In healthcare, when money runs out, scrutiny sets in
Tighter state budgets are triggering sharper contract enforcement and faster vendor decisions.
As a government health executive, I have long dealt with shifting political priorities and constrained budgets. But the pressure agencies face now feels different. It is not just widespread, it is both immediate and unrelenting. Agency leaders and policymakers are expected to show clear, measurable results while working with fewer resources and navigating heightened oversight.
Across the country, state healthcare agencies are being asked to deliver more with less. That means every dollar must contribute directly to patient care and public health outcomes. Efficiency is no longer aspirational. It is a requirement.
The tightening fiscal environment
Now, midway through 2025, states including Texas, Arizona and New York are closing their legislative sessions amid a variety of budget challenges.
Texas has approved a $337 billion two-year budget, allocating substantial funds to property tax relief and border security, while making cuts in areas including higher education salaries. Arizona faced down a $1.7 billion shortfall in its General Fund, leading to reduced investments in education, housing and infrastructure. In Arkansas, income tax revenues have declined by 15.5% compared to the previous year, prompting adjustments in fiscal forecasts.
At the federal level, the Department of Government Efficiency (DOGE), has gained access to systems at the Department of Health and Human Services, including payment and contracting systems for Medicare and Medicaid to identify waste and fraud.
In this climate of fiscal austerity, the imperative to identify and eliminate waste within government funded healthcare programs has never been more pressing. In many states, agencies are stepping up enforcement of service-level agreements (SLAs) and liquidated damages (LD) provisions. What was once a rarely used clause in a vendor contract is now a standard tool for ensuring performance. States are increasingly enforcing SLAs and LDs to hold vendors accountable in government healthcare programs. And although scrutiny is elevated, these measures are not necessarily new.
In Florida, the Agency for Health Care Administration imposed over $40 million (pdf) in LDs between 2018 and 2022 on Medicaid MCOs for issues like network adequacy and data submissions. Texas makes its sanctions public, reinforcing transparency in managed care enforcement. New York penalizes MCOs up to 1.5% of Medicaid premiums for failure to submit accurate encounter data, emphasizing the importance of data compliance in value-based care models.
Related: The end of fragmented care: Smarter government healthcare in lean times
Outsourcing as a strategic response
To manage costs and maintain service levels, states are increasingly outsourcing high-volume functions including information technology systems and modernization, omni channel contact centers and mailroom operations. This trend allows agencies to leverage specialized expertise and scalable resources, ensuring continuity of services amid budget constraints. Historical data indicates that during fiscal downturns, outsourcing becomes a viable strategy to handle increased workloads efficiently.
Related: Your call is important to us: How AI is quietly reshaping government help lines
A strategic checklist for outsourcing in lean times
Outsourcing can provide vital relief during budget constraints, but only when backed by smart planning. Here are four areas agencies should assess to ensure stability and accountability:
- Risk exposure
Identify where services are vulnerable, whether from staffing cuts, compliance gaps or vendor performance, and stress-test operations for likely disruptions. - Contract readiness
Work with legal and procurement teams to update scopes, KPIs and incentive models. Build in flexibility while reinforcing accountability. - Targeted tech upgrades
Focus on small-scale tools that deliver real value, including automation for high-volume tasks, dashboards for SLA tracking or digital tools that improve resident service. - Cross-functional buy-in
Align leadership, finance, IT and operations teams on goals and metrics before changes roll out. Success depends on coordinated execution.
With the right foundation, outsourcing becomes more than a cost-cutting tactic, it becomes a lever for resilience and better outcomes.
This is a defining moment for government health and human services programs and our country at large. The pressure is real, but so is the opportunity. Agencies that act now can strengthen their systems, protect access to care and build public trust.
Facing tough budget decisions?
Conduent helps agencies strengthen service delivery for residents without compromising compliance. Visit us online to optimize operations, control costs, and deliver better outcomes with the resources you have.