Medi-Cal Bold Idea — Multipayer Primary Care Payment Reform Model

This paper is part of CHCF’s Bold Ideas for Medi-Cal initiative, which sought innovative ideas for strengthening California’s Medicaid program. The views expressed are those of the authors and do not necessarily reflect the views of the California Health Care Foundation.

Executive Summary

California has set a clear vision for high-quality primary care: care that is accessible, team-based, person- and family-centered, integrated, coordinated, and equitable.[i] Achieving this vision requires changing primary care payment — both in terms of how much spending goes to primary care and how primary care providers are paid. The state has made real progress on the investment question, setting a goal of directing 15% of all health care spending to primary care by 2034.[ii] For Medi-Cal, meeting this goal means shifting nearly $5 billion annually to primary care at a moment when federal cuts are threatening the safety net. To ensure this reallocation of spending results in desired outcomes, it is equally important to address the “how.”

Today’s primary care payment system is fragmented across payers and does not support the care that Californians need. Providers navigate divergent payer directives despite the desire to deliver one proven model of primary care. As a result, providers struggle to deliver advanced primary care functions — including integrated behavioral health, medication management, population-based prevention and chronic care management, and social health navigation — associated with better outcomes for patients.

The solution is to align California’s three largest public purchasers — the California Department of Health Care Services (DHCS), Covered California, and CalPERS (California Public Employees’ Retirement System) — around a single, shared primary care payment framework. These purchasers cover more than 18 million Californians, almost half the population. With a unified approach to primary care payment, purchasers can send a clear, consistent signal to managed care plans and providers about what primary care should look like — and ensure that investments support services that will benefit patients. The shared approach will strengthen California’s primary care providers — including Federally Qualified Health Centers (FQHCs) and other practices — using a standardized, multilayer framework:

• Layer 1: Base payment. Socially and medically adjusted prospective per member per month (PMPM) payment for most primary care services, and fee-for-service payments for select services and supplies.
• Layer 2: Population health payments. Paid as a PMPM to support advanced primary care functions that are not otherwise compensated, such as prevention, chronic care management, and behavioral health integration, resulting in care that optimizes patient health, reduces unnecessary and avoidable utilization, and mitigates clinician burnout.
• Layer 3: Complex care management payments. Payments to support care management and coordination for high-risk patients.
• Layer 4: Quality and total cost of care incentives. These reward performance on a discrete, shared, standardized set of health quality measures.

The urgency is real. Federal and state policy changes and budget cuts threaten the stability of California’s safety net. California has the policy momentum and purchasing power to act now. Payer collaboration is better for providers and patients, builds on other state multipayer efforts, provides a credible path to meet state policy goals, and gives plans a consistent contracting framework. Most importantly, when payers operate within a shared framework, providers can focus on what matters most: care that improves the health of all Californians.

Why Primary Care — and Why Payment Reform

What Is Advanced Primary Care and Why Primary Care Matters

Primary care, the foundation of a high-performing health system, is the front line for prevention, managing chronic conditions, accessing behavioral health support, building trust with patients, and helping people navigate a complex system of health and social services. When primary care works well, people stay healthier, disparities narrow, and costly hospitalizations become less common.

California has set a clear vision for advanced primary care as accessible care that “fosters long-term trusting relationships, and utilizes well-rounded, interprofessional primary care teams to provide comprehensive, person- and family-centered, integrated, coordinated, and equitable care.”[iii] For this paper, “advanced primary care” encompasses California’s vision and includes the research-based primary care functions associated with better outcomes for patients, providers, and populations (Table 1).[iv]

