If you have not “played” with the simulation model, I highly recommend doing so using the link below.

VBC Financial Simulation Model Link

In this newsletter, I will look at why VBC is the perfect vehicle for Private Equity (PE) investment, i.e., ACOs are high risk, but the return on investment (ROI) can easily be 1000%.

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

If you read my previous articles or are familiar with the simulation model, feel free to jump to Step 4 below.

The Simulation Model

There are 6 steps in the model. Each step has several variables that the user can adjust. I have made baseline assumptions for each variable, including worst-case, realistic, and best-case scenarios. In addition, many variables include tooltips that explain their meaning.

For this article/demonstration, I will follow the realistic scenario in the VBC Simulation Model.

Steps 1-3

Step 1: Setup: Allows the user to choose the ACO size and baseline contract terms.

Step 2: Opportunity (Pot of Gold): Shows the back-of-the-envelope ACO savings opportunities based on the assumptions in Step 1.

Step 3: Reality Sets In: Simulates the costs of setting up the ACO. This step also includes the PCP’s financial burden from the added administrative tasks.

By the end of Step 3, our newly formed ACO needs approximately $3.1 million for the first 18 months to function. In addition, individual PCPs have lost the opportunity to earn approx $86K in these 18 months.

Step 4: The Funding Decision

With $3.1M needed to operate the ACO, the next question is: who provides the capital? In this step, we decide which funder to choose from:

1. Bank Loan

2. Hospital partner

3. Payor Advance (as pmpm)

4. Private Equity

When we choose the PE option, we get the screen below.

Now, right off the bat, when a PE firm invests in an ACO, they want to make sure they not only get their money back but also achieve outsized returns before the ACO fails. To do this, PE companies have several levers they can pull, such as:

• Taking a piece of the gain share.

• Charging management fees.

• Board control: This allows PE firms to decide how the investment will be used. This manifests in several ways:

  • More investment to ensure higher RAF/HCC scores, thereby increasing the benchmark.

  • Higher administrative burden on PCPs to collect and submit data.

  • Restructuring the ACO so that “high-performing” PCPs are in higher risk contracts, such as ACO REACH, while “lower-performing” PCPs are in lower risk contracts, such as MSSP.

• Rolling up independent medical practices into a Clinically Integrated Network to negotiate higher fee-for-service (FFS) commercial insurance rates with payors, and skim a percentage off the top.

This transfer of health insurance dollars from clinical care to PE companies is shown below.

With this background, let us look at what happens if the ACO succeeds or fails.

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Step 5: Year 1 Outcomes

Let us first look at what happens if the ACO succeeds in hitting its target by decreasing TCOC by 5% and saving $40M.

If you follow the money in the calculation above, you will notice 3 themes:

• The ACO saves enough money to fund itself for the next year

• PE companies take 50% gain share after ACO operating expenses and reserves

• Independent PCPs receive a hefty $80k gain share

At first glance, this looks like a win-win-win situation. However, if we look closely, we will see the problems:

• PE fronted approx $3.1M, and already in Year 1, they made a profit as they received $8M in gain share. This means that effectively, every year onwards, the ACO becomes a profit-extracting machine for PE companies — not just from gain share, but from all the levers I mentioned above.

• The independent PCPs, despite receiving $80k in gain share, still lost money due to administrative burden and opportunity cost.

Therefore, even when the ACO succeeds, independent PCPs lose money and eventually consolidate.

Now, let us look at what happens if the ACO fails.

If the ACO fails, it appears at first glance that the PE company lost money. But remember, the PE company spread its risk across multiple ACOs. Often, they need only a few ACOs to succeed and make a profit.

Furthermore, if an ACO fails, PE companies have other levers to recoup their losses:

• Often, the “money invested” was debt taken in the name of the ACO. Therefore, if the ACO fails, the PE company can declare bankruptcy and walk away from the debt.

  • An aggressive form of this technique is called Dividend recapitalization, in which PE takes on a large loan secured by projected future revenue. This cash loan is used to pay a “special dividend” to the PE company, allowing it to recoup its investment even before the performance period starts! The ACO is saddled with debt and interest payments, making it almost impossible to succeed.

• Consolidate failing independent PCP practices into larger employed practices and pivot to creating regional monopolies to negotiate higher FFS rates with payors.

• Consolidate and sell off failing independent PCP practices to the highest bidder.

• Sale-leaseback transactions force doctors to sell the real estate clinics that they may own to Real Estate Investment Trusts (REITs) and then lease them back, saddling doctors with high rent payments.

Step 6: Multi-Year Projections

So what happens if the ACO continues to succeed for several years? Let us look at the screenshot below.

Eventually, most ACOs will fail. In the screenshot above, you can see that PCPs lost an average of $37k/year.

Now, let’s add up the PE gain share for the 6 years in which the ACO succeeded.

Total PE gain share = $27.8M.

That is almost 900% ROI in 6 years. Once you account for the other levers of profit extraction I mentioned above, the ROI is close to 1000%. This is why PE is so interested in funding ACOs.

Final thoughts

Just like primary care, most ACOs are loss leaders in the larger healthcare enterprise due to the large capital required to operate ACOs. The only difference between a small PCP practice and an ACO is scale!

And to understand the loss leader model, you have to follow the money. Therefore, whoever is funding the ACO is more interested in downstream profit extraction, which, to be fair, is a function of capitalism.

But I am not here to judge capitalism. I think capitalism is one of the best economic systems. However, contrary to the prevailing narrative that VBC saves money, the perverse incentives created by this payment model ultimately destroy independent practices, which are cheaper than large, consolidated health systems.

You can play with the model here.

VBC Financial Simulation Model Link

I am working on the next version of the model and would love to hear your feedback.

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In this episode, I discuss why Private Equity (PE) is so interested in funding Accountable Care Organizations (ACOs) participating in Value-Based Care (VBC) contracts. I break down the math to show why PE always wins at the expense of independent physicians.

VBC Financial Simulation Model Link

Chapter Markers

• 00:00 - Intro

• 00:33 - Step 1 to 3: Setup, Pot of Gold & Infrastructure

• 03:11 - Step 4: Private Equity as Funder

• 07:08 - Step 5: Outcomes

• 10:51 - Step 6: Multi-Year Projections

• 12:48 - Final Thoughts

Link to Written Article

Link to Video

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Please see the Disclaimer on the PCPLens "About" Page.

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ACCESS: A Fix For Digital Health Companies, Not Medicare’s Costliest Patients

This article was a collaboration between:

• Morish Shah, MS in Precision Health student at the University of Chicago and co-founder and executive director of Project UNITY.

• Graham Walker, MD, emergency medicine physician in San Francisco and co-founder of MDCalc and Offcall.

• Yours truly, Sudeep Bansal, MD, MS

With that out of the way, let’s get back to the main topic of this newsletter.

In the last two newsletters, I used my Value-Based Care (VBC) simulation model to discuss outcomes when an independent ACO (with independent primary care physicians) self-funds its operations or partners with a health system.

If you have not “played” with the simulation model, I highly recommend doing so using the link below.

VBC Financial Simulation Model Link

In this newsletter, I will look at the repercussions of the ACO partnering with a health insurance company.

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

Why would an insurance company fund an ACO?

Insurance companies (especially Medicare Advantage plans) have a vested interest in decreasing the total cost of care (TCOC) and increasing the risk adjustment factor (RAF) score.

A RAF score increases the benchmark, which is the projection of how much TCOC should be in the measurement year.

And:

Profits = Benchmark - TCOC

With this background, let’s look at the simulation model.

If you have read the last 2 newsletters and are familiar with the simulation, you can jump to Step 4.

The Simulation Model

There are 7 steps in the model. Each step has several variables that the user can adjust. I have made baseline assumptions for each variable, including worst-case, realistic, and best-case scenarios. In addition, many variables include tooltips that explain their meaning.

For this article/demonstration, I will follow the realistic scenario in the VBC Simulation Model.

Steps 1-3

The steps are the same as in my last article. They include:

1. Setup: Allows the user to choose the ACO size and baseline contract terms.

S

1. Opportunity (Pot of Gold): Shows the back-of-the-envelope ACO savings opportunities based on the assumptions in Step 1.

1. Reality Sets In: Simulates the costs of setting up the ACO. This step also includes the PCP’s financial burden from the added administrative tasks.

By the end of Step 3, our newly formed ACO needs approximately $3.1 million for the first 18 months to function. In addition, individual PCPs have lost the opportunity to earn approx $86K in these 18 months.

Step 4: The Funding Decision

With $3.1M needed to operate the ACO, the next question is: who provides the capital? In this step, we decide which funder to choose from:

1. Bank Loan

2. Hospital partner

3. Payer Advance (as pmpm)

4. Private Equity

Since we will focus on Payer Advance (Prospective PMPM), when we click that option, we get the following screen.

(PMPM = Per Member Per Month)

If you look at the screenshot above, the payor is willing to fund the ACO $14.4M over 18 months, well over the $3.1M needed. However, there are 2 catches:

• Clawback %: The insurance company will claw back 75% of the advance, either:

  • From the ACO gain share, if the ACO reduces TCOC

  • From future FFS payments, if ACO does not reduce TCOC

• Annual PMPM Ratchet: Since the payor is fronting a huge amount of money, they will ratchet down the amount next year, as the goal is to “jump start” the ACO.

  • Another way to think about this is that the payor is giving the ACO a “generous” 0% loan to get started.

And to be fair, from the insurance company’s perspective, these terms are reasonable. So now let’s look at Year 1 outcomes.

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Step 5: Year 1 Outcomes

Let’s look at the model's screenshot to see what happens if the ACO fails to reduce TCOC.

The best way to describe this scenario is: a bloodbath.

The potential $200,000 bonus ultimately becomes a liability ($194k in the screenshot above). And what looked like a generous offer from the insurance company could wipe out PCP practices by putting them into debt.

By the way, the reason why this scenario is very unlikely in real life is that most practices have a mix of payors, so only a fraction of the modeled 1000 patients would fall under this kind of scenario. The reason I chose this model is to drive home the point of how value-destructive these contracts can be.

But what happens if the ACO does succeed in reducing TCOC? Let’s look at the screenshot below.

The ACO saved money, but had to pay the insurance company back 75% of the advance. This dramatically reduces gain share to the ACO. Furthermore, the ACO needs to keep some of the gain share for next year’s operations and also for reserves, further reducing gain share that the PCP practices will receive.

By the time the money reaches the PCP practices, it is not enough to cover the opportunity cost of just seeing patients. Per the model, in spite of the ACO reducing TCOC, each PCP still loses $23,000!

And when we project these outcomes, the reality is even more grim.

Step 6: Multi-Year Projections

Given the assumptions under the realistic scenario, most ACOs will fail within a decade.

What is interesting to note is that it is often touted how much money these programs pass on to support PCPs. And at first glance, it looks like a lot - $42.8M in 9 years. But gross revenues are not profits.

Once you factor in the opportunity costs, each PCP loses an average of $20k per year. If we factor in inflation and declining Fee-for-Service reimbursement, you can see why most independent PCPs eventually go out of business.

Step 7: Monte Carlo Simulation

The above analysis is based on realistic inputs that I chose. A reasonable push back would be that those assumptions are too pessimistic. This is where the Monte Carlo simulation comes in.

In the simulation model, we baked in that the ACO will survive in the 1st year. So when we run Monte Carlo, we expect the results to be good for the ACO in the 1st year. But the story is very different for independent PCPs. Let’s look at the screenshot below.

The distribution of shared savings for independent PCPs shows a 62.6% loss with an average loss of $24k.

If we extend the Monte Carlo simulation to 10 years the results are even more dismal. ACO survival rate drops to 22.4%, and most of the shared savings are in the first few years of ACO operations.

