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State Medicaid programs are heading toward a fiscal wall. Nationwide, state leaders are grappling with severely strapped budgets, rising healthcare costs and shrinking revenues. To make matters worse, the federal government has begun pulling back match funding and aggressively deferring payments, holding back over $1 billion in federal Medicaid transfers to states while demanding stricter documentation. With federal dollars tightening, states are bracing for severe budget cuts in 2027.
As a physician-executive in Oregon, I have watched this fiscal pressure unfold.
In recent budget cycles, Oregon made a massive, commendable commitment to expand access, allocating $1.6 billion to behavioral health within the Oregon Health Authority. Major regional health plans stepped up to meet the surge, noting that public demand "blew the doors off" the funding system. Today, behavioral health consumes a dominant share of Oregon's Medicaid expenditures, with standard one-hour psychotherapy sessions ranking among the state's most frequently billed medical procedures.
Yet, despite this historic investment, Oregon's healthcare safety net is now reaching a tipping point as state leaders scramble to address a $421 million Medicaid budget shortfall.
Oregon's struggle previews what every state is facing: behavioral healthcare is a vital, fast-growing cost driver, but without aggressive oversight, these rapidly expanding programs become ripe for waste, exploitation and outright fraud.
Consider what is happening in Medicaid-funded autism therapy. Over the past decade, states expanded coverage for Applied Behavior Analysis therapy, an essential, evidence-backed intervention for children with Autism Spectrum Disorder. Because coverage expanded far faster than state oversight guardrails, opportunistic bad actors rushed in to exploit the system.
In Indiana, state Medicaid rules previously paid clinics a flat 40 percent of whatever price the provider billed, rather than setting a fixed rate. One provider exploited this loophole by hiking its listed price to $1,600 per hour, automatically triggering a $640-per-hour taxpayer payout for routine care delivered by entry-level technicians making under $20 an hour.
That single clinic collected $29 million in one year to treat just 84 children, averaging an astronomical $340,000 per patient. For comparison, this far surpasses the annual Medicaid cost of treating a lung cancer patient. It is outrageous.
Elsewhere, federal inspector general audits across four states found that providers billed Medicaid for children while they slept, watched movies, played on tablets, or went down water slides.
In Colorado, one provider billed for an impossible 151 hours of therapy for a single child in a single month.
In Minnesota, autism therapy spending skyrocketed by 50,000 percent in six years, driven in large part by fraudulent entities now facing federal indictments for tens of millions in phantom billing.
When a public program is preyed upon by bad actors, the tragedy is immediate. Every dollar misappropriated by a fraudulent operator is a dollar taken directly from an individual struggling with depression, addiction or severe mental illness.
To protect public funds and preserve care, state and federal leaders must aggressively root out waste, fraud and abuse, and immediately pivot toward evidence-based care and clinical accountability.
The roadmap for this transition is already taking shape. The Department of Health and Human Services recently secured a landmark national pledge signed by major insurers, medical societies and health systems, committing the healthcare industry to advance evidence-based diagnoses, track measurable outcomes and enforce strict clinical standards in behavioral health.
Richard Popiel is a recognized healthcare delivery expert. He wrote this for InsideSources.com.