Table 1. Advanced Primary Care Functions Delivered by a Multidisciplinary Team

Function	Definition of Function
Population-based prevention and chronic care management	Proactively identify gaps in care and support patients to receive and adhere to evidence-based care plans.
Electronic health record and technology support	Maintain data reporting and analysis expertise for quality improvement, population health management, and planned care, including managing integration of new technology, such as artificial intelligence (AI).
Screening for substance use disorders	Systematically screen for substance use disorders, including alcohol abuse.
Care coordination and referral management	Help patients access specialty care and community resources, and ensure exchange of information between primary care and community organizations and/or specialists.
Communication management	Manage patient portal communication (if applicable), triage patient questions and requests, and maintain a system for communicating test results.
Patient education and self-management support	Help patients be partners in their care through education, goal setting, and action planning.
Medication management beyond routine care	Provide medication titration/treat-to-target services, improve medication adherence, and review medications for dangerous interactions or errors. Most evidence supports a clinical pharmacist providing these functions.
Care management for complex patients	Provide additional clinical or nursing support for patients with multiple chronic conditions, including patients at risk for hospitalization or readmission.
Behavioral health integration beyond routine primary care	Integrate care for mental, behavioral, and psychosocial issues into primary care, including screening and treatment for depression and anxiety.
Linkages to community-based social services to support health-related social needs	Understand community- and patient-level health-related social needs and connect to resources to offer support, such as insurance navigation, food banks, or transportation.
Quality improvement	Make ongoing, team-based efforts to review measures of clinical and operational effectiveness, and use a strategy to test and spread new ideas.
Enhanced access	Provide services outside prescheduled, in-person visits during work hours, such as telehealth, remote services, after-hours, and same-day appointments.
Treatment for substance use disorders	Offer medication-assisted treatment for substance use disorders along with counseling or behavioral therapy.
Oral health care services	Assess oral health risk factors and active oral disease. May offer services ranging from fluoride varnish for children to cleanings and fillings for adults.

Source: Minor author edits to Table 1 in Diane Rittenhouse et al., Strengthening California’s Primary Care Team Workforce: Data and Recommendations for Action, California Health Care Foundation, February 17, 2026, which cross-walked multiple sources of research on evidence-based advanced primary care functions.

The National Academies of Sciences, Engineering, and Medicine drew a direct line between primary care and payment: “Implementing high-quality primary care requires committing to pay primary care more and differently given its capacity to improve population health and health equity for all society, not because it generates short-term returns on investment for payers.”[v]

California cannot achieve its equity, access, affordability, or workforce goals without fundamentally changing primary care payment. The state has set ambitious benchmarks for both “how much” and “how” primary care providers should be paid.[vi] The California Office of Health Care Affordability (OHCA), part of the California Department of Health Care Access and Information, has set a target of spending 15% of all health care funds on primary care by 2034, while capping overall annual health spending growth at 3%–3.5%. In Medi-Cal, even after projected coverage losses due to H.R. 1, this means shifting nearly $5 billion of annual health spending into primary care by 2034, representing a 36% increase over current levels.[vii] To ensure that this shift translates into improved access and services for patients — and ultimately better outcomes — we must look more closely at how primary care providers are paid.

Why Current Payment Fails

Today’s primary care payment system is fragmented across payers and does not support sufficient access in many counties or the team-based care that is integral to advanced primary care.[viii]Primary care for individuals insured through Medi-Cal, Covered California, and CalPERS is currently delivered by a mix of FQHC and non-FQHC providers operating independently or as part of medical groups, hospitals, and integrated delivery systems:

• FQHCs, which serve a disproportionate share of Medi-Cal’s most vulnerable and uninsured patients, provide approximately 30% of Medi-Cal primary care visits.[ix] However, they rely on encounter-based payments called Prospective Payment System (PPS) payments restricted to select provider types, which incentivizes visits with billable providers rather than having all members of a care team work at the top of their license.
• Non-FQHC providers deliver the remaining 70% of Medi-Cal primary care visits and receive fee-for-service or primary care capitation payments. Both payment approaches undervalue chronic disease management, care coordination, behavioral and social health integration, and time-intensive cognitive services because reimbursement remains largely tied to visit-based billing and historically derived payment rates that do not reflect the full scope of advanced primary care.[x]

Current primary care payment models have limited providers’ ability to implement team-based care, which contributes to provider burnout.[xi] Burnout exacerbates primary care workforce shortages and leads some future medical graduates to avoid primary care. Current primary care payment has also resulted in underinvestment in prevention, population health programs, new technologies, and data-sharing infrastructure that facilitate coordinated care across the health system.

Promising initiatives are addressing these problems, including the privately funded Population Health Management Initiative and the DHCS Equity and Practice Transformation Payments Program.[xii] But they rely on temporary funding and are not available to all practices. Without a stable payment foundation, practices cannot sustain all of the capabilities these programs build. Non-participating providers may be unable to build critical capabilities at all.

The Problem

One Care Model, Many Payers → Structural Failure

Primary care practices aim to deliver the same high-quality care to every patient, regardless of insurance. For many providers, this approach to care feels like a moral imperative. Yet doing so is both financially and operationally difficult when different payers use different payment methods, billing parameters, and quality measures.

