The DOGE Czar’s Plan to Loot Medicare

Four and a half years ago, Department of Government Efficiency co-czar Brad Smith stumbled on a counterintuitive revelation: The most effective way to slash federal health care spending involved drastically raising Medicare and Medicaid reimbursement rates for hospital care.

At the time, Smith was running something called the Center for Medicare and Medicaid Innovation, an obscure off-the-books laboratory created by the Affordable Care Act for experimenting with “alternative payment models”—neoliberal for “larger sums with less accountability.” In its ten years of operation, CMMI had spent more than $10 billion testing various methods of tweaking reimbursement standards in (theoretical) hopes of improving health care outcomes for lower costs. They had worked with UnitedHealth, Aetna, Molina, and other insurers in 13 states to reward primary care physicians who administered more preventative care and collected more specific data on their patients. They’d worked with more than 100 hospitals and mega-practices to bundle payments for complex patients, in hopes of lowering the ultimate cost of treating chronic illnesses. CMMI had spent some $10 billion testing out dozens more schemes, nearly all of which subscribed to an ideology called “value-based care,” in which the central flaw of American health care is “volume-based” fee-for-service compensation schemes that incentivize “overutilization” of the health care system, and so the natural “solution” involves the government paying health care providers and various intermediaries to take steps designed to decrease said “utilization.”

Value-based care grew especially important during the Obama years, because the ACA mandated that insurance companies spend a minimum of 85 percent of patients’ premium dollars on “care,” wiping out profit drivers like the mandatory insurance policies UnitedHealth sold to college students that often boasted medical loss ratios as low as 10 percent. Insurers in turn began to focus their energies around their highest-revenue patients: seniors with a lot of complex health issues who were enrolled in the private Medicare offerings known as Medicare Advantage. They would soon buy up the medical practices, home health agencies, and surgery centers that treated these patients, in a move that enabled them to at once “align incentives” (i.e., control more of the medical decisions they were paying for), park the excess profit margins they weren’t allowed to report on their insurance sides, and find more Medicare patients to convert to MA plans.

Brad Smith was a value-based guy. He’d gotten in on the ground floor of the craze during the first term of the Obama administration, while helming the education reform foundation of former Senate Majority Leader Bill Frist (R-TN), whose billionaire brother Tom Frist founded the hospital behemoth HCA, whose long history of unnecessary overtreatment of Medicare patients perhaps ironically gave birth to the value-based revolution. Together, the two had built a home health care business with more than 650 employees that they had just sold for $440 million to health insurer Anthem.

Smith had been working as the chief operating officer of Anthem’s value-based business when he’d been tapped for the CMMI gig by one Adam Boehler, another value-based evangelist who often talked about how he wanted to “blow up” the “volume-based” ancien régime. Still, doctors, especially the types of doctors who complained about Obamacare and voted for Trump, hated value-based care, because it required spending way too much money on software and far more hours doing paperwork than the incentive payments could justify. Smith’s boss, Centers for Medicare & Medicaid Services (CMS) head Seema Verma, was value-based skeptical, and wanted to know whether CMMI’s programs were actually working as “intended.” So Smith ordered his staff to conduct a financial analysis of all 54 programs CMMI had bankrolled to test out the new approach to health care.Smith and a 24-year-old deputy from his Nashville venture capital firm are said to be building the vision of what will replace everything that DOGE has eradicated.

The verdict was unambiguous: Value-based care was a bust. For two of its biggest programs, CMMI had spent $7 billion more than it had saved, just from compensating all the various intermediaries that had administered the trials. The reasons for this were twofold, say two individuals who worked on value-based care policy for the Obama administration: One, CMMI and CMS invariably outsourced the management of the trials to “venture capital or private equity firms or nonprofits where the CEO is making millions of dollars” that typically alienated and underpaid the clinicians they were ostensibly seeking to incentivize; and two, most of the policymakers involved were too preoccupied with “how they were going to monetize their expertise” to design programs that might actually save CMS money.

Lending credibility to that analysis, the shining star of the small agency’s roster of reform measures was the “Maryland All-Payer Model,” a state-operated system originally devised in the early 1970s by which an independent commission fixed flat hospital prices for the state that every payer—from Blue Cross to Medicaid—is expected to pay. The Maryland Model, which was modified in 2014 and discarded in favor of a more complex, almost European-style “global budgeting” system in 2018, is a rabbit hole with its own unique advantages and disadvantages, but it is decisively not value-based care, and sources familiar with CMMI said its affiliation with the initiative was something of a fluke, especially given that Medicare conclusively pays far higher rates for medical care in Maryland than anywhere else (though yearly per capita expenditures are higher in Florida). And yet the Maryland system saved CMS $1 billion over just five years tracked by CMMI, likely in large part by lacking the administrative middlemen and arbitrageurs in the system and the waste and fraud that tend to accompany them.

This analysis might have made for an embarrassing news cycle for CMMI and all the affiliated grifters who had cashed in on the value-based boom, like Smith’s predecessor Boehler, a college roommate of Jared Kushner’s who would soon sell his home health agency for $3.5 billion to UnitedHealth, or CMMI founding director Patrick Conway, who’d left the agency a few years earlier to become the richly remunerated CEO of Blue Cross in North Carolina, where he had rolled out a mandatory value-based care regime in conjunction with the CMMI-friendly healthtech Aledade, and recently been charged with driving under the influence after crashing his car with his two elementary school–aged daughters inside.

Instead, they were all saved by the pandemic, during which Smith was detailed to the Trump inner circle for assistance with various pandemic response efforts, and ended up becoming close to Kushner himself, according to The New York Times. By the time he returned to CMMI to write upthe results of his staff’s analysis in The New England Journal of Medicine, CMS had rained down hundreds of billions of bailout dollars on the health care system, and no one even bothered making hay of the news that the agency had wasted $10 billion testing out cost-cutting ideas that didn’t pan out.

