'Remove fee for service': Gary Jacobs on premiums, physician risk and primary care-led reform

Health insurers on the Affordable Care Act marketplaces are asking regulators for a median 14% premium increase for 2027, a second straight year of double-digit hikes that, if approved, would push typical premiums up by more than a third in two years, according to a Peterson-KFF Health System Tracker analysis of preliminary filings across 16 states and Washington, D.C. Insurers blame rising medical and drug costs and the expiration of enhanced tax credits. Gary Jacobs blames the payment system.

"It would be the number one thing I would change in the health care system: remove fee for service," Jacobs said. He has spent more than 40 years in health care as an entrepreneur, operator and policy advocate, and he helped build organizations now cited as proof that a different model can work. Those include the Medicare Advantage challenger Universal American and, later, VillageMD, one of the first participants in the direct contracting experiment that the Center for Medicare and Medicaid Innovation (CMMI) reshaped into ACO REACH.

Today he is managing director at the Washington policy firm Healthsperien, an adjunct professor at American University, host of the "Policy Prescriptions" podcast and the author of "The Zen Lobbyist: A Mindful Approach to Transforming Healthcare."

His argument arrives with fresh evidence attached. Newly released federal data show ACO REACH posted the strongest financial year in its history in 2024, generating roughly $2.5 billion in gross savings and returning nearly $1 billion to Medicare, even as the model heads for the exit at the end of 2026 and hands off to a successor, ACO LEAD, set to launch in January. Jacobs' read is that primary care-led groups taking financial risk for a defined population are the only durable way to slow spending, and that the documentation burden crushing independent physicians is, underneath it all, an economics problem fee for service cannot fix.

He also makes a less conventional case: that physician and patient well-being, from chronic stress to social isolation, belongs inside primary care rather than bolted on beside it. It is the throughline of his book and, he says, of his own recovery from anxiety and depression.

Medical Economics spoke with Jacobs about what is really driving premiums, why value-based care has taken so long to prove itself, what independent physicians need before taking on risk and how he reads the leadership now running CMS under administrator Mehmet Oz, M.D.

This interview has been edited for length and clarity.

Let's start with your background. How did you get into this work?

Gary Jacobs: I'm a health policy person, but I've also worked the operational side as an entrepreneur, always at the intersection of public policy and business opportunity. The government can only fund so much. Innovation may start at the federal level, but it comes from the private sector and private investment, and I've tried to balance the two.

I spent much of my early career in South Florida before moving to Washington. At Universal American, we were one of the newer players in Medicare Advantage and Part D, a Medicare Supplement company that converted into a Medicare Advantage company and grew quickly. I was on the Hill representing the payer side and advocating for Medicare Advantage.

Then I moved to the provider side at VillageMD, which was our vision of what primary care-led, risk-bearing physician groups could look like done correctly. We got serious when Adam Boehler at CMMI announced direct contracting; we were an initial participant and fit the model well, and I became co-chair of America's Physician Groups' coalition on direct contracting. When the Biden administration came in, we had to convince the new leadership, led by Liz Fowler, that direct contracting wasn't a threat but a way to let primary care-led groups take financial and quality accountability for their populations. That work, plus an equity component aimed at underserved communities, became ACO REACH.

ACO REACH thrived. The latest results show about $2.5 billion in savings in 2024, with primary care-led ACOs performing best. The model got politically tarnished on the left and drew benchmark concerns on the right, so it's now giving way to a new model, ACO LEAD, where the REACH participants will move. What's encouraging is that Abe Sutton and his team at CMMI understand this world from the private sector and made refinements before putting it out.

KFF and the Peterson Center put the median proposed 2027 ACA increase at 14%, on top of roughly 20% this year. From where you sit, what's driving a second straight year of double-digit hikes?

To me, it's mostly on the delivery-system side. Fee for service is still in a strong position, and hospitals build their pricing to match whatever model they're in; their CFOs adapt quickly. You can generate savings on the primary care side by managing utilization, but when a single hospital system dominates a market and you're paying 100% of Medicare or more, the economics are very hard to make work.

Drug pricing compounds it, and so does fraud. Skin substitutes and catheters on the durable medical equipment side were a serious problem for ACOs, where patients can move in and out of the system more easily than in Medicare Advantage, which controls authorizations. Bad actors exploited fee for service, charging enormous amounts for questionable skin-substitute claims that CMS was paying. ACOs can help police this, because we know what our physicians are doing and where referrals go, but the process was slow, because fraud had to move through the justice system, with charges filed, before much could happen. Hopefully the new CMMI models account for that.

