The PACE Model: What the Rest of Healthcare Should Learn About Risk

By Raghu Santhanam, MBA, MHA, HFMA, FACHE

VBC Advisor | Healthcare CFO | Analytics/AI Executive

Most healthcare executives have heard of PACE. Few have studied it closely enough to understand why it may be the most sophisticated risk model in American healthcare — and what the rest of the industry could learn from it.

PACE — the Program of All-Inclusive Care for the Elderly — was designed to solve a specific problem: how do you care for the most medically complex, highest-cost patients in the country, keep them at home instead of nursing facilities, and do it sustainably under full financial risk?

The answer PACE arrived at is one that most health systems and payers are still struggling to reach thirty years later.

What PACE Actually Is (And Why It's Different)

PACE organizations take on full capitated risk for frail elderly patients who qualify for nursing home-level care. They receive a blended Medicare and Medicaid capitation rate — and they are responsible for everything. Primary care. Specialty care. Hospital. Pharmacy. Home health. Adult day services. Transportation. Dental. Behavioral health. All of it, under one financial roof.

No fee-for-service billing. No incentive to generate volume. No cost-shifting between payers.

Just a per-member monthly payment, and the full accountability to keep that person healthy, functional, and at home.

That is what full risk actually looks like. Not a shared savings arrangement with a corridor and a stop-loss at 3% of the benchmark. Not a quality bonus tied to HEDIS measures. Full. Capitated. Risk.

The Financial Architecture Is the Insight

What makes PACE financially sophisticated is not just the capitation — it is the integration of clinical and financial decision-making at the point of care.

In a typical health plan, the CFO looks at medical cost reports two to three months after the fact. A utilization management team reviews prior authorizations. A population health team runs analytics on claims data with a 60-day lag. These functions are organizationally separate, temporally disconnected, and often misaligned.

In a well-run PACE organization, the interdisciplinary team sitting around the care conference table is simultaneously making clinical and financial decisions in real time. The nurse, the social worker, the physical therapist, and the physician are not just asking "what does this patient need?" — they are asking "what is the most effective use of our capitated resources to keep this person safe and functional?" That is integrated care and integrated finance operating as a single system.

Most ACOs, CINs, and value-based care programs are trying to replicate this dynamic across sprawling networks of independent physicians and hospitals. PACE builds it structurally.

Three Things Healthcare Should Steal From PACE

1. Accountability without an escape valve.

In most VBC arrangements, there are exits. If a patient is too sick, they go to the hospital, and the cost shifts. If utilization spikes, there is a risk corridor. If the arrangement is not working, it can be renegotiated.

PACE has no exit valve. When a PACE participant needs hospital-level care, the PACE organization pays for it — and has every incentive to prevent it through upstream investment in home care, adult day services, and proactive clinical management.

The industry talks endlessly about moving from volume to value. PACE is what it looks like when you actually close that loop.

2. The adult day center as an underutilized infrastructure investment.

One of PACE's most powerful tools is the adult day health center — a place where participants receive medical care, therapy, socialization, and monitoring in a community setting. It sounds simple. It is actually a profound financial intervention.

For a high-risk frail elderly population, isolation, deconditioning, and missed medication doses are the primary drivers of preventable hospitalization. The adult day center addresses all three simultaneously, at a cost far below what an inpatient admission or skilled nursing stay would require.

Most health systems have not invested seriously in community-based care infrastructure. PACE organizations have understood for decades what the rest of the industry is only beginning to model: keeping people well in the community is dramatically cheaper than treating them when they deteriorate.

3. Population definition clarity drives financial sustainability.

PACE works in part because the population is precisely defined. You know who you are responsible for. You can design care systems, staff appropriately, and model financial performance with meaningful accuracy.

One of the core failures of broad VBC arrangements is population attribution ambiguity. Who is "in" the ACO? Which patients count for shared savings? Attribution rules that change annually make it nearly impossible to invest in long-term care management infrastructure.

PACE's enrollment model — voluntary, explicit, and stable — creates the population clarity that makes genuine risk management possible.

The Broader Lesson for VBC Strategy

I have spent my career building the financial and analytics infrastructure that makes risk-bearing care models work — at Humana, BCBS Michigan, Ochsner Health, Teladoc, and now as an independent advisor. The organizations that succeed in VBC share a common trait: they treat financial accountability and clinical accountability as inseparable.

PACE figured this out by necessity. When you are fully at risk for a nursing-home-eligible population with no escape valve, you cannot afford to run clinical and finance as separate departments. You cannot afford 90-day data lags. You cannot afford population attribution ambiguity.

The rest of healthcare is slowly learning the same lessons — under less acute financial pressure, which may be part of why progress is slower.

But as Medicare Advantage margins compress, as Medicaid managed care contracts become more demanding, and as CMS continues to push toward full risk models, the pressure will intensify. The organizations that have already built the integrated care and financial infrastructure — or that can learn from the organizations that have — will be positioned to thrive.

PACE has been proving the model works for thirty years.

The rest of healthcare should pay closer attention.

Raghu Santhanam is a healthcare CFO, VBC strategist, and analytics executive with 30+ years of experience, having worked at SSM Healthcare, BJC, HSHS, Humana, Blue Cross Blue Shield of Michigan, Ochsner Health System, and Teladoc Health. He advises health systems, health plans, and digital health organizations on value-based care, financial strategy, and population health analytics through VBC Advisor LLC.

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