In one of his last acts at the agency, Smith introduced a new program called the Geographic Direct Contracting Model, or “Geo,” by which all remaining traditional Medicare beneficiaries were slated to be automatically assigned on the basis of their residence to a value-based care organization to which CMS would pay a flat annual fee to assume their health care “risk.” Geo contractors would be virtually unregulated, though they would be held to a medical loss ratio minimum requiring them to spend at least 60 percent of their revenues on care. The Biden administration scrapped Geo in early 2021, but kept a slightly less radical Smith plan with a similar goal of stealth total privatization after renaming it ACO REACH, for “Accountable Care Organization Realizing Equity, Access, and Community Health.”

Smith moved back to Nashville and took the helm at two new value-based care upstarts, a Medicaid home health intermediary called CareBridge and a rural Medicare Advantage play called Main Street Health. In late October, he sold the former to Elevance, the new name of the insurer to whom he’d sold his first home health company, Aspire. This time, the head count was lower—fewer than 500 employees—but the price tag was much, much bigger, at $2.7 billion.

A putative class action lawsuit filed last month in Florida by a “clinical assessor” for CareBridge alleges that she and other low-level employees were required to work 45 hours a week for only 40 hours’ pay, and dozens of negative reviews on job sites suggest assessors work as many as 20 extra hours without pay. Worse, employees say the job mostly consists of “managers … demanding that you drastically cut caregiver hours for people who desperately need someone in their home.”

“This is a greed-driven company that is preying on our nation’s most vulnerable and poorest people. If you can sleep at night and live with yourself while harming the poor and disabled during the day, this job is for you,” reads one review on Glassdoor. “If CareBridge is the future of healthcare then we heading to a sad state of affairs,” reads another.

Just months after the CareBridge deal, Smith was reported to be hanging around Mar-a-Lago with Steve Davis, the longtime Elon Musk loyalist who ran the hostile takeover of Twitter. Underneath Musk and Vivek Ramaswamy, who would soon depart, Smith and Davis are said to be the real operating leaders of DOGE, with the latter playing the bad cop masterminding the scorched-earth shutdowns and cuts, while Smith and a 24-year-old deputy from his Nashville venture capital  firm are said to be building the vision of what will replace everything that DOGE has eradicated, according to a source familiar with his recruiting efforts. CMMI, a highly unusual agency with a ten-year, self-renewing budget outside the appropriations process and an extraordinary ability to grant waivers from the statutes governing CMS, including fraud and kickback statutes, is said to be a model for how Musk wants DOGE to reimagine the federal government.

As further evidence of that, Smith’s predecessor as CMMI director, Boehler, whose brand-new venture capital firm Rubicon Founders last spring raised more than a billion dollars for its latest fund and also groomed Trump’s newest CMMI director, 33 year-old Abe Sutton, is currently working as Trump’s special presidential envoy for hostage affairs. Boehler got his start in the health care business as a medical debt collector, first at a firm called MedeFinance and then with a shadowy empire called Accretive, which was banned from the state of Minnesota in 2012 after an employee left a laptop in a taxi that revealed the company had essentially seized the operations of a Minneapolis nonprofit hospital system and was using confidential health records, collected under the guise of value-based care modeling, to manipulate patients into coughing up large cash payments for hospital services to “embedded” collection agents, sometimes while under the influence of powerful anesthesia.

The obscure agency Boehler launched after leaving CMMI, the U.S. International Development Finance Corporation—best known for its failures to do much of anything with its nine-figure budget for bolstering supply chains during the pandemic after an ill-fated $765 million loan it made to Eastman Kodak was shelved after revelations of insider trading—was reported on Wednesday to be DOGE’s designated “replacement” for the U.S. Agency for International Development, under the leadership of venture capitalist Joe Lonsdale and Ben Black. The latter is the son of disgraced billionaire Leon Black, an accused sexual predator who was forced to leave the private equity juggernaut after revelations that he had wired nearly $200 million to Jeffrey Epstein, whom he considered his best friend, in the years before Epstein’s death. A January Substack post by Lonsdale and Black on their plans for “disrupting” the $43 billion USAID budget is light on specifics but advocates defunding nongovernmental organizations to pursue an “investment-driven model focused on strategic project finance initiatives.”

Foreign aid, of course, is a rounding error compared to the multitrillion-dollar health care budget, in which the Prospect estimates a team of forensic accountants might easily find as much as a half-trillion dollars in waste annually, roughly $100 billion of that in Medicare Advantage overpayments alone. (Obama had the chance to clamp down on the obvious MA grift, but abruptly reversed course in 2014.) In a 2021 Zoom panel on the tenth anniversary of the agency and the future of “value-based care” moderated by ubiquitous value-based care venture capitalist Ann Lamont, Smith, Boehler, and CMMI founder Conway, now the CEO of UnitedHealth’s OptumRx division, held forth almost giddily on the rosy “future of value-based care,” with Boehler jokingly describing Conway as the agency’s “Adam Neumann,” the self-aggrandizing WeWork founder who burned some $20 billion in venture capital funding. At one point, Smith brought up his analysis, commending the agency for making “value-based care” such an inescapable industry buzzword but acknowledging that only five of the group’s 54 experiments had delivered any cost savings whatsoever. Lamont quickly changed the subject. “Imagine in a few years, we receive 90 percent of payments in value-based commitments. How do we get there?”

This probably wasn’t how any of them imagined it going down, but with Smith running the rogue operation that is apparently running the country, it seems likely we’ll get there.