Final Thoughts

Even when an insurance company genuinely wants to help PCPs reduce the total cost of care by investing millions of dollars, the value-based care model is not sustainable. The underlying financial structure still betrays PCPs, forcing them to either exit practicing medicine, or become employed by large health systems.

You can play with the model here.

VBC Financial Simulation Model Link

Please leave comments and suggestions on how I can improve the model.

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Value-based care is supposed to save money, but for independent physicians, it's often a structural trap. Using a custom financial simulation model, I break down the mechanics of these contracts when well-meaning insurance companies try to help independent ACOs by funding the infrastructure costs. Discover how and why primary care physicians can go bankrupt even when they get “free money” under value-based care.

VBC Financial Simulation Model Link

Chapter Markers

• 00:00 - Intro

• 00:48 - Step 1-3: Setting up ACO, Pot of Gold, and Reality Sets in

• 03:19 - Step 4: Insurance Company as Funder

• 05:54 - Step 5: Outcomes

• 10:01 - Step 6: Multi-Year Projection

• 10:24 - Step 7: Monte Carlo Simulation

• 12:27 - Final Thoughts

Link to Written Article

Link to Video

Subscribe to my YouTube Channel

Please see the Disclaimer on the PCPLens "About" Page.

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If you have not “played” with the simulation model, I highly recommend that you do so using the link below.

VBC Financial Simulation Model Link

In this article, I use the simulation model to show why hospital-based ACOs are structurally stacked against independent PCPs.

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

The Simulation Model

There are 7 steps in the model. Each step has several variables that the user can adjust. I have made baseline assumptions for each variable, including worst-case, realistic, and best-case scenarios. In addition, many variables include tooltips that explain their meaning.

For this article/demonstration, I will follow the realistic scenario in the VBC Simulation Model.

Steps 1-3

The steps are the same as in my last article. They include:

1. Setup: Allows the user to choose the ACO size and baseline contract terms.

   

2. Opportunity (Pot of Gold): Shows the back of the envelope ACO savings opportunities based on the assumptions in Step 1.

   

3. Reality Sets In: Simulates the costs of setting up the ACO. This step also includes the PCP's financial burden from the added administrative tasks.

By the end of Step 3, our newly formed ACO needs approximately $3.1 million for the first 18 months to function. In addition, individual PCPs have lost the opportunity to earn approx $86K in these 18 months.

Step 4: The Funding Decision

With $3.1M needed to operate the ACO, the next question is: who provides the capital? In this step, we decide which funder to choose from:

1. Bank Loan

2. Hospital partner

3. Payer Advance (as pmpm)

4. Private Equity

As we will focus on hospital-based ACOs in this article, we will choose Option B: Hospital Partner.

Hospitals (more precisely, large health systems) can form ACOs in two broad ways:

1. Fully owned ACO with employed clinicians and facilities.

2. Partnership model, which is often structured as a joint venture (JV) between the hospital and the ACO. This JV is often called a “Physician Hospital Organization” or PHO. The hospital provides funding to run the PHO, which then contracts with payors.

This simulation focuses on the second model, i.e., PHOs. This structure allows an independent ACO to sign risk-based contracts while the hospital supplies the capital the ACO needs to operate.

In practice, hospital funding usually comes with two negotiated terms:

1. A share of ACO gains, aka gainshare: the model’s realistic scenario uses a 50/50 split between the hospital partner and the ACO.

2. Redirecting referrals (volume capture): The hospital partner, as a condition of funding, will require independent PCPs to redirect a portion of their referrals to hospital-employed physicians and hospital facilities.

Let’s look at the variables and math from the screenshot above.

Hospital Gainshare: This is pretty straightforward. The hospital negotiates a share of any ACO savings.

Referral % of TCOC: This is an approximation of the percentage of TCOC that can be attributed to downstream referral costs.

Referral Lock-in %: This is what the hospital partner wants independent PCPs to redirect to hospital-employed physicians and facilities.

Hospital Cost Premium: This approximates how much more expensive it is for patients to receive care at hospital facilities vs independent specialists. For Medicare Advantage, this is driven predominantly by facility fees, while for commercial plans, it is driven by higher negotiated fee-for-service rates.

Based on the realistic scenario in the model, let’s do the math:

Based on the math, you can clearly see that the ACO's success requires lowering the TCOC by $40M in the realistic scenario (see Step 2 image above), but redirecting referrals raises the TCOC to the point of erasing any shared savings.

Furthermore, the PHO JV provides a safe harbor from Stark and anti-kickback laws by creating an exempt entity called a “Clinically Integrated Network” or CIN.

Now that we have chosen a funder and understand the tradeoffs, let’s look at 1st year outcomes.

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Step 5: 1st Year Outcomes

Given that hospital referrals cost the ACO approx $31M, the ACO will not meet their 1.5% MSR target in the realistic scenario to receive any shared savings.

Since the ACO will not receive any shared savings, the PCPs lost approx $86K in the last 18 months. This may have a devastating impact on some small PCP practices and nudge them to sell/join the hospital.

But, you may ask, what about the hospital? The hospital also lost its $3.1M investment in the ACO. That is not the case, for three reasons:

• For $3.1M investment, the hospital received approx $31.7M in referral revenue.

• Furthermore, for PCPs who decided they lost enough money and joined the hospital will bring in approx $1-2M/year

• The following year, the hospital will go to commercial payors and negotiate higher fee-for-service rates.

All three factors increase TCOC.

Furthermore, if the ACO succeeds in reducing TCOC, the hospital takes a portion of shared savings, along with all the referral volume!

Step 6: Project Outcomes

In the realistic scenario, the ACO is bound to fail in the 1st year. Therefore, there is no outcome to project out. You can modify the simulation parameters (e.g., use the best case scenario) to see the projections.

Step 7: Monte Carlo Simulation

The defaults for the realistic-scenario Monte Carlo simulation are to randomize all hospital variables.

When you run the simulation, it shows that the ACO fails almost half the time. The screenshot shows that, in the vast majority of cases, the ACO will receive a $0 payout!

The picture is even worse for PCPs. Their probability of losing money is approx 94%.

Final Thoughts

As you can see from the simulation, the probability of PCPs losing money and doing administrative work under VBC is pretty high.

Hospitals form ACOs for 2 reasons:

• To show that they are participating in value-based care

• They’re a legal, structured mechanism for them to expand market share, capture referral revenue, and consolidate the physician workforce.

The VBC model is structurally designed to benefit hospitals and large systems at the expense of small PCP practices. And we continue to wonder why small independent practices are disappearing.

The link to the model is below. Please leave a comment with your thoughts and suggestions.

VBC Financial Simulation Model Link

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Value-based care is supposed to save money, but for independent physicians, it's often a structural trap. Using a custom financial simulation model, I break down the exact contract mechanics of what happens when independent ACOs partner with hospital systems for funding. Discover how this setup actively works against independent doctors and accelerates healthcare consolidation.

Link to access the model

Chapter Markers

• 00:00 - Intro

• 00:55 - Step 1: Financial Model Setup

• 02:07 - Step 2: Opportunity (Pot of Gold)

• 02:52 - Step 3: Cost of Running an ACO

• 04:05 - Step 4: Hospital as the Funding Partner

• 07:32 - Step 5: Year 1 Outcomes

• 14:37 - Final Thoughts on Hospitals Funding ACOs

Link to Written Article

Link to Video

Subscribe to my YouTube Channel

Please see the Disclaimer on the PCPLens "About" Page.

Subscribe now

How can someone argue against that?

But scratch the surface, and suddenly things get complicated—really complicated.

I wrote a series of 5 articles trying to explain the complexity inherent in VBC. This complexity inherently favors consolidation, which then increases the total cost of care. These articles are:

1. From Doctors to Social Workers - How “Population Health” laid the foundation for Value Based Care

2. Value Based Care and the Illusion of Improvement - Turning Healthcare into a High-Stakes Game of Metrics and Madness

3. Who’s your PCP? Patient Attribution in VBC: Where Accountability Meets Confusion

4. How Much Is Your Diagnosis Worth? Risk Factor Inflation and Paradox of Shared Savings

5. Blundering Bundles - Why Bundled Payments Might Be Tying Providers & Patients Up in Knots

Essentially, what I was trying to convey was that the definition of VBC has been distorted to:

Furthermore, as I talk to more and more people, I have come to realize two things:

• VBC is equated with CMS Medicare MSSP/ACO, not with Medicare Advantage (MA) VBC contracts

• Using the word “care” in “value-based care” is deeply misleading and problematic.

The term “care” should be replaced with “contract,” i.e., VBC should be called “value-based contract,” as the terms of the contract in VBC are far more influential in achieving shared savings than provider performance.

In order to illustrate how these contracts influence shared savings far more than physician performance, I vibe-coded a VBC financial simulation model that mimics a value-based contract for a fictional ACO.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

The video is a screencast showing how the model works and what the outputs mean.

Regional Financial Simulation Model

The regional financial simulation model starts with the familiar story that the cost of care is out of control. The payors approach a large PCP practice to form an ACO to participate in VBC to control the total cost of care for patients that they manage. If the ACO is successful, the payors will share any savings with the ACO.

The large PCP practice performs back-of-the-envelope calculations and determines that an ACO is financially lucrative. They recruit other independent practices to join the ACO and sign VBC contracts with the payors.

This is the setup.

If you are familiar with VBC dynamics and want to dive in and play with the model, click on the button below:

VBC Financial Simulation Model Link

For those who may not be familiar with VBC, I strongly encourage you to watch the video. I have provided a written walkthrough of the model below, which you can also use as a reference when experimenting with the model.

Baseline Assumptions

The simulation model assumes a contract negotiation between a fictitious regional ACO and Medicare Advantage (MA) plans.

CMS MSSP/ACO contracts are generally designed to avoid mass exodus and failure of ACOs. While the simulation model can be used for CMS MSSP/ACO contracts, I designed it include MA & commercial contracts because:

• As MA plans have grown, PCP panels may have more MA patients than Traditional Medicare

• MA and commercial plans don’t have the same long-term incentives as CMS, and contract terms are often tilted to meet payor profit targets.

• A PCP practice may be participating in several value-based contracts, including MSSP/ACO, which dramatically increases the complexity and overhead.

Model Steps

With the baseline assumptions out of the way, let’s delve into the model itself. There are 7 steps in the model.

Each step has several variables that the user can adjust. I have made baseline assumptions for each variable, including worst-case, realistic, and best-case scenarios. In addition, many variables include tooltips that explain their meaning.

Step 1: Setup

The first step allows the user to choose the size of the ACO and baseline contract terms.

The size of the ACO is determined by the number of PCPs, their panel, and attribution. Attributed are a subset of the PCP panel that the PCP/ACO is responsible under VBC. Attribution depends on:

• Attribution methodology

• Payor mix, i.e., of all the insurances that the PCP office accepts, what percentage of these patients have an insurance plan that participates in VBC

You can learn more about attribution in my previous article, “Who’s Your PCP?”

On the financial side, ACO performance is largely determined by four numbers in the contract:

Target Savings %

This is the percentage reduction in Total Cost of Care (TCOC) that the ACO must achieve to receive a maximum payout (also known as a gain share). A 5% target on $1 billion TCOC means the ACO needs to reduce spending by $50 million.

Minimum Savings Rate (MSR)

This is a binary, met/not-met gate. If the ACO achieves savings below the MSR threshold, the ACO receives zero payout—even if it saved money.

E.g., if the MSR is set to 2%, and the ACO that reduces TCOC by 1.9%, it gets nothing.

The MSR was designed to protect payers from paying out shared savings that might be statistical noise rather than genuine improvement. But this is a point of negotiation!

ACO Share / Payer Share Split

If the ACO hits the target, who keeps the savings? In a 50/50 split, the ACO receives 50% of the realized savings, and the payer keeps the other 50%.

This split is negotiated, not earned.

