On Whose Behalf?
Investors are taught to ask whether their adviser is a fiduciary. The same question now applies to their parents’ care. A PACE Series — Article 3
Storm’s a comin’
Each month, a check arrives for every frail elder enrolled in a PACE program. It comes from Medicare. It comes from Medicaid. It arrives in roughly the same amount, whether the elder spent the month in good health at home or in declining health in a hospital, whether she saw the doctor twice or twelve times, whether the program drove her to physical therapy three days a week or could not manage to staff a single ride. The check arrives. The program decides what she needs. What is not spent on her care does not disappear.
That last sentence is the one to sit with. What is not spent on her care does not vanish.
This is capitation, the payment model that has anchored PACE since its earliest days at On Lok in San Francisco’s Chinatown. Capitation pays the program per enrollee per month, rather than per service rendered. It was deliberately designed to do something the rest of American health care does not: pay for outcomes rather than episodes. A hospital earns more when an elder gets sicker. A capitated program earns the same amount whether she thrives at home or deteriorates in a hospital bed — so a capitated program has a financial incentive to keep her thriving at home. The dollar that prevents the fall is more profitable than the dollar that pays for the fracture.
This is the moral instrument at the heart of PACE. Properly fenced, it works, and it works in ways that are hard to forget once you have seen them. It funds the 6 a.m. phone call from a worried daughter — the one a fee-for-service clinic would not have answered until Monday — and the home visit by lunchtime. It funds the medication reconciliation that catches the dangerous interaction before the next refill. It funds the ride to the cardiologist that detects the arrhythmia before the stroke. It funds the small, expensive, unprofitable vigilance that good elder care requires and that the rest of the American health-care system, organized around the billable episode, rarely rewards. At its best, PACE is one of the most humane arrangements in American medicine.
The check that arrives on her behalf, though, is not, in the strictest sense, hers. Federal regulation requires PACE organizations to pool all payments — Medicare, Medicaid, and private — into a single fund and to draw from that fund according to participants’ needs. The well-supported elder helps carry the frail one. This is the design.
But every capitated program, properly understood, is also an allowance arrangement. A fixed monthly amount is paid on someone’s behalf. Another party — the program — decides what that person needs. What isn’t spent on her care stays in the program’s hands.
Whose hands those are and to whom they are accountable turns out to be the whole story. A program holding capitation on behalf of a frail elder is, in the language of trust and estate law, a fiduciary. The duty runs in one direction. That direction is what defines the arrangement.
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The word at the center of this arrangement is one investors have been taught, slowly, to ask about.
Investors are taught to ask whether their adviser is a fiduciary. Ken Fisher’s firm has, for years, run ads built around this exact question. The pitch is straightforward, and worth quoting from Fisher Investments’ own marketing: “By operating as a registered investment adviser, Fisher Investments holds itself to the fiduciary standard because of the clear signal it sends to our clients. Our clients can take comfort in knowing we always act in their interests and disclose any potential conflicts of interest.” The ads are not subtle. They do not need to be. They highlight a distinction American investors have been learning, slowly, for two decades.
The distinction is this. A broker-dealer in the United States is bound by a suitability standard: the products they recommend must be appropriate for a customer like you, given your situation and goals. A registered investment adviser is bound by a fiduciary standard: they are required to put your interests ahead of their own. The Securities and Exchange Commission’s Regulation Best Interest, effective in 2020, raised the bar for broker-dealers but, despite the name, did not make them fiduciaries. The two standards remain distinct. A broker recommending a product that pays them a higher commission than a comparable lower-cost alternative may be operating well within suitability. A fiduciary recommending the same product, without disclosure and a clear best-interest justification, would be in breach.
The difference between the two standards matters most where the customer can see least. When the adviser’s and the customer’s interests align, neither standard does visible work. When they diverge — when a product pays the adviser more and the customer less — the standard is the only thing standing between the customer and the conflict. Suitability allows the conflict. Fiduciary duty does not.
This is the conceptual move that elder care is now waiting for.
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A young couple marries in 1955. He works at the plant. She keeps the house and raises the children. He cashes his paycheck on Friday and gives her an envelope — household money, grocery money, a small amount for the children’s needs. The arrangement is, by the standards of the day, exemplary. The neighbors envy it. The church calendar names him head of the household; she signs the Christmas cards as Mrs. before her own name disappears from them entirely. The recent revival of the trad-wife aesthetic, in its softer corners, is in part a longing for what this arrangement looked like from the outside: provision, order, a man taking care of his wife.