Practices must navigate conflicting billing rules and reporting timelines, introducing administrative complexity that takes time away from patients. In the worst cases, payer-specific payment structures push practices toward offering different levels of care to different patients. And competing quality measures from different payers dilute the signal about where to focus improvement efforts.

These challenges create a structural failure in primary care. A single, shared payment framework would enable practices to invest in shared technologies and infrastructure and deliver the same high-quality care to every patient, regardless of their coverage.

Why Purchasers Need to Work Together

No single purchaser or payer can drive lasting care transformation across California. Medi-Cal currently insures more than 14 million Californians and will remain the state’s largest purchaser even after projected coverage losses due to recent federal and state policy changes.[xiii] However, Medi-Cal operates through 24 distinct managed care plans, some of which further delegate payment responsibility to other plans and/or independent practice associations. Each entity can have its own payment arrangements, resulting in a dizzying maze of processes and requirements for providers contracting with multiple payers. Even though some plans are contracted by Medi-Cal, Covered California, and CalPERS, no one entity can independently shift how primary care is paid statewide.

Research suggests that approximately 60% of payments to primary care practices should be in the form of flexible, capitated funds as opposed to fee-for-service reimbursement.[xiv] This ensures sustainable primary care transformation because much of advanced primary care is effectively delivered by non-clinician care team members and outside of traditionally billable visits, such as chronic disease management by a nurse or community health worker outreach for prevention. Most primary care providers do not have more than 60% of patients from one purchaser, much less one plan. Reaching this threshold will necessitate collaboration and alignment across payers. Such collaboration could be voluntary but would be guaranteed with government intervention.

Aligning payers within a shared payment framework is not only operationally necessary, it is essential to achieving California’s broader health system transformation goals. One is OHCA’s goal that 60%, 75%, and 95% of commercial PPO, Medi-Cal, and commercial HMO members’ care, respectively, be paid under alternative payment models by 2034, reflecting the scale of change and underscoring the need for coordinated action across payers.[xv] Having three large public purchasers direct plans to pay primary care in an aligned way would accelerate progress toward this value-based payment goal while decreasing administrative burdens on providers —sending a clear message about care and quality.[xvi]

Multipayer alignment also makes care transformation more financially viable for individual practices. When a practice knows that consistent funding covers the majority of patients, it can make sustainable investments, such as hiring a nurse care manager or clinical pharmacist, or building the data infrastructure needed for population health management. Aligning payments can facilitate hiring the full-time staff needed to execute advanced primary care functions — something many practices cannot justify without predictable, multipayer revenue.[xvii]

The Bold Idea

The Multilayer Model for the Many Functions of Primary Care

Primary care delivers many different functions: prevention and chronic disease management, behavioral and social health integration, care management and coordination, technology-facilitated access, and more. No single payment method can support all of them effectively.

A multilayer model uses different approaches to match payment type to function, balancing the incentives and limitations of each. The model has four layers (see Table 2):

• Layer 1: Base payment. Predictable, socially and medically risk-adjusted PMPM funding for most primary care services, plus fee-for-service payments for select services that do not belong under primary care capitation (e.g., dental services and specialty mental health paid by counties), services that are difficult to incentivize under capitation (e.g., annual wellness checks), procedures (e.g., select dermatological procedures that are more affordably and conveniently delivered in primary care settings), and costly supplies (e.g., long-acting reversible contraception and select vaccines). To align with federal requirements, FQHCs could choose their per-visit PPS rate or, with state approval, a PMPM payment under California’s FQHC Alternative Payment Methodology.
• Layer 2: Population health payments for advanced primary care. Tiered, cumulative PMPM payments for advanced primary care functions that are not otherwise compensated, resulting in care that optimizes patient health, reduces unnecessary and avoidable utilization, and mitigates clinician burnout. Practices would attest to their adoption of these functions, including behavioral health integration, social health navigation, expanded access (such as telehealth and after-hours care), and medication management (Table 1). Practices and, in some cases, networks of providers, would hire new team-based roles such as behavioral health clinicians, clinical pharmacists, nurse care managers, pediatric educational liaisons, community health workers, and peer-support specialists. In Medi-Cal, to avoid duplication, payments would apply to members who do not receive the Enhanced Care Management benefit under CalAIM (California Advancing and Innovating Medi-Cal).
• Layer 3: Complex care management payments. PMPM payments to support intensive care management and coordination for high-risk members, such as patients transitioning out of hospitals or prisons. In Medi-Cal, this would mean continuing PMPM payments for the 1%–5% of members receiving the Enhanced Care Management benefit.
• Layer 4: Quality and total cost of care incentives. Required incentive payments for performance on a discrete set of shared quality measures (e.g., percent of population completing preventive screenings or blood pressure control), paid in advance and based on past performance. As an additional option, practices may contract for shared savings when the total cost of care of the population for whom the practice is accountable is less than an expected benchmark. Some practices may also pursue downside risk where they would incur a financial penalty when their assigned population’s total cost of care exceeds an agreed upon benchmark. Only practices with sufficient scale, data capacity, and risk corridors to participate safely should enter into downside risk contracts. Shared savings and downside risk contracts are likely to be through a risk-bearing entity, such as an independent practice association or accountable care organization.