Quality Gate

In the model, quality is implemented as a binary gate. The ACO must meet a minimum quality score (based on various quality measures) to receive any payout, i.e. payer keeps 100% of savings.

In real life, the quality gate is a mix of binary gates and a sliding scale. Once an ACO crosses the quality gate threshold, it can earn more for meeting higher quality thresholds.

Step 2: Opportunity

This step is the back-of-the-envelope calculation on ACO savings opportunities based on the assumptions in Step 1.

Step 3: Reality Sets In

This step simulates the costs required to establish an ACO. These are fixed costs that are incurred regardless of whether the ACO achieves shared savings. If the ACO cannot meet its fixed costs obligations, it will fail.

In addition to ACO fixed costs, each PCP incurs additional costs due to increased workload to meet VBC requirements. These workloads include non-billable tasks such as ACO meetings, huddles with care managers, reviews of risk-stratification dashboards, and documentation for quality metrics.

Furthermore, there is a 6-9 month lag between completion of a VBC financial year and reconciliation before payors determine gains or losses. For e.g., if the VBC financial year was 2022 (Jan-Dec), then the reconciliation will be done sometime between July-Sept in 2023, i.e., the 6-9 month lag. This means that the ACO needs funding for at least 18 months to cover fixed costs before it will determine whether it is profitable.

Step 4: The Funding Decision

Since the ACO requires funding to run for at least 18 months, it needs to figure out how to fund itself. Typically, there are four options, each with its own trade-offs.

• Bank Loan

• Partner with hospital to form a joint venture, i.e., Physician Hospital Organization (PHO)

• Payor backed funding in the form of a prospective per member per month (PMPM) payment

• Funding from a private equity firm

Step 5: Outcomes

This step shows Year 1 outcomes after reconciliation. The ACO may fall into one of three categories:

• Missed Minimum Savings Rate (MSR)

• Missed Quality Gate

• Saved more money than MSR (or hit the TCOC target) and also met the quality gate

In the first two cases, unless the ACO secures additional funding, it will go bankrupt.

If the ACO succeeds, then it will receive gain-sharing payments from the payors. A part of these payments will be retained for ACO fixed cost operations, and the rest may be distributed to ACO physicians (typically PCPs) based on their distribution model.

Step 6: Projections

This step allows the user to project the ACO’s financial performance over several years (assuming the ACO succeeded in Year 1), either using the original assumptions or by modifying them on this page.

This step also introduces several new variables, such as:

• Benchmark ratcheting: if ACO succeeds in reducing TCOC, the following year, the payors start ratcheting the benchmark. This means that it becomes harder for the ACO to reduce TCOC below the benchmark set by the payors.

• HCC/RAF growth rate for both the ACO and regional market: i.e., how much sicker are your ACO patients compared to the regional market?

  • In other words, if the other ACOs are extremely aggressive in increasing their Risk Score, your ACO is at a disadvantage.

• Quality gates ratcheting, i.e., every year the ACO is required to meet a higher quality threshold. This is generally harder for ACOs with independent practices, especially if they are on different EHRs

Step 7: Monte Carlo Simulation

All the steps above are based on the values of variables, i.e., assumptions that have been preselected, either by the user or by me.

Monte Carlo simulation is a technique that allows the user to run thousands of “what if” scenarios, each time varying the input assumptions. Using this technique, we can model the probability distribution of the ACO’s financial performance.

There are 2 types of Monte Carlo simulations:

• Year 1

• Multi-year (user can choose how many years)

  • The model randomizes variables in Year 1 thousands of times and then projects them forward for several years. It does not randomize variables Year 2 onwards.

In these simulations, I have implemented the ability for the user to hold certain variables constant while randomizing others.

The Multi-year simulation models the ACO survival probability over several years, given the changing input variables and contractual terms. The model demonstrates that over 10-20 years, there is a high probability of ACO failure, which then leads to consolidation.

Final Thoughts

Hopefully, this simulation model will help people understand the complexity inherent in VBC and why it has been very challenging to scale VBC beyond CMS Medicare. Furthermore, the model demonstrates that gain sharing is often a function of contractual terms rather than of better care.

The simulation shows that most independent ACOs are financially engineered to fail over the long term, making acquisition by a hospital or private equity firm the only exit strategy.

VBC Financial Simulation Model Link

If you have any feedback or suggestions to make the model better (or if I made any mistakes), please leave a comment below.

The model code is available on GitHub for review.

Up Next

In the next few articles and videos, I will take a deeper dive into individual funding models for the ACO and their trade-offs.

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I created a financial simulation model to mimic value-based care contracts. This screencast explains how the model is structured, what the different variables mean, and shows some of the capabilities. It also demonstrates how a value-based care contract works in real life and often why it paradoxically increases the total cost of care.

VBC Financial Simulation Model Link

Chapter Markers

• 00:00 - Intro

• 02:20 - Step 1: Financial Model Setup

• 09:01 - Step 2: Opportunity (Pot of Gold)

• 10:46 - Step 3: Cost of Running an ACO

• 16:09 - Step 4: Choosing a Funding Model

• 19:28 - Step 5: Year 1 Outcomes

• 24:18 - Step 6: Multi-Year Projection

• 33:13 - Step 7: Monte Carlo Simulation

• 44:05 - My Thoughts Based on Model Findings

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“Medicine is a social science, and politics is nothing but medicine on a large scale.”

—Rudolf Virchow

If you hold someone accountable for something they can’t control, you’re not creating accountability—you’re creating burnout.

This is the 6th & final article in my series, “Healers to Healthkeepers.”

In previous articles, I traced how American healthcare transformed from a system focused on collective public health infrastructure into one centered on individual clinical accountability—from 19th-century sanitation reforms through postwar hospital financing, risk-factor medicine, and quality measurement systems. We’ve not only created the cultural hegemony that doctors are the “keepers of health,” but also built the infrastructure to document & code the healthcare status of the population to report to the financiers of healthcare. E.g., ICD-10 code for diabetes with a CPT-II code to indicate that diabetes is under control.

Since the strongest predictors of health are social, it was only a matter of time before the financiers asked doctors to screen for the Social Determinants of Health (SDOH).

This article looks at how technocratic legitimacy—the use of objective-seeming measures to mask political choices—is transforming social problems into clinical responsibilities.

To be clear: social factors should inform clinical decisions. But, rather than invest in housing, food security, and economic stability, we now demand that doctors screen for their absence. The result is a system that appears accountable on paper while making the actual work of healing harder.

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

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SDOH Enters the Clinic

For years, global and national public health bodies like the WHO and CDC championed the SDOH framework, but it remained largely in the domain of policy papers and academic conferences. The migration of the SDOH framework into clinical settings accelerated in the 2000s through a convergence of policy, payment reform, and technocratic measurement.

The 2001 Institute of Medicine report, Crossing the Quality Chasm, established the framework by defining quality not just as clinical outcomes, but as care that is “patient-centered.” This term was elastic enough to eventually encompass patients’ entire social context. Initially, “patient-centered” meant respecting patient preferences in treatment decisions. Within a decade, it expanded to include cultural competence, then health literacy, and finally, by the 2010s, addressing patients’ social circumstances. The term’s flexibility made it the perfect vehicle for expanding clinical responsibility.

In 2008, the WHO Commission on Social Determinants of Health formalized what public health had long known: that health is primarily determined by conditions in which people are born, grow, live, work, and age. The question then became — who would be responsible for addressing SDOH?

The answer came with the passage of the ACA in 2010, which created Accountable Care Organizations (ACOs), making doctors financially responsible for the total cost of care (TCOC). Under these contracts, if an ACO’s patients cost more than projected, the physician groups absorb the financial loss—sometimes millions of dollars. Conversely, keeping costs below projections means shared savings. Since unmet social needs drive expensive ER visits and hospitalizations, ACOs have a direct financial incentive to identify and address these social factors.

So, what began as a best practice for safety-net hospitals—screening vulnerable patients for unmet social needs—has become an economic necessity under value-based contracts.

This economic necessity was solidified by the National Academy of Medicine (NAM)1 in 2014. Not only did NAM issue recommendations for the clinical collection of social and behavioral data, but it also framed them as essential data elements for achieving health equity and improving population health.

NAM’s fundamental mistake was operationalizing the data collection process through individual clinical encounters—a setting designed for diagnosing and treating disease, not for redistributing resources or building infrastructure. It’s like asking a firefighter to prevent fires by documenting which neighborhoods lack fire codes, then holding them accountable when those neighborhoods burn.

CMS followed up by developing standardized screening tools called Health Related Social Needs (HRSN). CMS then incorporated these HRSN screening tools into quality measures—first for hospitals (2024), and for outpatient settings (2026). CMS also embedded HRSN performance into Medicare Advantage Star Ratings, tying billions in bonus payments to documentation of patients’ social conditions.

In Value-Based contracts, since patient attribution is based on PCP panels, the documentation burden of collecting and reporting HRSN data has fallen to PCPs.

But how do these policy mandates actually function in clinical encounters? The answer lies in a crucial linguistic transformation that makes social problems appear medical.

The Words That Shift Blame

To operationalize this new SDOH screening policy push, the system needed a standardized language to make complex human suffering “legible” to a bureaucracy.

Some of you may have noticed that I switched from using the term SDOH to HRSN (Health-Related Social Needs) in the prior section! This quiet replacement of SDOH with HRSN makes it possible to shift accountability:

• Social Determinants of Health (SDOH): Implies societal responsibility & requires policy solutions.

  • E.g., “Homelessness increases cardiovascular disease” is an SDOH statement—it points to a policy failure requiring legislative action.

• Health-Related Social Needs (HRSN): Implies individual needs & requires clinical assessment and intervention.

  • E.g,. “Mrs. Jones screens positive for homelessness” is an HRSN statement—it points to an individual problem requiring clinical documentation and referral.

The underlying issue is the same, but there are radically different implications for who is responsible for fixing it. SDOH asks, “What policies have failed?” HRSN asks, “Which patients need help?” The first demands systemic change. The second demands clinical action.

Once the language existed to individualize SDOH as HRSN, the next step was to measure it within a clinical encounter. Enter the ICD-10 Z-codes. These codes have existed for decades, originally intended to capture ‘factors influencing health status’—things like family history or vaccination status. But codes for social conditions (homelessness, food insecurity, inadequate housing) were rarely used because physicians had no financial reason to document them. Under value-based care, that changed. Now, these dormant codes are becoming mandatory screening tools, transforming the purpose of the clinical encounter itself.

Examples include:

• Z59.0 - Homelessness

• Z59.1 - Inadequate housing

• Z59.4 - Food insecurity

• Z59.7 - Insufficient social insurance and welfare support

• Z60.2 - Problems related to living alone

• Z62.8 - Problems related to upbringing (lack of adequate supervision)

• Z63.4 - Disappearance or death of a family member

• Z65.0 - Conviction in civil and criminal proceedings without imprisonment

The logic of measuring individual HRSN appears compassionate. How can you manage diabetes if your patient has nowhere to store insulin? But, Z-codes don’t create housing or food; they only create documentation of their absence.

Changing the language allows the exam room to become a census bureau for social failure, with physicians as reluctant clerks who record conditions they cannot treat.

Therefore, the language of HRSN and Z-codes provide the technical means to transfer SDOH from the policy domain to the clinical domain. The end result: medicalization of social failure.

Food for thought: Policy vs Clinical Dilemma

This mismatch between SDOH as a political choice vs HRSN as a clinical diagnosis forces a fundamental question about where responsibility should lie:

• Should your PCP be responsible for paying for a refrigerator to store insulin to control diabetes?

• Should health plans, such as Medicaid (created to pay for healthcare) be paying for housing (e.g., under Medicaid 1115 HRSN waivers)?

This is exactly what we’re building. We’ve just hidden the absurdity behind acronyms: ACO, VBC, SDOH, and HRSN.

