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VBC MUSING
Hawai’i’s primary care financing conundrum
Like many managed care organizations, Hawai’i’s local BCBS plan, the Hawai’i Medical Service Association (HMSA), has faced financial challenges over the last few years, highlighted by its reported operating loss of $117.4 million in 2024.
To help address those issues, early in 2026, it proposed merging with the leading local health system, Hawai’i Pacific Health (HPH), into a joint entity known as One Health Hawai’i. The concept of value-based care was central to this merger to better manage healthcare costs, with the parties promoting global cap contracts that expanded beyond primary care into specialty care as a key component of the deal. HMSA and HPH have shared that they expect the payvidor model to save $2 billion in administrative costs. Here’s the general sketch of the proposed model:
The proposed structure generated significant pushback in early in the year, with concerns from local politicians over the opacity of the proposal. Other local health systems also raised concerns that this move was largely intended to steer commercially insured patients away from them and toward HPH.
This all came under even greater scrutiny when HMSA recently proposed shifting its primary care payment model away from a value-based monthly capitation model in favor of FFS payments to shore up its financials. This drew the ire of local practices, with some practices noting it could drive a $50k loss, which when combined with recent declines in Medicare reimbursements, would put practices at risk of closure. Some PCPs in the market have already moved to concierge models to make ends meet, getting paid more to manage a smaller population of patients who can afford concierge fees, seemingly worsening access problems in the market.
A decade ago, HMSA garnered national attention when it launched its primary care capitation model, known as the 3PC model, in 2016. It paid PCPs $20 to $40 per month per patient. If you go back to 2017, HMSA was already receiving pushback from local providers for moving to the VBC model in the first place, who argued that an average monthly reimbursement of $24 per patient was inadequate and would cause insurers to lose more money as PCPs visit urgent care and the ER more often. Turns out this was a fairly prescient critique, it seems.
In 2019, early results of 3PC were reported in JAMA — it was driving small improvements in quality and declines in PCP visits, although the long-term effects were unclear. Not exactly a ringing endorsement, but it was still early. In 2022, a survey was sent out to ~2,500 Hawai’i physicians about their satisfaction with 3PC. It received 250 responses, indicating that 77% of providers were unhappy with the payment transformation and that 60.6% reported a decrease in overall income.
Despite this historical negativity from providers towards the model, the tone of today's feedback is one of acquiescence — providers might not be in love with the model, but they’ve adapted to it, and it's now working after years of adjusting.
Perhaps that is related to HMSA’s decision to move back to FFS. HMSA noted that despite its view that it has invested more in primary care via these VBC payments, access to primary care has declined, while ER and urgent care utilization has climbed, creating an untenable financial situation. That outcome seems like the exact opposite of what the theory of a VBC model like this would have predicted. It is also exactly in line with the original critique of the 3P program.
The uncertainty over payment models has prompted the Hawai’i governor, himself a primary care provider, to get involved ahead of the proposed payvidor merger. HMSA has now agreed to push back the implementation of the VBC→FFS change by six months to January 2027, and is also including a 15% higher fee schedule for rural practices. The HMSA and HPH conversation remains ongoing, but regardless of the outcome there, the vibes do not seem to be trending in a positive direction here.
All in all, it makes for a fascinating, messy 10-year journey in implementing value-based care. Despite the 3PC model, HMSA reports rising emergency department and urgent care utilization, coinciding with declining access to primary care, even as investment in primary care increases. That isn’t what is supposed to happen in theory. It’s also hard to square why HMSA is moving forward with a payvidor merger based on VBC principles when it is simultaneously moving away from VBC payments for these reasons.
It’s worth noting in all this confusion that HMSA has reported difficulty tracking data to assess the impact on outcomes, and some articles suggest that Hawai’i wants more claims-based information on services rendered to patients so the state can receive appropriate federal funding. That dynamic is a fascinating one to keep an eye on, as it seems to suggest that federal funding cuts are a headwind for value-based care, while states prioritize tracking claims data to receive federal dollars.
Underlying all of this is a core issue we see in so many of these conversations these days: hard trade-offs in a state where healthcare funding doesn’t keep pace with healthcare costs, creating a chaotic environment where everyone is trying to secure their share of a healthcare dollar that isn’t enough to go around. It seems that both federal and state uncertainty are now adding to that, creating some odd decision-making patterns for local leaders struggling to adjust to an evolving market.