This hybrid structure is essential. It gives practices the flexibility, stability, and accountability to deliver whole-person care, and the financial runway to adapt to and adopt new technology, including AI. The model can be administered by a managed care plan or any other risk-bearing entity responsible for primary care payment.

Table 2. Multilayer Model: Distinct Layers with Distinct Purposes

Layer	Purpose
Layer 1: Base Payment for Primary Care
Layer 1a: Risk-adjusted PMPM Payment for Primary Care Services	∙ Risk adjustment for medical and social complexity (at individual and community level) encourages care for complex and aging populations. ∙ Prospective, per-member payment provides stability and flexibility to deliver care in an evolving technology, organizational, and policy environment.
Layer 1b: Fee-for-Service for Select Services and Supplies	∙ Offers incentive to deliver more select services. ∙ Acknowledges that not all services delivered within primary care should be under capitation. ∙ Limits financial losses on high-cost supplies.
Layer 2: Population Health Payments for Advanced Primary Care Competencies
Layer 2: Tier 1, Tier 2, Tier 3   Tiered, cumulative PMPM payments for practices adopting functions of advanced primary care. Competency assessed through attestation. State stakeholders would need to collaboratively decide which functions belong in each tier. Tiers are cumulative. Total PMPM = T1+ T2 + T3 payments for a practice meeting all competencies.	∙ Provides upfront, flexible payments for advanced primary care competencies and incentive to progress to higher tiers. ∙ Tiers acknowledge wide range of provider starting points and offer a sustainable pathway for incremental improvements through adding new research-based functions. ∙ Hypothetical Tier 1 competencies: population-based prevention and chronic care management, behavioral health screening and referral, patient education, communication management, electronic health record and technology support. ∙ Hypothetical Tier 2 competencies: clinical pharmacist medication management, behavioral health integration, social health navigation. ∙ Hypothetical Tier 3 competencies: quality improvement, enhanced access, substance use disorder treatment, oral health services.
Layer 3: Complex Care Management Payments (PMPM)
Complex Care Management Payment (PMPM for complex, high-risk members)	∙ Provides additional funds for complex care management and coordination for the most vulnerable populations (e.g., unhoused and people transitioning from inpatient settings).
Layer 4: Quality and Total Cost of Care Incentives
Required: Pay-for-performance quality incentives for achievement and improvement on shared measure set   (PMPM paid prospectively based on recent past performance)	∙ Shared measure set directs providers where to focus quality improvement and lowers administrative burden for reporting. ∙ Provides a clear financial incentive for striving toward and achieving quality benchmarks. ∙ Prospective payment based on prior performance allows practices to build incentive payments into operations.
Optional: Shared savings and downside risk based on total cost of care. (Paid as lump sum based on performance compared to benchmarks)	∙ Provides financial incentive and potential reward for managing total cost of care effectively. ∙ Should be limited to practices that have the necessary volume, data capacity, and financial sophistication to take downside risk.

Source: Author’s adaptation of Rachel Tobey et al., “Health Centers and Value-Based Payment: A Framework for Health Center Payment Reform and Early Experiences in Medicaid Value-Based Payment in Seven States,” The Milbank Quarterly 100, no. 3 (September 2022): 879–917. Layer 2 is author’s adaptation of Massachusetts Medicaid Primary Care Sub-Capitation Program.