Screening Without Solutions

Value-Based Care (VBC) is a concealed effort to build a social safety net inside the only system America is still willing to (reluctantly) fund: medicine.

Having defunded public health and social services for decades, policymakers now use VBC’s financial incentives to force healthcare to absorb these abandoned responsibilities. It is a policy of abdication, and of laundering political failure through the language of “population health.”

This systemic bait-and-switch fundamentally redefines the physician’s role. Value-based care repurposes our clinical expertise for social surveillance. The expectation is no longer just to diagnose hypertension, but to uncover the housing instability driving it, document it to increase the risk score, and then “fix it,” under threat of financial penalties.

PCP Rant of how this looks like in practice:

Mrs. Jones, a 58-year-old woman with diabetes with a HbA1c of 9.2% screens positive for inadequate housing. She does not have a place to store her medications, which is why she cannot take them consistently, leading to uncontrolled diabetes.

In my 15-minute encounter, even if I can find a housing program, help fill out all the referral forms, there is still, on average, a 1-2 year waitlist to get accepted.

However, next quarter, my quality report will flag Mrs. Jones’ uncontrolled diabetes as my performance gap.

And if I have enough patients like Mrs. Jones in my panel, I am financially penalized for not meeting quality measures under VBC contracts, even after doing everything I could.

End Rant

The system creates accountability without capacity, demanding that doctors solve problems that require billions in social investment with referral lists and good intentions. We hold physicians responsible for outcomes they cannot influence, and then wonder why we have difficulty finding doctors!.

Medical Abundance, Social Scarcity

As much as we complain about the cost of healthcare, and even access to healthcare, the fact remains that we have medical abundance coupled with social scarcity. Our system will pay for a 3rd line chemotherapy treatment, which may (or may not) improve life expectancy by a few months,2 but refuses to invest in SDOH.

For example, permanent supportive housing for chronically homeless individuals costs $15,000-20,000 annually and returns a median of $1.8 for every $1 spent through reduced ER visits and hospitalizations.3 Meanwhile, managing the same individual’s health crises through emergency departments costs $40,000-$60,000 annually with no upstream impact.4

This “social-to-clinical” (i.e., SDOH to HRSN) funnel is the direct consequence of a decades-long political choice: to inflate the medical-industrial complex while starving the social safety net.

The United States is a global outlier in its spending priorities. We spend over 17% of our GDP on healthcare, nearly double the average of other wealthy nations, yet we achieve worse health outcomes.5 This paradox is explained by what we don’t spend on. While our peer countries spend about $1.70 on social services for every dollar they spend on health, the U.S. spends just 56 cents.6 This difference in spending priorities translates into fundamentally different infrastructure.

For example, the UK employs over 3,500 “social prescribing link workers” who connect patients to housing, food, and social services—outside of clinical visits. When a British patient struggles with housing, they see a navigator, not their GP. Early evidence shows promise: one evaluation found a 40% reduction in GP appointments, and economic analysis suggests a return of £3.42 for every £1 invested. The model works by addressing social determinants through dedicated social infrastructure rather than clinical documentation.7

The UK can afford this approach because of how they allocate resources. The contrast with American spending priorities is stark, as illustrated by the graph below.

Here in America, the cost of SDOH/HRSN in the national balance sheet is written into every clinical encounter. It’s the absurdity of sitting in a technologically advanced clinic, surrounded by medical abundance, while the only tool we have for a patient’s hunger is a Z-code. The system will not only pay tens of thousands for the downstream consequences of social failure (e.g., ER visits, hospitalizations), but under VBC also penalize doctors for failing to document these conditions.

The Choice We Refuse to Make

The root cause of chronic disease is not clinical failure.

It is a policy failure to address clinical symptoms. The irony is that we recognized and fixed similar problems in the 19th century, but are refusing to do it in the 21st.

Instead, we’ve turned the determinants of health into clinical HRSN tasks: screen & document. That’s accountability without authority.

Let’s think about what HRSN accountability looks like in practice:

A chronically homeless patient with COPD cycles through three ER visits and two hospital admissions in six months with a total cost of approx $120,000. During each visit, doctors code his housing instability (Z59.0) and a social worker refers him to a shelter program. Each time, he’s discharged back to the street. Eventually, he qualifies for permanent supportive housing with an approx annual cost of $18,000. His ER visits drop to zero. His COPD stabilizes. We knew this would work. We just made him wait until he was sick enough to justify the investment.

If we want fewer diseases, we have to change what makes people sick: stable housing, living wages, reliable transit, and funded public health infrastructure. Those are legislative choices, not clinical workflows. Until we invest in the health determinants themselves, we’ll keep mistaking documentation for remedy—and the burden of chronic disease will grow, whatever the Z-code.

And, even if HRSN ends up helping people, it will only help after people fall sick. We are back to paying for sickness, instead of keeping people healthy.

Up Next

Going into the new year, I still have plenty of ideas of what else to cover.

In the meantime, I will be taking a few months off. I am planning to get back to publishing sometime in February/March 2026.

Happy Holidays.

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Why is the healthcare system demanding that doctors “fix” homelessness and food insecurity during a 15-minute visit, while refusing to fund the actual solutions?

In this video, I will show you how our system has created a “social to clinical funnel” that forces doctors to answer for societal failures they cannot fix. This is the story of how a political problem became a clinical burden, driving the moral injury of modern medicine.

Chapter Markers

• 00:00 Intro

• 02:34 SDOH Enters the Clinic

• 06:51 The Words That Shift Blame

• 08:31 Policy vs Clinical Dilemma

• 09:29 Screening Without Solutions

• 11:35 Medical Abundance, Social Scarcity

• 14:31 The Choice We Refuse to Make

• 16:28 Outro

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Health Determinants At Check In

5.48MB ∙ PDF file

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The Annual Physical is an $8 billion+ ritual. But major studies show it doesn’t reduce mortality. So why is it still the center of American primary care?

This video explores the surprising history and modern-day transformation of the “annual physical.” I trace its journey and show you:

• How the exam began not just as a medical idea, but as an actuarial tool for life insurance companies in the early 1900s.

• Why corporations and the AMA championed the exam, linking it to workplace productivity and a new “moral duty” for individuals to manage their health.

• How the visit was repurposed in the 1990s as a data collection tool to feed HEDIS quality measures.

• Why today’s “Value-Based Care” models have doubled down, turning the physical into a surveillance machine for insurance risk-adjustment and financial calculations.

Chapter Markers

• 00:00 - Intro

• 00:45 - The Data on the Annual Physical Exam

• 02:18 - Historical Origins of the Annual Physical

• 03:34 - Life Insurance and Annual Physicals

• 06:01 - Employers Embrace Annual Physicals

• 06:33 - The Perfect Storm

• 07:16 - Relationships to Data Collection

• 08:22 - Returning to Actuarial Roots

• 10:06 - Why Does the Annual Exam Persist?

• 11:44 - Annual Physical in Other Countries

• 14:01 - Outro

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Slides The Ritual Of Care

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The philosophy of the Annual Physical is simple: vigilance, however modest, can defy the randomness of disease.

This is the 4th article in my “Healers to Healthkeepers” series. In the first four, I discussed how we converted collective problems (e.g., public health) into individual responsibilities, and then measured them as quality metrics to demonstrate progress.

• From Sewers to Stethoscopes showed how 19th-century engineers laid the foundations of public health.

• The Cathedrals of Modern Medicine explained how postwar financing and the Hill-Burton Act cemented hospitals and insurance as the de facto healthcare system.

• Everyone Is Pre-Sick followed the rise of risk-factor medicine and how America successfully transitioned from collective to individual responsibility for health.

• The Scorekeepers of American Medicine looked at how quality measures became embedded in healthcare due to our focus on individual responsibility and our 3rd party payment system.

This article looks at how the Annual Physical evolved into a ritual of modern medicine, sitting at the crossroads of prevention, measurement, and cultural symbolism.

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

Smoke in the Exam Room

From 2002 to 2004, approximately 44 million Americans underwent annual physical examinations, consuming over $8 billion annually, almost equal to the entire national spending on breast cancer care.1

So, before we dig into the history of the Annual Exam, the central question is, “Do Annual Physical exams even help?” In other words, do they increase our likelihood of living longer? And the answer from available evidence is a minimal benefit at best—at the population level.

Two systematic reviews of randomized controlled trials (the second one involving over 250,000 participants) have shown that annual physical examinations in people without symptoms provide no reduction in total mortality, cardiovascular mortality, or cancer mortality.2 And one meta-analysis of observational studies showed a 45% lower hazard for mortality (highly subject to patient selection and amplification bias).3

As with any research study, these studies are population-based studies. One could argue that many individuals will benefit from the Annual Physical, e.g., by early detection and intervention for hypertension and diabetes. But again, these values speak more to our focus on preventing disease in individuals than in the population.

The paradox of the Annual Physical’s persistence despite a lack of scientific evidence only makes sense once we look at the history of the Annual Physical Exam.

(A good article on the history of the Annual Exam was published in the Annals of Internal Medicine, with links to historical archives.4 )

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The Spark of an Idea

In 1861, British physician Horace Dobell published “Lectures on the Germs and Vestiges of Disease, and on the Prevention of the Invasion and Fatality of Disease by Periodical Examinations” (PDF Link). In these lectures, he proposed that disease was not a sudden event but a process, and the highest duty of the physician is to find these processes at their earliest stage and remedy them.

As a chest physician, Dobell’s focus likely stemmed from the challenge of detecting & treating tuberculosis early, which was universally fatal without modern antibiotics (context always matters!).

At the dawn of the 20th century, George Gould urged the American Medical Association (AMA) to adopt “periodic biologic examinations” as a new standard of care. The exam, he argued, would allow doctors to study the early course of disease, protect patients from unseen harm, and elevate medicine’s role in society.5

These early ideas formed the spark for the “Annual Physical.” But this spark needed kindling to become a fire.

Laying the Kindling

At the same time, George Gould was proposing “periodic biologic exams,” Life Insurance companies realized that they could use these exams to screen & exclude policyholders, to boost profits.

Once the “physical exam” gained a foothold to exclude “unhealthy people” from life insurance policies, the next logical step was to keep paying customers alive longer. Life insurance companies began employing doctors to conduct detailed, head-to-toe exams on policyholders in an effort to identify diseases early and intervene to reduce mortality.

By 1923, organizations like the Life Extension Institute, led by Eugene Lyman Fisk, had conducted over 250,000 Annual Physicals, boasting that they lowered mortality among policyholders and generated handsome returns for insurers. In fact, most of the early evidence that “Annual Exams” decreased mortality was the “actuarial analysis” done by life insurance companies (which later turned out to be inaccurate).

Meanwhile, the passage of workers’ compensation legislation in the early 1900s created a need to detect and monitor physical conditions that might predispose employees to injure themselves or others on the job.6 These laws popularized pre-employment and routine occupational exams conducted by a “company doctor” in high-risk industries to document the baseline health status of employees in case of a work-related injury.

By the 1920s, the American Medical Association (AMA) had officially endorsed the periodic health examination and launched campaigns to persuade the public to undergo one annually (e.g., “have a health exam on your birthday”). This was done for several reasons:

• The new cadre of scientific-physicians, after publication of the Flexner Report in 1910, believed that they could help people.

• It provided recurring revenue.

• The emerging health insurance industry used the annual exam to justify premiums.

The combination of annual life insurance exams, “workplace exams,” and AMA campaigns promoting the idea that every American should undergo an annual exam laid the kindling in the early 20th century. This kindling would then ignite into a widespread fire by the mid-20th century.

A Fire Erupts

Building upon the model pioneered by Life Insurance companies, in the early to mid-20th Century, large companies created “Executive Physicals” generally in partnership with local hospitals. These “executive physicals” were comprehensive exams and tests for senior managers and were designed to protect the company from economic catastrophe due to sudden illness or the death of a key leader.

