey & Company, emphasized that innovation in healthcare is now intertwined with fiscal policy. The discussion then set context on Center for Medicare and Medicaid Innovation (CMMI): since 2010 it has launched more than 50 models under ACA Section 1115A, with expansion permitted when models reduce spending without reducing quality or improve quality without increasing spending; though models are not required to generate savings to quality for expansion rising deficit scrutiny is increasing pressure for near-term measurable savings, shaping model design, evaluation, and continuation.

The panel examined the evolving accountable care landscape, highlighting that over 13 million beneficiaries are currently aligned with accountable care arrangements through the Medicare Shared Savings Program (MSSP) and other ACO models. They also noted Centers for Medicare & Medicaid Services’s stated objective of transitioning 100% of Medicare beneficiaries into accountable care relationships by 2030. They highlighted that only about 48–49% of Medicare beneficiaries are in traditional fee-for-service today, alongside trends including more downside risk, fewer and larger models, clearer pathways to scale or termination, and heightened scrutiny of models that do not produce savings quickly. Medicare Advantage (MA) was contrasted with traditional Medicare demonstrations: MA now covers roughly 33–34 million beneficiaries (just over half of Medicare) and has broader benefit design authority and more flexibility to test innovations, while traditional Medicare models must operate within statutory guardrails tied to actuarial certification standards.

CJ Stimson, Executive Vice President of Population Health and Associate Professor, Department of Urology at Vanderbilt Health, argued the system is primarily solving a value problem rather than only a cost problem, describing care as wasteful, fragmented, and uncoordinated because it rewards “more care, not better care,” while acknowledging that current administrative signals indicate costs will not be ignored. Jim Donohue, Partner at ECG Management Consultants, agreed and added that “value” differs by stakeholder and setting because Medicare, Medicaid, MA, and commercial markets shift who bears risk, who defines value, and that the system lacks a strong forum for navigating the implicit value judgments. Stimson also noted difficulty “branding” value because it is hard to express consistently across employees, members, and patients, but grounded it in making healthcare less hard for patients while keeping it affordable for those who pay (government and employers).

On downside risk and longer models, Stimson said downside risk signals serious priorities and drives real behavior change, forcing providers to make hard operational changes beyond measurement or pilots, stressing the need to right size risk. Donahue described longer horizons as enabling investment because transformation requires upfront capital with longer payback, but warned it is “high risk, high reward” if a model is designed incorrectly. Both highlighted practical issues in cascading risk: upside opportunity is often pushed to frontline decision-makers more than downside, complicating incentives. Gordon added that early impulses toward full risk can exclude many providers, especially smaller practices that serve complex populations, and argued for phased approaches (e.g., thresholds and evolving exposure) so more providers can participate while building capability; he also cautioned that upside-only approaches can make eventual transition to downside more difficult.

The panel debated MA versus ACOs and whether newer ACO models are attempting to replicate MA-like flexibility. Stimson attributed MA’s different “rules” to the legislative and policy philosophy underlying MA, and pointed to the Innovation Center’s 10-year ACO model (named in the session) as importing MA-type flexibility while remaining subject to ACA cost/quality constraints. Stimson also cited a disparity raised in the discussion between reported ACO program savings since 2012 and estimates that MA costs more than fee-for-service in recent years, framing it as a major policy tension. Donohue, speaking from a provider-oriented perspective, said MA plans are businesses that must be economically viable, and he observed more visible investment in coding and steering to sites of care than in scalable care redesign.

He expressed hope however that models that avoid expressing hope that models that avoid “another mouth to feed” could leave more resources for care transformation. Gordon added that MA’s continued growth leaves a large remaining population outside accountable arrangements, reinforcing the need for viable models in traditional Medicare.

The conversation then shifted to Medicaid, dual eligibles, and rural markets. Donohue described structural barriers for dual-eligible innovation, where costs and intervention levers sit in different programs, complicating integration and incentives. Gordon emphasized that Medicaid innovation is harder because states must opt in, timing is misaligned with state legislative and budgeting cycles, and CMMI must engage states far upstream to build stakeholder support; he argued that fragmented Medicare/Medicaid incentives for duals remain a core design problem and noted interest in consolidating incentives into a single program as a more durable solution. Rural fragility was highlighted earlier in the set-up: more than 600 rural hospitals have closed since 2010, many operate on margins under 2%, and applying downside risk without destabilizing fragile markets can accelerate consolidation and threaten access.

In breakout report-outs, one group raised whether the time and systems needed to succeed in value-based arrangements inherently push smaller providers toward consolidation, citing a smaller behavioral health provider facing reimbursement cuts. Another group emphasized equity and access risks, including disparities between rural and urban markets and concerns that cost restrictions can shift complex care to less seasoned providers. Others focused on the tension between short-term incentives and long-term investment (including a “J-curve” in Medicaid value-based arrangements), the need to automate or simplify financial and workflow burdens on clinicians, and the danger that cost containment becomes synonymous with not delivering necessary care unless quality guardrails and patient navigation are built in. Additional themes included limited employee negotiation power in employer-sponsored coverage, restoring patient trust when care may be withheld, risk adjustment considerations, consumer education and engagement, and expanding alternative care models such as pharmacists practicing at the top of their license.

In closing, Donohue stated that leaders should watch execution and refinement of longer-horizon models and participation decisions, while Stimson shared that he is watching upcoming MA rate decisions as a signal of policy direction and warned that margin constraints make the system feel fragile, increasing the risk of unintended consequences when pushing downside risk.

A final audience question asked who should “own” downside risk given limited visibility and control across stakeholders; Stimson proposed a framework of needing signal, levers to act, and financial buffer capacity, arguing patients are least positioned today and providers often lack resilience, necessitating corridors, reinsurance, and careful risk titration. Gordon reinforced that accountability must align with actual control over decisions, noting prior experience in which entities may claim control until financial accountability is attached, making model design and matching capabilities to responsibilities essential.

About the Nashville Health Care Council
The Nashville Health Care Council strengthens and elevates Nashville as The Healthcare City. With a $68 billion economic impact and 333,000 jobs locally, Nashville’s healthcare ecosystem is a world-class healthcare hub. Founded in 1995, the Council serves as the common ground for the city’s vibrant healthcare cluster. The Council offers engagement opportunities where the industry’s most influential executives come together to exchange ideas, share solutions, build businesses and grow leaders.