Speaking of VBC, Ursa Health is the analytics company trusted by VBC providers and enablers across primary and specialty care including Cityblock, Gentiva, Wellvana, Atlas Oncology Partners, and more.
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CHART OF THE WEEK
PwC expects another 9% cost increase in 2027
PwC issued a new report looking at annual commercial medical cost trend growth based on its conversations with health plan actuaries, with the results highlighted below:
If it holds, it will be tied for the highest cost trend increase since 2008. PwC also suggests that spending will increase to $9 trillion by 2035.
It highlights three key cost drivers: pharmaceutical innovation, access to mental health, and clinical documentation. I expect we’ll be talking a lot more about alternative plan designs for employers and ICHRA if these results continue to persist, which also bleeds into the next section…
A CONVO TO PONDER
Is 2032 setting up as a healthcare election?
On Monday’s Grand Roundup, we chatted with one of our nerd idols, Ezekiel Emanuel. The conversation didn’t disappoint, as Zeke shared with us that he is working on a new policy proposal for US healthcare. As we discussed, it feels like we’re in the early innings of seeing a major piece of healthcare legislation emerge in the coming years, potentially as a major part of the 2032 election cycle:
Zeke shared some of the key elements of his thinking, most notably (at least in my opinion) that we move towards a single risk pool for government-sponsored insurance programs, with employer-sponsored insurance as a separate risk pool. This mirrors some of what we’ve heard from other folks, like Mark Bertolini, when they talk conceptually about what the future of insurance coverage could look like. It’s a key part of the “bull” case we hear for ICHRA as well (as an avenue for some employers to partake in the government risk pool.
Zeke provided some very helpful framing for this thought bubble — policy discussions like these are long conversations that unfold over multiple years, but there seems to be enough frustration with the current state of the healthcare system to think that healthcare reform will be a key piece of the 2032 presidential election. Obviously, there are widespread impacts from how this plays out, and I think it’s worth starting to think about that dynamic now and how it may shift opportunities in the healthcare landscape.
Key Trends to Keep an Eye On
News items on hot topics we’re tracking in HTN
Abridge makes its case as the trusted AI partner for healthcare
On Thursday morning, I was having a conversation with an investor about how quickly the AI platform landscape is evolving and how hard that makes it to understand where the market is going. It’s wild how quickly these companies are evolving. And then I walked into Abridge’s product announcement on Thursday afternoon, where it made the case that it is not a scribe company but rather the “clinical intelligence layer” for healthcare, bridging health systems, payers, and life sciences. The product demo at the beginning of the session was incredibly well done, tangibly highlighting what a future state of the patient/provider experience could look like and the role Abridge can play. The two splashy headlines were: 1. Abridge received a strategic investment from Eli Lilly as it begins to help navigate patients into clinical trials, and 2. Abridge is building a foundation model with Nvidia, which it highlighted is outperforming the general AI models significantly. While there remain lots of questions about how this space evolves, I think the bull case for Abridge becomes clear in a session like this: it wins as the trusted AI partner for health systems, becoming the default user experience layer on top of Epic. Whether or not Abridge or someone else gets there remains to be seen, of course, but the opportunity is there.The managed care market tide may be coming back in
A number of Medicare Advantage managed care companies performed quite well this week, underscoring the general sense that we’re moving past the
“100-year storm” that has hit managed care over the past few years as payers get their arms around market dynamics. Clover and Alignment presented good examples of the optimism this week:Clover was up 20% this week, after filing an 8-K, which CMS notified it to refile an alternate bid for its PPO product at 4.5 Stars, after the recent court decision in favor of Clover. Assuming the court decision stands, this is a major win for Clover (and potentially industry-altering for the broader Stars ecosystem).
Alignment Healthcare was up ~30% this week, providing an update at the Goldman Sachs conference that the utilization environment is “benign” and medical expenses are tracking nicely. This feels like an early peek at what Q2 earnings season might look like, and if so, points to continued outperformance for MA stocks.