Who Participates and Benefits

Under this model, patients would have access to more robust care teams, more consistent preventive care, and better integrated behavioral and social health care. They would feel the difference when a community health worker helps them stay enrolled in coverage, when a care coordinator follows up after a hospitalization, or when a non-billable team member, such as a clinical pharmacist or nurse, delivers a service that today goes unfunded.

Policymakers, purchasers, payers, and primary care practices would see significant structural improvement over the status quo. The proposal not only invests in primary care but channels dollars in ways that are known to improve outcomes and efficiencies in the overall health care system (see Table 3).

Table 3. Key Benefits for Stakeholders

Stakeholders	Key Benefits
Patients	∙ Increased access to additional services within primary care: behavioral health, clinical pharmacy, social health navigation, etc. ∙ Better health outcomes over time
Primary care providers (FQHC and non-FQHC)	∙ Sustainable, team-based care models that allow members to work at the top of their license and receive market-based pay ∙ Reduced burnout and greater job satisfaction
Payers (managed care plans, independent practice associations)	∙ Shared investment amplifies the impact of each payer’s primary care dollars ∙ Clearer path to meeting state requirements for primary care spending and value-based payment adoption ∙ Strong care management and behavioral health integration are especially valuable for Medi-Cal plans now required to administer integrated Medicare/Medi-Cal insurance for dually eligible members under CalAIM ∙ Improved performance on accountability measures
Purchasers (DHCS, CalPERS, Covered California)	∙ Confidence that primary care investments reach practices and support proven care models ∙ Purchasing power leveraged to better meet member needs ∙ Potential to encourage other purchasers to align around the same framework
Policymakers and Taxpayers	∙ Resources directed toward areas of California with the greatest primary care and behavioral health workforce gaps driven by historical underinvestment ∙ A stronger safety net capable of serving anyone who loses coverage ∙ Long-term potential to reduce total cost of care across the system

Source: Author’s analysis, 2026.

How the Model Works for Providers

The model is designed to work for both FQHCs and non-FQHC primary care practices, while accounting for their different circumstances.

For health centers, Layer 1 base payments would be adapted to comply with federal statute requiring them to receive their encounter-based PPS rate or an Alternative Payment Methodology that they agree to (and would comprise no less than what they would have received under PPS).[xviii]

Layer 2 Population health payments would be tiered to promote progress and acknowledge that providers would start at different competency levels. For example, FQHCs whose PPS rates already cover Tier 1 competencies would not be eligible for Tier 1 payments. But they could still earn Tier 2 and Tier 3 payments by developing more advanced capabilities beyond their PPS scope and prior level of service delivery. Tier 2 and Tier 3 payments for behavioral health integration would give all primary care providers the resources to serve patients’ physical and behavioral health needs during one visit. Stakeholders would need to agree on the functions covered by each tier, an attestation system, and a mechanism to ensure Layer 2 payments avoid duplication of FQHC PPS services.

Tier 3 capabilities are intentionally set as a stretch goal, given that current payment levels do not fully fund all functions of an optimal advanced primary care practice, including medication-assisted treatment for substance use disorder, evening and weekend hours, and assistance with maintaining insurance coverage. Massachusetts’s experience with a similar tiered model shows promise: 23% of practices advanced tiers from 2023 to 2025, earning more revenue while delivering better care.[xix]

How It Would Work in Practice

State and Federal Authorities

California’s public purchasers have significant existing authority to act. Much of this model could be implemented through alignment of contract language and guidance across DHCS, Covered California, and CalPERS without new state legislation.

Covered California could require plans to adopt multilayer primary care payment structures as a condition of certification, reinforced by California Department of Managed Health Care and California Department of Insurance licensure requirements for the fully insured commercial market.

CalPERS could act through its broad contracting authority under the Public Employees’ Medical and Hospital Care Act, which authorizes its board to establish terms and conditions of health plan participation. The board’s existing authority over quality, access standards, and member interests provides a clear foundation for requiring primary care payment reform. The law could also be amended if lawmakers wanted to make requirements for primary care payment model durable across future board compositions.