Within the arrangement, something else was sometimes true. The Friday envelope was not a transfer of money to her; it was an allotment from his account, which remained his. Whatever wasn’t spent on groceries was not hers to keep. When she asked for more because the children needed shoes, the answer might be yes, or it might be a question about how she had managed the grocery money. When she wanted to send a small amount to her widowed mother, the answer might be that her mother should ask her brothers. When the marriage soured and she considered leaving, she discovered that twenty years of her labor had accumulated in his name. The account had never been hers. The arrangement the church calendar called provision turned out, when interests diverged, to be control.
This is the diagram PACE was originally designed not to be. In a nonprofit program, the unspent dollar returns to the program: to staff, to equipment, to the next elder enrolled, and to reserves for the next year of care. There is no Friday envelope and no second pocket. The duty runs in one direction, and the structure makes any other direction impossible. The nonprofit-only rule, in place from PACE’s earliest days until 2016, protected exactly that.
A comedian tells a story — I cannot recall whose, but the story is its own argument. He is in a shopping-center parking lot. A couple emerges from the stores ahead of him. The wife is carrying a couple of bags from a clothing shop — two outfits, nothing dramatic. The husband sees the bags and erupts. “What do you think you’re doing, wasting our money on this fancy shit? You don’t need any of this.” He is still shouting as they reach their car, which is not a car. It is a fully loaded high-end pickup truck — chrome, lift kit, every option the dealer offers, the kind of vehicle that announces itself a block away. The comedian, walking past, calls out to the husband: “Hey, that’s a really nice truck you’ve got there.” The husband, pleased, says thanks. The comedian calls back: “But I don’t understand why you’d waste all your money on such fancy shit. You clearly don’t need it.”
Many marriages were not like this. Many were partnerships, in fact if not in legal form. The point is not that midcentury households were uniformly oppressive, or that contemporary versions are. The point is structural. The same diagram — fixed allotment, single account holder, surplus retained by the holder — can produce provision or control depending on a single feature: whether the party holding the account holds it on the other party’s behalf or on their own. From the outside, the two versions are often indistinguishable. From the inside, the difference is the shape of a life.
This is the structural shift PACE underwent after 2016. Not entirely, and not all at once. But the second pocket — the one the nonprofit-only rule had kept off the diagram — was now drawn back in. The trustee gained a second principal. The arrangement that the regulatory paperwork still called capitated care for the frail elderly could now, structurally, do something it had not been able to before. The duty was no longer required to run in one direction.
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A for-profit PACE operator, by design, has two principals. The frail elder, on whose behalf the capitation arrives. The equity holders, on whose behalf the corporation exists. When their interests align — when prevention reduces hospitalizations and the savings flow to both better care and stronger margins — the structure produces no visible conflict. The investor-owned program looks indistinguishable from the nonprofit one. There is no scandal. There is, in many months, no story.
The conflict appears at the seam.
It appears when a clinical hire — an additional nurse practitioner or a second physical therapist — would consume a margin point. It appears when an enrollment expansion would dilute staffing ratios below the level a careful clinician would defend, even though the projected revenue would impress the board. It appears when a hospitalization for a particular elder would, in the cold arithmetic of the quarter, be financially preferable to the cost of preventing it. Each of these is a moment when the operator must choose between the two principles. And in American corporate law, the choice is not a free one. The board’s primary duty runs to the equity holders. That duty is not theoretical; it is enforceable in court. The duty to the frail elder is mediated by contract, regulation, and the conscience of individual clinicians — none of which carry the same legal force.
This is not an accusation against any particular operator. It is a description of a structure. Under settled doctrine in trust and corporate law, a fiduciary owes undivided loyalty to a single principal. A trustee with two principals whose interests can diverge is in conflict. The remedies the law has developed for such conflicts are well established: disclosure, recusal, ownership restrictions, separate counsel, and sometimes outright prohibition. They are not exotic. They are the routine machinery of fiduciary law in every domain in which it operates.
PACE is one of the few capitated programs in American medicine for which that machinery has not yet been built.
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There is a number that makes this concrete, and the comparison is more pointed than it first appears.