DC reminds us that the only thing it hates more than fraud is prior auths
CMMI’s WISeR model, which applies AI-driven prior authorizations to a small number of high-risk areas for fraud, waste, and abuse, was dealt a key blow when the House Appropriations Committee voted unanimously to bar CMS from spending funds on the program moving forward. This move comes after WISeR has faced significant political pushback since the model's launch. Prior auths remain a political landmine — even in a climate where our tolerance for fraud is virtually zero and seemingly every AI startup pitch is about eliminating waste in American healthcare, DC politicians reveal their preference for letting fraud slide rather than implementing prior auths to prevent it. On the one hand, this outcome completely befuddles me; on the other hand, it was probably predictable and serves as a very telling microcosm of why American healthcare is the way it is.
Other Top Headlines
A rundown of headlines to be aware of
Hinge Health hosted an investor day, highlighting the momentum the MSK provider is seeing as it expects to be a Rule of ~60 company for the foreseeable future, driven by 20%+ annual revenue growth while reaching operating margins near 35%. It’s a really clean story around how Hinge is winning in the market via both its product offering and its go-to-market playbook, which is helping it expand efficiently from employers to all payer types. It is also expanding its offerings to manage surgical costs via HingeSelect, its effort to connect its virtual model to a physical MSK care delivery network, which will be a key element of the narrative to watch moving forward. This slide below from the session, highlighting Hinge’s projections around IPO versus today, provides a good general sense of the momentum Hinge is seeing. Hinge stock is now up 62% since its IPO.
The Ensign Group, a publicly traded operator of SNFs, faced a short report from Hunterbrook this week, driving its stock down 8% on the news. The report cited concerns that Ensign was gaming quality measure reporting and buying failing SNFs and driving profitability improvements via worse staffing ratios. The report noted that Hunterbrook was short Ensign and “comparable securities,” seemingly implying that Hunterbrook views this as a broader market issue.
GoHealth filed for Chapter 11, issuing a rather optimistic press release noting that this will strengthen its position ahead of the 2026 AEP. It is entering the process with a prepackaged plan supported by 100% of its lenders, which should enable it to emerge quickly. GoHealth went public in 2020 with a market cap of ~$6.7 billion, but has struggled to manage its debt burden as revenue has plummeted.
RFK and Dr. Oz took to X this week to say they’re getting serious about enforcing price transparency requirements and expect hospitals to come into compliance. The AP noted that over 500 hospitals received warning letters from CMS; it will be interesting to see what the actual consequences are here.
CVS MinuteClinic and Mass General Brigham received a vote of support from the Massachusetts Health Policy Commission to move forward with the partnership, despite the potential increased costs from the tie-up.
Amazon One Medical and Montefiore announced an expansion of their partnership in the NYC area, opening One Medical’s first co-located facility with one of its health system partners at a Montefiore facility in Westchester County.
Oula and Novant announced an interesting partnership in the maternity market, with Oula opening a clinic in Charlotte and plans to expand further in the Southeast.
Funding Announcements
Highlighting the most interesting funding rounds from the week
Stepful, an AI-enabled allied health profession training program, raised $55 million. Oak HC/FT led the round. Stepful noted that 35+ health systems are already using it.
What I’m Reading
A smattering of other interesting pieces from around the web
A new article in Nature has been making the rounds, suggesting that frontier LLMs outperformed healthcare-specific clinical AI tools, namely OpenEvidence and UpToDate. This prompted an OpenEvidence response on social media last night, questioning the validity of the results. It is interesting to see this paper at the same time we’re seeing Mayo / Microsoft and Abridge / Nvidia partner on healthcare-specific foundation models, which would seem to point to the opposite conclusion here. Logically, it makes more sense to me that healthcare-specific models should perform better over time. Abridge shared on Thursday that as it has moved to a healthcare-specific model with Nvidia, its CDI has improved from 69% to 85%, essentially putting it on par with a human coder. Either way, the conflicting data points here highlight how confusing/messy this space is going to get ahead, and why I think it’s actually customer trust that wins here, rather than papers demonstrating technological superiority.
The Trilliant Health crew shared an analysis of GLP-1s, looking at how many GLP-1 patients are diagnosed with emerging indications for GLP-1s, including sleep apnea, depression, and CKD, among others. It raises an important question about the financial challenge of paying for GLP-1s at current prices as more indications emerge. Coupling this with the PwC report above paints a challenging financial picture for the healthcare system ahead.
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