So the big cost drivers are inpatient and hospital post-acute care, and specialties. Primary care-led models are the only real path to controlling spend. Everyone should have access to a primary care-led team that manages the whole picture alongside the patient, and I'd incentivize providers to share in savings, especially when primary care leads. Where specialists lead, payment should move to bundles.

The argument is that paying for volume, more visits and more procedures, pushes total costs up. Do you buy that as a driver of what's happening to premiums? And if so, how would you change the model?

It would be the number one thing I'd change: remove fee for service. It rewards transactional care, like shopping in a retail store, where you keep buying and no one is coordinating whether you actually need any of it. The primary care physician should play that role, because patients are limited in what they know; they turn to Google or an AI chatbot and think they've found the answer.

Part of the problem is that primary care is hard to sustain. Many physicians train, spend a little time in primary care, then move into better-paying specialties like dermatology or orthopedics, so the pipeline thins out. Local economics matter too; in markets with rich federal retiree and military programs, there's less pressure to adopt value-based models than in places that have had to work harder to control costs.

Value-based care has been the promised fix for well over a decade. Why hasn't it bent the cost curve yet, and what would tell you it's finally working?

The clearest evidence it's working is ACO REACH: billions in savings, millions of people in these programs, and physicians who are comfortable with the shift away from being paid per order or per transaction. In a value-based relationship, the conversation changes. A physician can say, 'You don't need to come in for that; let's do a telehealth visit,' or ask whether a patient is exercising and using the trainer or chiropractor the plan already pays for through capitation. Technology will push this further.

The bigger idea is that care has to address well-being, not just sickness: mental health, physical health, stress, exercise, diet, screen time. You can't separate mental health from physical health, and when you put both under primary care and move payment from fee for service to value, you move the whole system forward. We've done some of this, but not as a full national commitment.

There are structural pieces to fix, like the AMA's RUC and how it controls pricing. But when I've met with the physician caucuses on both sides of the aisle, they genuinely want to do better, and that's where a lot of the movement is: shifting from MIPS and the relative value scale toward rewarding alternative payment models. We should be accelerating that, not arguing about it.

A big part of the Medical Economics audience is independent primary care physicians, many in smaller practices. Moving to value-based arrangements often means taking on financial risk and more administrative work. What's realistic for that physician, and what do they need in place before they can make the jump?

Primary care offices can't manage this on their own. You can't see patients all day and then spend three hours on paperwork every night; it isn't sustainable, and hiring people to handle it doesn't pencil out under fee for service.

This is where value-based care helps. A capitated, risk-adjusted payment gives a practice the cash flow to hire the staff it needs and to use everyone at the top of their license, with nurses and nurse practitioners handling more, the physician overseeing a larger panel, and patients engaged and their wellness documented alongside chronic conditions. It works if the economics line up, and transactional fee for service can't get there.

I've watched older physicians resist this: 'I'm 60, I've been fee for service my whole life, and now you want me to take on risk?' Often they bring in a younger associate and plan to hand off the practice, but when that associate can't afford to buy it, a hospital steps in, and the physician ends up captive to the hospital, salaried, taking call and doing things they never had to before. At VillageMD, we bought a lot of practices from physicians who'd sold to hospitals and regretted it.

So the opportunity is to design value-based care around the physician and the patient, primary care-first. The physician caucuses are ready to move, and I've been impressed with the current CMMI under Abe Sutton, who understands how the private and public sectors can work together. I also think Oz gets it in a way that adds credibility to the role, in part because he's a physician.

Is there anything I didn't get to ask you that you'd want to share with the audience?

One area I'd emphasize is mental health, which I work on through a coalition with Patrick Kennedy. Social isolation and loneliness are a real and growing problem, and so is addiction, not only to substances but to the algorithms behind social media and betting apps. If we don't take these seriously, they'll do real damage, especially to young people. It's part of why I believe well-being belongs in the primary care conversation.

That connects to my book, "The Zen Lobbyist." I went through my own period of anxiety and depression, and rather than reach first for medication, I did the harder work: yoga, meditation and mindfulness became my antidote for stress. Anyone who thinks they have all the answers is carrying stress they don't even feel, and over time that takes a toll, physically and mentally. Building those practices into my life gave me, in effect, a second start.

The book is really a love letter to Congress, a reminder that we all want the same things: to care for our families and to leave the world a little better. It lays out the techniques I've used, whether meditation, prayer or simply spending more time with the people around you, and how I've applied them in my own work. I'll leave you with three lines I keep coming back to: silence is strategy, compassion is influence, and gratitude is renewal.