DHCS has the statutory authority to direct Medi-Cal managed care plans through contract language and All Plan Letters. The department has already signaled movement in this direction: A draft All Plan Letter would make primary care investment mandatory for managed care plans. Given the recent postponement of the next contract procurement process, a mid-contract amendment plus All Plan Letters could provide a more timely solution.[xx] Implementing this model in Medi-Cal would not require a new Section 1115 waiver, but it would require some federal approvals. For example, federal approval would be required if the state were to pursue state-directed payments to specify minimum payment amounts and payment modalities for the population health payments.[xxi]

The state would also need the US Centers for Medicare & Medicaid Services (CMS) to designate the capitation rates paid to Medi-Cal managed care plans as actuarially sound. New Medicare codes for Advanced Primary Care Management could serve as a federally approved cost anchor supporting new Medi-Cal rates. They also act as a policy precedent, given that FQHCs are allowed to bill for Advanced Primary Care Management in addition to their PPS rates.[xxii]

Building on Existing Initiatives

This shared payment framework builds on numerous care and payment reforms in California and nationally:

• CalAIM has improved care for Medi-Cal’s most vulnerable members by addressing physical, behavioral, and social needs together. It has also established a Population Health Management initiative. This proposal extends that whole-person care philosophy to all Californians whose health insurance is purchased by public purchasers.
• The Equity and Practice Transformation Payments Program has leveraged state-directed payments to build capacity in primary care. This proposal creates a path to sustain and scale those improvements.
• Massachusetts’s primary care payment reform demonstrated how actuarial rate-setting can be restructured to end the cycle of underinvestment in primary care. By introducing aggregate rates by provider type and a “primary care effort model” — a specific risk adjustment method that modifies payment rates to reflect patient need — Massachusetts changed how base payments are set. California can build on this approach to ensure payments reflect the true cost of delivering advanced primary care.
• The DHCS Risk Stratification, Segmentation, and Tiering Work Group has developed novel risk algorithms that go beyond traditional clinical factors and include individual- and community-level social factors. Incorporating this methodology would position California as a national leader in adjusting provider-level payment rates by social risk.
• The California Advanced Primary Care Initiative has demonstrated that commercial payers see value in voluntarily aligning around a shared multilayer payment model, common data infrastructure, and a standardized quality measure set.

What This Model Is and Isn’t

This framework offers a unifying structure for payers, not a rigid prescription for providers. It sets out what advanced primary care should look like and creates consistent payment methodologies and financial incentives to support it, while giving provider practices flexibility in how they build and deliver new capabilities.

The socially and medically risk-adjusted base payments in Layer 1 allow non-FQHC providers to deliver more whole-person care without requiring FQHC status or PPS payment rates. The tiered population health payments in Layer 2 define what advanced primary care should be, while leaving room for practices to start at different places and make progress at their own pace.

Unlike federal demonstration models, this approach does not depend on achieving short-term cost savings. It treats primary care as a public good that’s worth sustained, collective investment. Over the long term, it holds genuine promise to help California meet its total cost and quality goals.

Financing and Affordability

Reallocation of Spending and Setting Expectations

The primary financing mechanism is reallocation of funds, not new net spending. Plans would shift dollars from specialty care, pharmacy, and inpatient services into primary care. This approach is essential for meeting OHCA’s dual goals: increasing primary care’s share of total medical expenditure to at least 15% while holding annual spending growth to 3%–3.5%.

Experience from other states and countries suggests that meeting those goals may require both primary care investment and price controls on hospital care, rather than expecting primary care improvements to reduce hospital utilization sufficiently to meet overall spending targets.[xxiii] At a time when hospital prices are outpacing general inflation and growth in other health care sectors, implementing this model would send a clear signal: California is working to rebalance health care spending by increasing investment in primary care, recognizing its role in improving health outcomes and its potential to moderate overall costs.[xxiv]

Risks and Tradeoffs

Federal uncertainty and funding cuts pose the biggest political and financial risks to implementing this model. California’s public and private health care systems are already taking federal and state budget hits, with billions of dollars of additional losses to come. Redirecting funding to primary care could heighten tensions with hospitals, which have already attempted to legally challenge OHCA’s spending targets, thus far without success.[xxv] Mandating population-based payments could create tension with managed care plans and medical groups that prefer to pay fee-for-service for primary care. There are also federal approval risks. In pursuing state-directed payments, DHCS could face challenges associated with H.R. 1 changes to such programs. That said, the current federal administration has already signaled support for new Medicare Advanced Primary Care Management PMPM payments for expanded access and care management functions, similar to this model’s population health payments, suggesting that this proposal could garner federal support and align with Medicare.[xxvi]

Operationally, payers may face challenges updating their payment systems, particularly where the shift is from fee-for-service to PMPM. The state would also need to establish a mechanism to ensure the population health payments result in new primary care functions, better access, and improved outcomes for patients without creating excessive administrative burden.