This practice was later expanded to all workers in the form of employee wellness programs as an attempt to reduce absenteeism and improve productivity across the workforce.

The expansion of the “annual exam” also coincided with the rise of risk factor medicine and healthism that I discussed in my previous article, “Everyone is Pre-Sick.” This intersection benefited all parties involved:

• Healthism supplied the moral framework and put social pressure on people to undergo an Annual Physical.

• Doctors gained a new clinical role by tracking & treating risk factors.

• Employers saw a tool to cut absenteeism and improve productivity.

By the late 20th century, the annual physical examination had become firmly established in American culture. It was viewed as a workplace benefit and a moral duty, but it would soon be exploited by health plans eager to demonstrate that they were spending money wisely.

The Inferno of Metrics

From my previous article, “The Scorekeepers of American Medicine:”

As public confidence in HMOs waned in the 1990s, market pressure forced health plans to demonstrate that cost‑cutting didn’t come at the expense of patient care. This credibility gap paved the way for standardized performance measurement. In 1990, the National Committee for Quality Assurance (NCQA) emerged, creating the widely used HEDIS measures (Healthcare Effectiveness Data and Information Set) to quantify clinical performance. HEDIS allowed employers (aka purchasers) and consumers to compare plans based on quality, in addition to price.

Since most of the quality measures were based on risk-factor medicine (e.g., Controlling BP, Diabetes Control, BMI measurement, etc), the Annual Physical became the perfect visit to collect and document this data. The Annual Physical provided insurers and regulators with a predictable touchpoint to harvest data at scale, effectively transforming the exam into a reporting exercise rather than a clinical one.

The data collected during an “Annual Physical” was then used to prove to purchasers of health insurance, such as employers that their money was being spent well.

Engulfed in Flames

Once collecting data for quality measures became the norm, the next step was to tie quality data to financial incentives, to ensure everyone was getting the best care!

The publication of “To Err is Human”7 and “Crossing the Quality Chasm: A New Health System for the 21st Century” reframed the U.S. healthcare problem as a failure of quality and accountability. Health plans, employers, and policy makers jumped on the technocratic legitimacy of quality measures and argued that fee-for-service rewarded waste. This manufactured consent paved the way for the Affordable Care Act in 2010.

I covered the history of how quality measurement programs were increasingly tied to financial penalties in my previous article, “Value Based Care & The Illusion of Improvement.” This transformation is summarized in the diagram below.

ACA created Accountable Care Organizations (ACOs), and not only tied quality, but also the total cost of care (TCOC) to physician penalties. However, to calculate the TCOC, patients need to be risk-adjusted based on pre-existing conditions and demographics. The Annual Physical, which was already transforming into a “data collection visit” for quality, now also became the vehicle for data collection for actuarial purposes to predict the cost of care.

Even before the passage of the ACA, Pay-for-Performance (P4P) and PQRS in the early 2000s were already starting to strain independent practices. The ACA added fuel to the fire, consuming much of the independent landscape due to the substantial cost and manpower burden of collecting and submitting data. From my prior article, “The Devilish Details of Data Collection:”

To collect and report this data back to insurance companies, PCP offices spent approximately $50,000 in 2014-2015.8 This is why larger organizations with an army of data analysts will always perform better than small medical practices—they have the money and resources to collect and report data.

This burden (along with several others) has pushed many small practices to sell, merge, or close. For physicians, the annual exam became less about patient-physician relationships and more about transferring power from the exam room to corporate data warehouses for profit.

In summary, the Annual Physical has changed the role of the physician from a healer to a diligent record-keeper and risk manager. We have come full circle: the Annual Physical that began as an actuarial analysis for life insurance in the early 20th century has returned to its actuarial analysis roots for Value-Based Care in the 21st.

The Fire Feeds Itself

So, why does the annual exam persist, like a ritual, in the face of minimal evidence? The answer lies at the intersection of medical tradition, cultural expectation, patient psychology, financial incentives, and our litigation-heavy system.

Since the mid-20th century, the annual exam has become a medical tradition and cultural expectation. Doctors recommend the Annual Physical, and patients expect it—we are two peas in the same pod! Not offering Annual Physicals or telling people that these exams have limited benefit is a sure-fire way to lose patients and revenue.

Given our individualistic focus on healthcare, people get a sense of relief when their Annual Physical, with accompanying lab tests are normal. This reassurance carries the weight of science—even if it’s mostly symbolic (technocratic legitimacy).

Next, there are financial incentives, both for doctors and patients. Doctors can bill for the Annual Physical, a recurring income source, while employers offer monetary incentives or penalties to employees for undergoing their yearly physical.

And finally, in our litigation-heavy system, a doctor’s note has become a kind of “get out of jail free card,” transferring risk from the individual/employer to the physician. E.g.:

• To call out of work if sick

• To apply for FMLA

• To prove fitness for work (CDL, police, military)

• To join a gym, especially for older people

• To keep an emotional-support pet in a no-pet apartment complex

Most of these situations assume the person has an ongoing relationship with a physician who has seen them regularly. In practice, that means having a PCP and showing up for annual visits. Society keeps demanding doctors’ notes, and the easiest way to get one is to maintain the ritual.

Different Cultures, Different Rituals

The United States treats the annual physical as a near-sacred rite. But other wealthy nations have chosen different rituals.

• United Kingdom: The NHS offers the NHS Health Check once every five years between ages 40–74, focused narrowly on cardiovascular risk factors. Cancer screenings and immunizations are handled through separate national programs.

• Canada: In 1979, the Canadian Task Force on the Periodic Health Examination explicitly recommended against blanket annual exams. Provinces shifted toward “periodic preventive visits” tailored by age and risk, reimbursed every 1–3 years.

• Germany: Statutory insurance covers a one-time check-up between ages 18–34, then every three years from age 35. These focus on cardiovascular and metabolic screening, with cancer checks offered separately.

• Nordic countries: In Denmark, Sweden, and Finland, there is no culture of annual check-ups for healthy adults. Prevention happens through organized screening programs, child health visits, and opportunistic risk-factor management in primary care. Community-level interventions (diet, smoking, alcohol) are emphasized over yearly exams.

• Japan: The outlier. Annual workplace health exams are mandated by law. These exams are exhaustive and include labs and imaging. Yet evidence suggests they generate more utilization than measurable health benefits—a mirror image of the American ritual, but driven by regulation rather than culture.

The Embers of Humanity

For all its flaws, the annual physical is not without value. It offers patients and physicians a chance to talk, get to know each other as human beings, and build trust. Many of the most meaningful conversations in primary care happen not when we are talking about hypertension or diabetes, but about how you spent your weekend. And believe me, these “frivolous” conversations sometimes have a bigger impact on the care we give than your lab values.

But as the Annual Physical becomes more of a data-collection exercise under value-based care, we risk burning away the embers that matter most: the human touch.

Up Next

The American Health system's appetite for data is endless—even if we don’t do anything with it. In the next article, I will look at how & why the system is now set up to force doctors to collect and submit data for the social determinants of health, and then make us accountable for society itself.

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“The language of performance measures makes accountability look objective, but it is no less political for that.”

— Theodore Porter, Trust in Numbers: The Pursuit of Objectivity in Science and Public Life

This is the fourth article in the series “Healers to Healthkeepers,” where I trace the history of how America went from building public health infrastructure in the 19th century to making doctors responsible for determinants of health.

In Article 1, “From Sewers to Stethoscopes,” I traced how the Flexner Report bifurcated medicine, separated clinical care from public health, and established physicians as the primary authorities on health.

Article 2, “The Cathedrals of Modern Medicine,” showed how the Hill-Burton Act created our hospital-centric system, with insurance companies as a financial model to finance healthcare.

Article 3, “Everyone is Pre-Sick,” explored how risk factor medicine combined with healthism made individuals morally responsible for their own health outcomes.

Since the public had been primed to take individual responsibility for their own health, it was only a matter of time before payors would demand that doctors collect, track, and act upon risk factors for future disease.

(If you have not read my previous articles on quality measures, one major criticism of this article would be that I link & cite my previous articles, instead of peer-reviewed literature. The reason is that my earlier articles have detailed explanations & extensive links to peer-reviewed literature to the assertions that I make in this article.)

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

The Precursors to Modern Measurement

The intellectual origins of healthcare quality measurement began in the 19th and early 20th century, when systematic data collection was first applied to challenge the medical assumptions of that time.1

• Florence Nightingale, through her analysis of sanitation conditions and mortality rates among soldiers in the Crimean War, demonstrated the link between environment and health outcomes.

• Ignaz Semmelweis’s work on handwashing established a causal relationship between clinical practice and infection rates.

• Ernest Amory Codman introduced the concept of the “End Result Idea,” which posited that hospitals had a moral and scientific obligation to track the outcomes of every patient they treated to determine whether the treatment was successful. As co-founder of the American College of Surgeons (ACS), he established the Hospital Standardization Program in 1917, which created the first “minimum standards” for hospitals.

These early efforts were successful and reduced mortality. However, it was Avis Donabedian who proposed the modern quality framework, which is now known as the Donabedian Triad:2

• Structure: the context in which care is delivered.

• Process encompasses the sum of all activities that constitute healthcare delivery.

• Outcome represents the effects of healthcare on the health status of patients and populations.

This framework set in motion the path dependency for quality measurement in healthcare.

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Medicare’s Bargain: Coverage in Exchange for Oversight

Whenever someone else is paying the bill, they will eventually demand proof that the money was spent wisely.

The utopian, immanent, and continually frustrated goal of the modern state is to reduce the chaotic, disorderly, constantly changing social reality beneath it to something more closely resembling the administrative grid of its observations.

Seeing Like a State - James C. Scott

When the Social Security Act created Medicare in 1965, it baked in rules to measure cost and quality of care to ensure that tax dollars were spent wisely.

It established the first federal mandates requiring institutions to meet certain standards, such as having credentialed medical staff and providing 24-hour nursing services, to be eligible for Medicare reimbursement. From a “Donabedian perspective,” these requirements fell under the “structure” category of the Donabedian Triad.

In addition to these “structural requirements,” Medicare also attempted, and continues to try, to regulate the cost of care. Below is a brief history of these efforts, the problems with each iteration, and how Medicare continued to innovate in its quest for cost control and quality.

1965: Utilization Review Committees (URCs)

Medicare’s founding law required hospitals to create physician-led committees to review the necessity of admissions and length of stay. In theory, they were also supposed to ensure care met “professionally recognized standards,” but in practice, their role was narrowly focused on utilization.

Problem: URCs were inconsistent, self-policing, and weak on quality.

1972: Professional Standards Review Organizations (PSROs)

To address the URC problems, Congress created regional physician-run organizations to review both the necessity and the quality of care across all Medicare patients.

Problem: PSROs were fragmented, often “captured” by local provider interests, remained inconsistent, and lacked the power to change behavior.

1982: Peer Review Organizations (PROs)

The 1982 reform federalized oversight by contracting with statewide organizations directly accountable to HCFA (Health Care Financing Administration, the precursor to CMS). PROs could deny payment for unnecessary or poor-quality care.

Problem: They earned a reputation as punitive “chart police,” retrospective, and alienating to providers.

2002: Quality Improvement Organizations (QIOs)

In the early 2000s, CMS reframed the program and called them QIOs. These QIOs shifted from punitive review toward collaborative quality improvement, while still investigating complaints and sentinel events. Since 2014, they’ve been split into BFCC-QIOs (beneficiary complaints, appeals)3 and QIN-QIOs (improvement networks).4

In summary, Medicare’s approach has been a pendulum: swinging from increasing accountability over the decades (URC, PSROs, PROs), and when that did not work, to working with providers & supporting quality improvement efforts in medical organizations (QIOs).

QIOs continue to exist today, supporting provider organizations, but when someone else is footing the bill, they will continue to demand that their money is being spent well.

CMS Alphabet Soup: P4P, PQRI, PQRS, MIPS, MACRA & VBC

I covered the history of this “alphabet soup” of quality measurement programs in my previous article, “Value Based Care & The Illusion of Improvement.”

In March 2001, the Institute of Medicine (IOM) released its report: Crossing the Quality Chasm: A New Health System for the 21st Century. This study grabbed national attention as it highlighted the vast gap in the quality of care Americans received compared to NHS in the United Kingdom.

This report led to the rise of the Pay-for-Performance model (P4P), which provides financial incentives to providers, in addition to fee-for-service (FFS), to meet quality thresholds.

The general progression of quality improvement efforts in the 21st century is depicted below:

While Medicare was busy trying to figure out how to keep costs under control and hold doctors responsible, a parallel movement was happening in the private insurance market.

In addition to holding health organizations responsible, CMS also created STAR measures for Medicare Advantage plans when they started becoming popular in 2007. CMS did this ostensibly to ensure that these plans were not skimping on care (i.e., not to repeat HMOs’ mistakes) and to provide transparency to seniors purchasing the plans.

The Ghost of HMOs and Rise of NCQA

I have written about the rise and decline of HMOs in “Value Based Care & The Illusion of Improvement.”

HMOs were designed to control the total cost of care delivered to employees.

…

Over time, as the cost of medical care increased, there was a proliferation of HMO plans, which decreased provider reimbursement (or required providers to deliver more care for the same fees) and reduced the medical care people could receive. These “insurance benefits and carve-outs” eventually became confusing, and people often found themselves without medical coverage. The HMO Act of 1973 aimed to curb several of these abuses by insurance companies by requiring them to cover a more comprehensive set of medical services. HMO plans became more popular after government regulation, but their popularity declined in the 1990s.

As public confidence in HMOs waned in the 1990s, market pressure forced health plans to demonstrate that cost‑cutting didn’t come at the expense of patient care. This credibility gap paved the way for standardized performance measurement. In 1990, the National Committee for Quality Assurance (NCQA) emerged, creating the widely used HEDIS measures (Healthcare Effectiveness Data and Information Set) to quantify clinical performance. HEDIS allowed employers (aka purchasers) and consumers to compare plans based on quality, in addition to price.

NCQA’s HEDIS measures solved a crucial problem in quality measurement—standardization. If different health plans and medical organizations used different definitions for quality measures, how could purchasers (employers and patients) compare whether two plans were equivalent? HEDIS solved this standardization problem and, in the process, has become a monopoly by creating a strong 2-sided network effect (i.e., health plans have to use it, and purchasers demand it).

Even CMS, which initially defined its own quality measures for the Star Measures, has gradually incorporated HEDIS measures, cementing NCQA’s monopoly status.

As of writing this article, quality measures are everywhere in healthcare. Most health plans, health organizations, and providers are required to track and submit quality measures to avoid penalties or as a precondition to sharing savings in value-based contracts. This is directly the result of America’s 3rd party payment system.

The Rise of Medical Surveillance Machinery

The government’s need for accountability and the private sector’s need for standardized, objective-looking metrics created the perfect conditions for the large-scale data collection apparatus that now defines modern medicine.

The strategy of using quality measures served a dual purpose. It deflected attention from pure cost control by assuring the public that health plans could no longer deny “standards of care.” From now on, these standards would be measured, tracked, and improved to ensure that people would receive appropriate care.

To collect and submit data for quality measures, health organizations have developed a complex system of EHRs, data warehouses, and an army of “data collectors” to find and submit this data manually. Needless to say, these large-scale data collection efforts favor large organizations over small practices. I discussed the details of how this machinery works in my prior article, “The Devilish Details of Data Collection.”

Furthermore, the expansion of these quality measures has done little to improve the actual quality rendered to the population. I understand that this is a strong assertion, but I have written extensively on why quality measurement does not improve outcomes, supported by links to peer-reviewed articles. You can find these articles here.

So, we are left with an ever-increasing surveillance machine that increases the total cost of care while blaming front-line doctors for these costs.

Manufacturing Blame

To understand why this system persists despite its obvious flaws, we need to examine three concepts from political and social theory.

Technocratic Legitimacy

Technocratic legitimacy means delegating authority to experts and technical bodies, to make decisions appear neutral and scientific rather than political.

Quality metrics translate messy debates about what “good care” means into numbers, thresholds, and checklists. Once a benchmark exists, it carries the weight of expert consensus, allowing policymakers and insurers to claim accountability without wading into deeper arguments about equity, equality, resources, or values.

Let’s look at the BP control < 140/90 quality measure. From my earlier article, “The Pressure to Control Blood Pressure:”

The fact that uncontrolled hypertension leads to excess heart attacks and strokes is indisputable. The “powers to be” want you to believe that doctors are not doing their job of controlling blood pressure, and as with any profession, there are a few bad providers.

However, if you look a little deeper, the root cause of uncontrolled hypertension is much more complex and rooted in social determinants of health (SDOH), which we as a country have decided we are not going to pay for.

In the case of the “Controlling Blood Pressure” quality measure, technocratic legitimacy shifts the discussion from the messy political world of addressing the “ignored reasons for hypertension” in the visual above to focus on the technical gap in provider performance!

Discursive Framing

Discursive framing is a technique that uses language to point us toward preferred explanations and solutions, while hiding others. The vocabulary of quality metrics consistently frames structural problems as failures of the individual, either the physician or the patient. For example:

• Patient cannot afford insulin —> Medication non-adherence

• Chronic stressful environment —> Uncontrolled hypertension, implying the doctor is not managing BP appropriately

• Long wait or lack of mental health professionals —> Failure to screen & treat depression

• Living in a food desert & unable to afford healthy food —> Uncontrolled BMI, implying doctors are not teaching people about healthy food

• Lack of transportation —> Patient non-compliance

(All the links are to my prior articles on these quality measures.)

This linguistic sleight of hand makes physicians responsible for solving the determinants of health, while never naming them as problems. The discourse shapes not just how we talk about healthcare, but how we think about it, measure it, and assign blame for its failures.

Manufactured Consent

Manufactured consent occurs when media and institutions shape stories so the public agrees with policies that serve the “entities with power.” These policies may or may not align with the public’s interests.

A master class in manufactured consent is the corporate lie that recycling plastic waste reduces pollution.

For decades, media and policy reports have consistently framed the fee-for-service (FFS) payment system as the engine of “waste,” “overutilization,” and “fragmentation,” blaming physicians for driving up costs by doing more to earn more. By repeating the story that FFS rewards greed and inefficiency, institutional narratives made Value-Based Care (VBC) appear as common-sense reform, while masking the reality that both models struggle with the same structural determinants of health.

The Path Dependency Trap

The irony of the US healthcare system is that everyone knows the system is broken, but path dependency makes escape nearly impossible.

Insurance companies (especially MA plans) will not abandon metrics without admitting their value-based contracts are financial shell games leading to record profits. They’re now locked in Wall Street expectations to continue to generate these profits.

Health systems have consolidated at the expense of small practices and invested billions in quality reporting infrastructure. This has allowed them to extract higher profits from employers/purchasers. Walking away means not only writing off those investments and admitting that quality measures don’t improve quality.

Government programs like Medicare have staked political capital on quality improvement. Abandoning MIPS/VBC would require Congress to admit that a decade of reforms has failed.

Conclusion

In conclusion, we’ve built a system where:

• Insurance companies need to generate higher profits by denying care, gaming risk-based coding, and other games to satisfy Wall Street expectations

• Quality measures provide “objective” cover for those denials

• Physicians are blamed & demonized for systemic failures

• Patients suffer while everyone points fingers

This “metric fixation”5 on quality measurement has led to the belief that quantifying human activities can replace judgment and expertise. Healthcare is not an assembly line, and diseases don’t follow protocols. There are good reasons to create guidelines, to guide care when appropriate, and to discard them based on judgment. But turning guidelines into quality measures makes them rules, and in doing so, redistributes blame from systemic failures to front-line doctors.

Up Next

Once the foundation to measure quality was in place, the next step was to operationalize it. The Annual Physical was the perfect vehicle to operate the machinery for data collection, which is the topic of my next article.

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Are healthcare quality metrics truly objective? This podcast dives into the strange history of performance measures, revealing how they evolved from clinical tools into powerful political ones used to control costs, legitimize decisions, and shift blame from systems to front-line doctors.

Chapter Markers

• 00:00 - Intro

• 01:21 - Birth of Quality Measurement

• 02:33 - Medicare’s Bargain

• 05:34 - The Pioneering Role of Private Sector in Quality Measurement

• 07:07 - NCQA

• 07:55 - The Medical Surveillance Machinery

• 08:50 - Manufacturing Blame

• 09:04 - Technocratic Legitimacy

• 10:05 - Discursive Framing

• 11:15 - Manufactured Consent

• 12:26 - The Path Dependency Trap

• 13:56 - Outro

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For the first time, patients learned that numbers such as blood pressure and cholesterol could predict heart disease years before symptoms appeared. By the late 1970s, millions of Americans were visiting their doctor, not because they were sick, but to “prevent sickness”.

This is the 3rd article in my series “Healers to Healthkeepers.”

Article 1: “From Sewers to Stethoscopes” traced the arc of history from 19th-century sanitation and public works that improved the health of entire towns & cities, to the professionalization of medicine and the rise of the scientific physician.

Article 2: “The Cathedrals of Modern Medicine” reviewed the history of how conditions around WW-II catalyzed a series of changes that led to the emergence of the hospital-insurance duopoly, cementing hospitals as the center of healing.

In this article, I explore how the rise of risk-factor medicine, combined with America’s social fragmentation, made people morally and socially responsible for their own health.

Let’s dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

The Birth of Risk Factor Medicine

By the mid-20th century, the United States had undergone what epidemiologists call the “epidemiologic transition.” Infectious diseases declined dramatically due to improvements in sanitation, living conditions, and vaccines. In this new era, chronic conditions like heart disease, stroke, and diabetes became the dominant cause of morbidity and mortality.

However, these chronic diseases develop silently over decades. In the early 20th century, there was no obvious intervention point until symptoms appeared. This created a conceptual problem: when do you intervene to prevent these heart attacks and strokes?

The answer emerged from a small town outside Boston, called Framingham.

In 1948, researchers launched the Framingham Heart Study,2 which followed thousands of healthy residents to identify what predicted future cardiovascular events. This study, for the first time in medical history, allowed researchers to quantify how traits like blood pressure, cholesterol levels, and smoking habits translated into “disease risk” over time. And the term “risk factor” became a household term.

The concept of “risk factor” transformed medical thinking. Health, now, was no longer a binary state, i.e., sick or well. Health became more of a probability distribution. Everyone occupies a position on a spectrum of future disease risk, which could be measured, tracked, and potentially modified. In other words, everyone was pre-sick, and the goal of the medical profession was to prevent the sickness from taking over.

The Framingham Heart Study forever changed the healthcare landscape, both for better and for worse. While it gave doctors the tools to decrease the “risk of bad outcomes” in individuals, it also led to the medicalization of everyday life, often by expanding the definition of disease for profit.

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The Moral Transformation to “Individual Choice”

In the late 19th and early 20th centuries, it was common for grandparents, unmarried adult children, and sometimes extended relatives to live under one roof.3 This arrangement was due to economic necessity, as survival relied on kinship networks to pool labor, especially to care for the elderly and children.4 Therefore, health and survival were embedded in community reciprocity rather than individual autonomy. This interdependence made decision-making about work, housing, and care collective by default.

However, several events in the 20th century led to the systematic geographic dispersion of millions of people. A summary of these events is in the table below.

This geographic dispersion had profound sociological consequences. According to Robert Putnam, social capital, “the networks of relationships that enable collective action,”5 requires geographic proximity to function. When families were scattered across the country, communities lost their capacity for pooled labor and mutual support that had sustained previous generations through health crises and economic hardship.