DHCS would need to ensure population health payments for FQHCs are structured as supplements to, not replacements for, base payments. States like Oregon and Massachusetts have encouraged voluntary health center participation in new value-based payments by including new dollars for primary care, in addition to expanded flexibility and accountability.

All of these challenges are manageable. The experiences of California and other states offer clear mitigation strategies:

• Stakeholders would need to agree on care goals before payment details. Ongoing communication through design and implementation can reduce stakeholder resistance.
• The California Advanced Primary Care Initiative showed how a trusted, neutral facilitator can maintain momentum amid difficult decisions and help formalize action commitments.
• The state would need to collaborate with stakeholders about the contents of each layer and tier, and setting payment rates and provider expectations.
• Strong technical assistance providers and opportunities for payers and practices to learn from one another can support implementation and identify emerging challenges.

Framing will matter as much as substance. In a time of fiscal constraints, the message must be clear: Investing in a stronger primary care system that addresses physical, behavioral, and social health needs is the most effective way to spend limited health care dollars over the long term.

Conclusion

California’s primary care system faces unprecedented financial pressure. H.R. 1 is projected to reduce Medi-Cal enrollment by up to 2 million people and cut federal health care spending in California by tens of billions of dollars annually.[xxvii] In this environment, the question is not whether to protect and strengthen primary care. It is how to do so most effectively.

The answer is to fundamentally change how primary care is paid, and to harness something California rarely deploys to its full potential: the combined purchasing power of DHCS, Covered California, and CalPERS, covering more than 40% of the state’s population. Aligning these three purchasers around a shared payment framework would create a strong and consistent message to providers, signaling that this is what comprehensive primary care looks like, and this is how California will invest in it. In doing so, the state would set itself on the path to meeting goals for primary care investment and value-based payment adoption.

An aging population, chronic workforce shortages, rising rates of chronic disease, and growing behavioral health needs all demand a system built around whole-person care delivered by well-resourced, team-based practices. This requires flexible, upfront funding; new investments in population health management; clear incentives for quality and cost accountability; and financial stability for practices to invest in new technology, including AI-powered tools that could expand capacity and improve outcomes. This model provides the financial architecture to meet all of these needs simultaneously.

California has a real opportunity to lead the nation, not only by increasing primary care investment, but by ensuring those dollars are structured in a way that produces results. Multipayer primary care payment reform is a critical opportunity to ensure that California addresses health workforce challenges, invests in equity, prevents illness, meets whole-person needs, promotes affordability, and ultimately improves health and well-being for all Californians.

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Endnotes

[i] Health of Primary Care in California Annual Snapshot, California Department of Health Care Access and Information (HCAI), January 2026.

[ii] Primary Care Investment Benchmark, HCAI, October 2024.

[iii] Health of Primary Care, HCAI.

[iv] Katie Coleman et al., Redefining Primary Care for the 21st Century (PDF), Agency for Healthcare Research and Quality, October 2016; David Meyers et al., “Workforce Configurations to Provide High-Quality, Comprehensive Primary Care: A Mixed-Method Exploration of Staffing for Four Types of Primary Care Practices,” Journal of General Internal Medicine 33 (July 3, 2018): 1774–79; Advanced Primary Care: Defining a Shared Standard (PDF), Purchaser Business Group on Health, revised April 2022; and Amie A. Pollack et al., Primary Care Investment Guide (PDF), Harvard Medical School Center for Primary Care and Primary Care Collaborative (PCC), December 2025.

[v] Linda McCauley et al., eds., Implementing High-Quality Primary Care: Rebuilding the Foundation of Health Care, National Academies of Sciences, Engineering, and Medicine (National Academies Press, 2021).

[vi] “Alternative Payment Model Standards and Adoption Goals,” HCAI, accessed March 5, 2026.