Over time, due to geographic dispersion, traditional institutions based on kinship failed to meet individual needs. Isolated suburban families increasingly turned to professional services and consumer products to solve problems that relatives and neighbors once handled collectively, making individual choice the primary mechanism for meeting previously social needs.

The Cold War provided powerful ideological reinforcement for this emerging consumer individualism. American policymakers explicitly contrasted individual consumer choice with Soviet central planning, making market-based solutions appear patriotic while collective approaches felt un-American.

Fueled by consumerism, migration, and Cold War politics, America’s deeply rooted founding ideals of personal liberty, self-determination, and individual choice gained renewed cultural dominance.

Antonio Gramsci called this ‘cultural hegemony,’ i.e., individual choice became the dominant viewpoint, so much so that alternatives seemed not just impractical but ideologically suspect. While Soviet central planning ultimately failed, the ideological contrast obscured other democratic collective solutions, making market individualism appear as the only viable alternative to collective action.

Prevention Becomes Virtue

Around the same time that individual choice was becoming cultural hegemony, the concept of risk-factor-based medicine emerged from the Framingham Study—and it fit right in. People could manage their individual risk factors for chronic disease without having to worry about others in their community.

The 1970s stagflation crisis accelerated the adoption of neoliberal policies promoting market solutions over collective action. Policymakers began cutting social programs and dismantling public support systems. For many people, the only path-dependent choice became individual responsibility, creating the perfect conditions for what sociologist Robert Crawford called ‘healthism.’6

Crawford defined healthism as:

“The preoccupation with personal health as a primary — often the primary — focus for the definition and achievement of well-being; a goal which is to be attained primarily through the modification of lifestyles.”

Healthism fits right into the cultural hegemony of “individual choice” as it:

1. Shifted responsibility for health from society to the individual by moralizing health, i.e.:

   1. Equating good health with being a responsible person who takes care of themselves.

   2. Implicitly equating chronic disease with evidence of personal failure or negligence.

2. Obscured structural determinants, like poverty, racism, and labor exploitation by focusing on personal choices.

3. Medicalized prevention, turning lifestyle into clinical oversight.

Even in 1980, when Crawford published his article, he criticized healthism for three harmful effects:

1. It depoliticized health, which removed social and economic conditions from the conversation, protecting status quo policies.

2. It legitimized victim-blaming

   1. against the disadvantaged population, by treating illness as a personal failure.

   2. against people suggesting alternatives by painting them as “central planners” making paternalistic decisions who assume that people “cannot make their own good decisions.”

3. It diverted resources away from structural solutions and toward individual-level interventions (e.g., screening & treatment for risk factors in individuals), even when those are less effective.

The cultural hegemony of Healthism made “individual health choices” the default policy choice while erecting barriers for any conversation that involved collective action to keep people healthy (e.g., obesity, community water fluoridation).

The visual below shows the parallel rise of social transformation in America with “Risk Factor Medicine.”

The Tradeoffs

Early screening and diagnosis of risk factors have undoubtedly saved countless lives. Getting patients to quit smoking, control blood pressure, and manage diabetes remains one of the great joys of practicing primary care. Healthism’s focus on individual responsibility and quantifiable targets allows motivated individuals to take control of their health. At the same time, pharmaceutical breakthroughs have developed treatments that not only lower mortality risk but also often improve quality of life.

However, these individual success stories obscure significant societal costs. Our relentless focus on risk factors led us to overlook the determinants of health. For example, prescribing BP medications will have minimal effect if the person does not have a place to live, cannot afford them, or lives in a stressful environment. Similarly, prescribing diabetes medications or weight loss methods will not work well if people only have access to fast food. This concept is best illustrated using an S-shaped curve below.

This “Risk Factor Yield Curve” illustrates that the effectiveness of an intervention depends on patients’ underlying social conditions:

• The Determinants of Health (DOH) Zone: Patients facing housing instability, food insecurity, or severe poverty, on average, will see fewer benefits from individual medical interventions. We may improve the risk-factor numbers, but social barriers are more likely to predict outcomes.

• The Zone of Effectiveness: The ‘sweet spot’ where patients with stable housing, steady income, and basic security can benefit significantly from medical interventions and lifestyle modifications.

• The Law of Diminishing Returns Zone: Individuals in this zone face minimal social barriers, and major risk factors are already controlled. Further medical optimization will yield minimal gains in these people.

This Population “Risk-Factor Yield Curve” is an over-simplified representation, but I have also not seen this proposed anywhere in the literature!

Current healthcare spending and quality metrics (aka, Value-Based Care) assume all patients exist in the middle zone. They ignore that many Americans live in conditions where it is very hard for individual medical interventions to overcome structural barriers to health.

Furthermore, risk factor medicine is also highly susceptible to commercial exploitation. The most common ways are:

• Change disease definitions, e.g., lower thresholds for risk factors such as cholesterol.

• Aggressive marketing to medicalize normality

• Sell labs (e.g., know your risk campaigns), drugs, and supplements to lower the “risk of risk factors.”

The virtues and pitfalls of capitalism!

Conclusion

The confluence of 20th-century events with the rise of Risk-Factor Medicine increased our reliance on personal responsibility. As Robert Crawford predicted, this led to the medicalization of normality and the rise of surveillance medicine.

As a society, we appear to be locked in a path dependency where we value individual data points more than the context of a person’s life. This translates into doctors focusing more on lab values than listening to their patients (revealed vs stated patient preferences).

The 21st century is expanding this surveillance medicine to the constant data streams from our fitness trackers, labs that measure the “risk of risk factors,” and private equity-backed companies selling whole body MRI scans. Couple that with consumerism, marketing, free speech, and individual choice, and we are creating a society where everyone is pre-sick.

Up Next

Now that the stage is set for how America came to view health as an individual choice, in the following article, I will explore how insurers and regulators, following the path of least resistance, translated risk-factor medicine into prevention and handed it to doctors.

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In this video, I explore how the rise of risk-factor medicine, combined with America’s social fragmentation, made people morally and socially responsible for their own health.

This is the 3rd article in my series “Healers to Healthkeepers.”

Chapter Markers

• 00:00 - Intro

• 01:11 - Birth of Risk Factor Medicine

• 03:14 - The Moral Transformation to “Individual Choice”

• 06:06 - Prevention Becomes Virtue

• 07:06 - Healthism

• 09:19 - The Tradeoffs

• 12:35 - Outro

Slides Everyone Is Presick

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In the decades following the “Great Bifurcation” (the historic split between clinical medicine and public health), the arc of history in the mid-20th century converged to create a perfect storm that changed healthcare forever.

This perfect storm not only changed how healthcare would be delivered and financed in America, but it also shifted our mindset from viewing health as a collective responsibility to viewing it as an individual responsibility.

This is a story of path dependency, capitalism, and the rise of hospital-insurance duopoly in healthcare.

This article is the second in my series of “Healers to Healthkeepers.”

Let's dive in.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

Hospitals: The Cathedrals of Modern Medicine

By the end of World War II, American hospitals were in crisis. Many facilities built in the early 1900s were obsolete. The rapid urbanization and population growth left vast gaps in coverage, especially in rural areas.

At that time, the United States had only ≈3.2 acceptable community-hospital beds per 1,000 people, approximately one-third below what planners called adequate. For patients, this often meant crowded, open wards with poor sanitation, a far cry from the vision of a modern, scientific hospital.

Since the Great Depression had frozen municipal bond markets and wartime priorities soaked up steel, cement, and labor, there were no resources to build hospitals to care for people.1

This created a perfect storm composed of:

• Demand for better medical care after the war

• The Flexner report, which improved medical education and created a class of scientific physicians who needed a place to practice medicine

• The federal government’s capacity for massive infrastructure projects, which were hugely successful during wartime

“We should resolve now that the health of this Nation is a national concern; that financial barriers in the way of attaining health shall be removed; that the health of all its citizens deserves the help of all the Nation.”

— President Harry S. Truman, special message to Congress, Nov 19, 19452

The political landscape led to the passage of the Hill-Burton Act in 1946 to improve healthcare. This act had a deceptively simple formula to fund healthcare, and it put American healthcare on a trajectory that continues to constrain our choices today.3 The table below provides a summary of the act and its path dependency.

By 1975, Hill-Burton money accounted for ≈17 % of all post-war bed growth, adding >70,000 beds and dramatically narrowing rural-urban gaps. More importantly, it set the stage for the rise of insurance companies.

(Per Wikipedia, Hill-Burton assisted in the construction of “nearly 40 % of the beds in the nation’s short-stay general hospitals” during the 1950s-60s.)4

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The Birth of Healthcare Insurance

In 1929, at Baylor University in Dallas, Texas, an official named Justin Ford Kimball developed a plan for school teachers. For a prepaid fee of 50 cents a month, the plan guaranteed teachers up to 21 days of care at Baylor University Hospital.

Instead of patients paying for hospital services after they got sick (often with money they didn't have), this system allowed people to pay a small, fixed amount in advance. It was a direct partnership with the hospital to cover the costs of room and board. This arrangement was the blueprint for what would officially become known as Blue Cross. Over the next few decades, these insurance plans started gaining traction.

During WW-II, the US government implemented a wage freeze to control inflation and stabilize the wartime economy. Employers who were struggling to attract labor used these health insurance plans as fringe benefits. Over time, these fringe benefits became a standard. The IRS cemented this standard practice into the economy by excluding employer premium payments from taxable income.

As working people were covered by insurance, political pressure gradually built up to extend coverage to the elderly and low-income population. This political pressure led to the birth of Medicare and Medicaid in 1965. This path dependence is demonstrated in the flowchart below.

Hill-Burton accelerated the market for health insurance by focusing exclusively on hospital construction and set off at least three self-inforcing loops with increasing returns,5 which is demonstrated in the flowchart below.

Essentially, the Hill-Burton Act’s dramatic expansion of hospitals burdened them with fixed costs (medical staff, utilities, etc). Therefore, to remain solvent/profitable, hospitals now needed a steady stream of customers, aka, patients. To attract patients, many hospitals created pre-paid plans for room, board, and care. Since most hospitals were built to “Hill-Burton standards,” along with the implementation of pre-paid plans, the cost of care delivery became predictable. This allowed actuaries to price the cost of care better and develop insurance products.6

The foundational mistake in the Hill-Burton policy design was tying funds too rigidly to one type of solution (in this case, hospital beds). This made the system blind to a more efficient distribution of healthcare resources.

The Downstream Effects of Hill-Burton

The Hill-Burton Act had far-reaching effects. The path dependency it created had three lock-in effects:

The Institutional Lock-In

Hill-Burton non-profit hospitals became political and economic institutions with their own constituencies as they were often major employer in their regions. This gave hospital administrators significant power and control over local politicians, leading to regulatory capture.

The Financial Lock-In

The debt service7 and operating costs (fixed costs) associated with non-profit hospitals created ongoing financial obligations requiring steady revenue streams. For a long time, financial lock-in made hospitals natural allies of insurance companies and advocates for payment systems that guaranteed revenues.

The Professional Lock-In

Hill-Burton reinforced the Flexner Report’s emphasis on hospital-based medical practice. Physicians trained in Hill-Burton teaching hospitals learned to practice medicine in resource-intensive institutional settings. This training created professional expectations and practice patterns that assumed ready access to hospital facilities and services.

Quick PCP Rant

Today, most PCPs don’t go to hospitals to see their patients who are admitted. Hospital-based physicians, called hospitalists, manage them. However, due to the legacy of this hospital-centric training model, we are still required to be credentialed and on staff at a local hospital.

In day-to-day practice, this means that I have to remain subservient to a local hospital even though I don’t see any patients there.

This requirement to be dependent on a local hospital is due to the path-dependency of physician training and the linking of quality of care with hospital privileges.8

End Rant

The Opportunity Cost

While Hill-Burton poured billions into hospital construction, it simultaneously created an opportunity cost that starved other health interventions of federal attention and resources.

Given that the federal dollars were tied to building hospital beds, it created unintended consequences:

• States built, or overallocated hospital beds where they were not needed, e.g., in sparsely populated areas. Outpatient facilities could have better served these places, but there was no economic incentive to build these facilities.

• The States built hospital beds where they were able to raise money, i.e., issue bonds. In practice, this meant that hospital beds increased in areas where middle to high-income people lived, even if those areas were sparsely populated.

• Since most local funding went to the construction of hospitals, it crowded out funding for outpatient facilities, community health centers, and public health programs.

These unintended consequences, in tandem with the Hill-Burton Act’s “Separate but Equal”9 clause, were magnified in redlined communities that housed mainly poor black and minority communities. These communities were unable to raise money by issuing bonds, so they did not benefit from building hospital capacity. Furthermore, since most of the funds were diverted to build hospitals, there was minimal money left over to construct outpatient medical infrastructure in these communities, creating healthcare deserts.

By 1973, <4 % of Hill-Burton grants had reached public-health centers, a fraction far below the Act’s original intent. GAO’s 1974 audit found that state agencies were “passive in the initiation of projects for the construction or modernization of outpatient facilities, particularly in poverty areas,” and had shifted “substantial” Hill-Burton money out of the outpatient/public-health category to bricks-and-mortar hospitals instead (PDF Link).

Conclusion

In a nutshell, America built hospitals at the expense of outpatient and public health infrastructure. The capitalistic market capitalized on the opportunity to create and sell insurance products, which in turn created an early hospital-insurance duopoly that came to dominate healthcare and regulators.

These changes had profound effects on healthcare delivery. From my prior article, “From Sewers to Stethoscopes,” I wrote about the impact of the Flexner report on American healthcare.

It is a significant historical reason for the paradoxical nature of the American healthcare system: it is home to some of the most technologically advanced medical care in the world, excelling at treating acute, complex diseases, yet it performs remarkably poorly on measures of public health, prevention, and equitable management of chronic illness.

The Hill-Burton Act is the second major, path-dependent reason for this outcome. Having built our healthcare system around these ‘cathedrals of medicine,’ the question we face today is how we can build the community-level infrastructure that was neglected for so long.

At its core, Value-Based Care aims to rebuild community infrastructure to keep people out of hospitals.

Up Next

Now that we understand how hospitals came to be the centers of healthcare delivery, in the next article, I will look at how America transitioned towards making people morally and socially responsible for their own health

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This video explores the rise of the hospital-insurance duopoly after WW-II, especially the unintended consequences of the Hill-Burton Act. The Hill-Burton Act provided funding to build hospitals in America, cementing them as the default choice for healthcare.

This video is the second in my series “Healers to Healthkeepers,” which explores the history and path dependency that led America from building public health infrastructure to holding doctors accountable.

Chapter Markers

• 00:00 - Intro

• 01:23 - Post WW-II Hospital Crisis

• 02:29 - Hill Burton Act

• 04:39 - The Rise of Healthcare Insurance

• 08:20 - The Problems with Hill-Burton Act

• 11:49 - Outro

Slides The Cathedrals Of Modern Medicine

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This video is the first in my new series “Healers to Healthkeepers.” It explores the history and path dependency that led America from building public health infrastructure to holding doctors accountable, & blaming them for the health of the population.

This podcast looks at how America transitioned from building public health infrastructure to relying on individual treatment to improve health outcomes.

Chapter Markers

• 00:00 - Intro

• 01:14 - The Sanitary Cleanup

• 03:42 - The Germ Theory of Disease

• 04:32 - The Flexner Report

• 08:09 - The Price of Progress

• 09:49 - The Flexner Tradeoff & Public Health Blind Spots

• 10:43 - Conclusion

Slides Sewers To Stethoscopes

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And yet, during this time, before bacteria were even identified as a cause of diseases, before penicillin was invented, life expectancy began to rise. This happened because engineers and sanitation officials built the infrastructure of public health.

So, how did we get from building sewers as health interventions to blood pressure quality metrics in 15-minute visits? This shift, from collective prevention by building public health infrastructure to individual clinical responsibility, is central to understanding why today’s doctors are being blamed, measured, and penalized for outcomes.1

This article is the first in a new series, “Healers to Healthkeepers.” This series explores the history and path dependency that led America from building public health infrastructure to holding doctors accountable, & blaming them for the health of the population.

Let’s dive into the first article.

The video version of this article is embedded below and available on my YouTube Channel.

The audio podcast and video versions are also available on the Podcasts Page.

The Sanitarian Era: When Engineers Saved More Lives Than Doctors

In the 19th century, cities across Europe and North America underwent rapid industrialization, resulting in a massive population shift from the countryside to cities. This urban density overwhelmed the existing infrastructure for housing, water supply, and waste disposal in these cities. This created a fertile breeding ground for disease, leading to endemic diseases such as cholera, typhoid, and tuberculosis.

Edwin Chadwick, a British lawyer and social reformer, authored the 1842 Report on the Sanitary Condition of the Labouring Population of Great Britain,2 which argued:

“All of the most common and dangerous diseases... may almost always be traced to filth, overcrowding, and the absence of drainage and pure water.”

— Chadwick (1842)

His work launched the sanitary reform movement, which framed health as a civic outcome, and not a moral failing. The focus was not on treating sick individuals with medicines but on re-engineering the urban landscape to prevent disease from occurring in the first place.3 This dominant view led to sweeping public investments in sewers, waterworks, and waste removal across London, New York, Boston, and other cities. These investments resulted in a dramatic reduction in cholera, tuberculosis, and other infectious diseases and led to an increase in life expectancy.

Now, this effort represented a profound assertion of state power and was a political intervention. The implementation of sanitary reforms required governments to intervene in areas of life previously considered private, such as housing conditions and waste disposal, and to appropriate enormous new powers of regulation and taxation.

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From Miasma to Microbes: The Birth of Modern Medicine

While sanitary engineers were rebuilding the physical world, a revolution was taking place in the microscopic world. The groundbreaking work of French chemist Louis Pasteur and German physician Robert Koch in the latter half of the 19th century shattered the miasma theory4 and established the Germ Theory of Disease.

This revolution had massive implications:

• It shifted causality from the environment to the individual.

• It gave doctors and laboratories new epistemic authority.

• It laid the groundwork for clinical interventions, like vaccination, antisepsis, and antibiotics.

This new scientific understanding shifted the focus of medicine from re-engineering cities to diagnosing and treating the specific pathogen-related disease in individual patients. The Germ Theory of Disease then set the stage for the rise of the “scientific physician.”

The Flexner Report: How Medical Science Took Over Health

In the 19th century, American medical education was an unregulated, chaotic mess. The American Medical Association (AMA), founded in 1847, had long sought to elevate the “doctor” profession by establishing uniform standards. In 1904, it tried to do this by forming the Council of Medical Education (CME) to inspect and rate the medical schools. However, it had no authority to enforce any standards.

As the 20th century began, the American medical education landscape remained deeply fragmented. While elite universities like Johns Hopkins were pioneering a new, rigorous standard based on the German research university model, they were vastly outnumbered by a chaotic marketplace of for-profit schools that required little more than the ability to pay tuition.

In 1910, the Carnegie Foundation published Abraham Flexner’s Medical Education in the United States and Canada (PDF link), a sweeping indictment of substandard, profit-driven medical schools. The Flexner report proposed:

• Closing substandard schools.

• Require a minimum 2-year college education before medical school admission.

• Standardized curriculum (2+2 model = 2 years of basic science with 2 years of hands-on clinical training).

• University integration that was staffed with full-time faculty.

The cultural impact of these changes was:

“Medicine is NOT a trade to be learned but a profession to be entered.”

— Flexner (1910)

Backed by AMA and philanthropic organizations such as Rockefeller and Carnegie Foundations, the Flexner Report succeeded in reshaping American medicine.5

While the Flexner report dramatically improved the quality of medical training,6 there were unintended consequences:

• Centralized medical legitimacy to elite academic institutions.

• Marginalized alternative forms of healing and community-based care.

• De-emphasized public health.

As sociologist Paul Starr put it:

“The sovereignty of scientific medicine in the twentieth century rested not on clinical results alone but on control of the cultural authority to define health and illness.”

— Starr (1982, p. 122)7

Physicians emerged from the Flexner era as the professional class most closely associated with “health,” even though the largest health gains still came from improvements in infrastructure, nutrition, and housing.

The Great Bifurcation

The Flexnerian revolution fundamentally altered the landscape of American health by creating a deep and lasting schism between two distinct domains: clinical medicine and public health.

This divided our health system into two specialties:

• The physician heroes of biomedical medicine who saved your life when you became sick.

• The invisible public health officials who worked tirelessly in the background, trying to keep you healthy.

This specialization initially led to immense progress in both fields. However, it also institutionalized a division in funding, training, and political focus, which over time shifted the focus away from societal health towards individualized medicine.

Furthermore, the Flexnerian medical curriculum, organized around basic sciences, discrete organ systems, and specific disease pathologies, inherently favored medical specialization. Payment reforms later cemented this, rewarding specialists with much higher payments compared to their generalist colleagues (primary care, family medicine, pediatrics).

Specialist training dramatically improved outcomes for complex diseases, but created a paradox. The decline in primary care meant that more patients developed complications, which required specialist treatment that could have been prevented by good primary care.

The Price of Progress

How did the medical profession achieve the power to create such a system?

Paul Starr, in his Pulitzer Prize-winning work, “The Social Transformation of American Medicine,” argues that professions achieve power by establishing authority, which in turn depends on:

• Legitimacy: the public’s acceptance of the profession’s claims to superior knowledge and competence

• Dependence: the public’s reliance on the profession’s unique skills and services.

Starr further distinguishes Authority as:

• Social authority: the power to command and direct action.

• Cultural authority: the power to construct reality by defining what is normal and what is deviant (e.g., what is healthy and what is disease).

The rise of the medical profession was a concerted effort to build both forms of authority. This, over time, created the necessary conditions for a phenomenon sociologists call Medicalization: the process by which normal human conditions and social problems come to be defined and treated as medical illnesses.8

And not only do we pay the price for the medicalization of normal behavior (e.g., shyness, grief, pre-diabetes, pre-hypertension, etc), but also a cultural acceptance that healthcare is a contract between an individual patient and doctor, and not a social contract.

This new ideology of individualized health, based on the biomedical concept of disease, led policymakers to neglect upstream factors—housing, wages, zoning—while channeling resources into clinical services.

Conclusion

Now, the above essay is still a simplistic narrative of the complex arc of history and path dependence. For example, it ignores the vast gains in life expectancy from the development of vaccines, which required both the biomedical model to understand the pathogens and public health infrastructure to immunize the population.

Still, looking back, the Flexner model was an exercise in tradeoffs. The historical bifurcation due to the implementation of the Flexner report led to a shift from collective prevention to individual treatment. It is a significant historical reason for the paradoxical nature of the American healthcare system: it is home to some of the most technologically advanced medical care in the world, excelling at treating acute, complex diseases, yet it performs remarkably poorly on measures of public health, prevention, and equitable management of chronic illness.

And to be fair, public health has its blind spots. Some structural determinants of health, especially housing and zoning reforms, are still unequally distributed along racial and socioeconomic lines.

The problem isn’t the bifurcation of medical science into biomedicine and public health. The problem is we let public health infrastructure rot,9 then handed the cleanup to doctors, with no tools, no time, and all the blame.

Up Next

This article laid the foundation for the rise of modern medicine at the expense of public health. In the next article, I will look at how hospitals became the dominant force in healthcare delivery, which in turn led to the emergence of the health insurance industry to finance healthcare delivery.

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