[vii] Author’s calculation based on Baseline Report: Health Care Spending Trends in California, 2022–2023 (PDF), HCAI, Office of Health Care Affordability, June 5, 2025; Kyle Edrington et al., Investing in Primary Care: Why It Matters for Californians with Medi-Cal Coverage (PDF), California Health Care Foundation, July 2022; Dolores Yanagihara and Ann Hwang, Investing in Primary Care: Why It Matters for Californians with Commercial Coverage (PDF), California Health Care Foundation, April 2022; and Kim Johnson, host, “How Federal Policy Changes Are Impacting a Healthy California for All,” webinar, California Health and Human Services Agency (CalHHS), January 13, 2026.

[viii] Barbara Starfield, Primary Care: Concept, Evaluation, and Policy (Oxford University Press, 1992); Thomas Bodenheimer et al., “The 10 Building Blocks of High-Performing Primary Care,” Annals of Family Medicine 12, no. 2 (2014): 166–71; and Melora Simon et al., “Exploring Attributes of High-Value Primary Care,” Annals of Family Medicine 15, no. 6 (2017): 529–34.

[ix] Petra W. Rasmussen et al., Understanding California’s Safety Net: Identifying the Health Care Providers Delivering Primary Care to Medi-Cal Enrollees, RAND Corporation, September 19, 2025.

[x] “Capitation, Primary Care,” American Academy of Family Physicians, accessed March 5, 2026; and David Muhlestein et al., Improving Payments for Primary Care Physicians, The Commonwealth Fund, September 11, 2025.

[xi] Diane Rittenhouse et al., Strengthening California’s Primary Care Team Workforce: Data and Recommendations for Action, California Health Care Foundation, February 17, 2026; and Annual Report: Update on California’s Physician Workforce (PDF), Healthforce Center at UCSF, December 2024.

[xii] “Our Program,” Population Health Management Initiative, accessed February 12, 2026; and Equity and Practice Transformation (EPT) Payment Program: Guidance for Primary Care Practices and Medi-Cal Managed Care Plans (PDF), California Department of Health Care Services (DHCS), August 2023.

[xiii] Johnson, host, “How Federal Policy Changes,” CalHHS.

[xiv] Sanjay Basu et al., “High Levels of Capitation Payments Needed to Shift Primary Care Toward Proactive Team and Nonvisit Care,” Health Affairs 36, no. 9 (2017): 1599–605.

[xv] Baseline Report, HCAI.

[xvi] Jill Yegian, California Public Purchaser Contract Provisions on Primary Care: Multi-Payer Alignment Drives Investment (PDF), California Health Care Foundation, May 2023.

[xvii] Pollack et al., Primary Care Investment, Center for Primary Care and PCC.

[xviii] Vikki Wachino (director, Centers for Medicare & Medicaid Services [CMS]) to State Health Official and State Medicaid Director, “FQHC and RHC Supplemental Payment Requirements and FQHC, RHC, and FBC Network Sufficiency Under Medicaid and CHIP Managed Care” (PDF), SHO #16-006, April 26, 2016.

[xix] Anne Smithey, “Massachusetts’ Primary Care Sub-Capitation Model: Implementing Primary Care Population-Based Payment in Medicaid,” Center for Health Care Strategies, May 2025.

[xx] “Medi-Cal Commercial Managed Care Plan Procurement Update,” DHCS, accessed March 12, 2026.

[xxi] “State Directed Payments,” CMS, accessed February 17, 2026.

[xxii] “Advanced Primary Care Management Services,” CMS, accessed March 12, 2026.

[xxiii] Nathan Hostert and Andrew M. Ryan, Rhode Island’s Health Care Affordability Standards: Lessons for Other States Seeking to Control Health Care Spending, Milbank Memorial Fund, September 15, 2025.

[xxiv] Jamie Godwin et al., “Hospital Spending Accounted for 40% of the Growth in National Health Spending Between 2022 and 2024,” KFF, February 11, 2026; and Derek Jenkins et al., Prices Versus Costs: Unpacking Rising US Hospital Profits, Rice University’s Baker Institute for Public Policy, September 6, 2024.

[xxv] Megan Bochum, “Court Rules in Favor of OHCA’s Demurrer Against CHA,” The Source on Healthcare Price and Competition, UCSF College of the Law, February 23, 2026.

[xxvi] “Calendar Year (CY) 2025 Medicare Physician Fee Schedule Final Rule,” Fact Sheet, CMS, November 1, 2024.

[xxvii] Monica Saucedo and Hannah Orbach-Mandel, Timeline of Funding Cuts to Medi-Cal and CalFresh in California, California Budget & Policy Center, February 2026.