Medicare Advantage plans — the privately operated alternative to traditional Medicare — are paid by capitation, much like PACE. They serve more than thirty million Americans. In most cases, they are operated by for-profit corporations with equity holders. In 2010, the Affordable Care Act amended the Social Security Act to require that Medicare Advantage plans maintain a medical loss ratio of at least 85 percent. The phrase is dry; the meaning is not. For every dollar of premium an MA plan collects, at least 85 cents must be spent on medical care and quality improvement. No more than 15 cents may be retained for administrative costs, marketing, and profit combined. If a plan falls below the floor, it must remit the difference to CMS. If it falls below the floor for three years in a row, it is barred from enrolling new members. If it fails for five years, its contract is terminated.
The 85 percent floor is not generous. Insurance economics make it routinely achievable. But it is still a floor. It is the formal acknowledgment, written into federal law, that an investor-owned capitated health plan needs a structural constraint on how much of the public’s money can flow upward to shareholders rather than outward to care. Medicaid managed-care plans operate under analogous arrangements; most states impose minimum MLRs of at least 85 percent.
PACE has no MLR floor. Not in the original statute. Not in the 1997 Balanced Budget Act that made the program permanent. Not in the 2016 rule change that opened the program to investor-owned operators. Not in the 2019 final rule that codified the change. The Affordable Care Act’s MLR provisions, by their own terms, do not apply to PACE. When CMS first issued its medical-loss-ratio rules for Medicare Advantage and Part D in 2013, the agency expressly noted — language since cited by health-care attorneys — that the rules do not extend to the Part D segment of PACE plans. PACE was carved out. The carve-out made sense in 1997 and through the 2000s, when every PACE program in the country was a community-rooted nonprofit with no equity holders to retain a surplus. The carve-out makes less sense in 2026.
This is the unwritten contract. Every other large capitated program in Medicare specifies, by statute, what share of the public’s money must reach actual care. PACE does not. The for-profit operators that have entered the program since 2016 operate without such a floor. There is no rebate mechanism, no enrollment sanction, and no contract termination tied to a minimum medical loss ratio. The rule has not been written. The pocket has been opened, and no one has decided how deep it may go.
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The structural question can be asked now, and it is the one the rest of this series will press against.
On whose behalf is the program holding the money?
PACE was designed to be a program that holds capitation on behalf of a frail elder, with a single direction in which the unspent dollar can travel. A program that holds capitation on behalf of a frail elder and equity holders, with two possible directions and a corporate board legally accountable to only one of them, is a different program. It can still produce good care. Some of its operators can still be good people. But the structure has changed, and the public’s protection has not been rewritten to match.
A fiduciary cannot serve two principals whose interests may diverge. American investment law learned this — and taught it, slowly, through twenty years of lawsuits, rulemaking, and television advertising — and a public that now knows to ask the question.
American elder-care law has not yet caught up.
In the next article, we will follow the question into the company in which it has become hardest to ignore.
The next article in this series follows InnovAge — the largest for-profit PACE operator in the country, taken public on the NASDAQ in March 2021 — and the company’s brief and revealing life as a publicly traded eldercare enterprise.
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Rick Beeman is the author of Bought for Parts: How Wall Street is Profiteering on Your Mother’s Pain (April 2026) and President of Ars Moriendi Project, a California 501(c)(3) public charity working on accountability in long-term care.
Everyday Elders is a publication of Ars Moriendi Project.
Sources
• CMS, “Medical Loss Ratio.” https://www.cms.gov/medicare/health-drug-plans/medical-loss-ratio
• Holland & Knight, “CMS Issues Final Rule on Medical Loss Ratio for Medicare Advantage and Part D Plans,” June 10, 2013. https://www.hklaw.com/en/insights/publications/2013/06/cms-issues-final-rule-on-medical-loss-ratio-for-me
• Federal Register, “Medicare Program; Medical Loss Ratio Requirements for the Medicare Advantage and the Medicare Part D Prescription Drug Programs,” May 23, 2013. https://www.federalregister.gov/documents/2013/05/23/2013-12156/medicare-program-medical-loss-ratio-requirements-for-the-medicare-advantage-and-the-medicare
• KFF, “Medical Loss Ratios, Risk Corridors, and Rate Amendments in Medicaid Managed Care,” April 10, 2023. https://www.kff.org/medicaid/strategies-to-manage-unwinding-uncertainty-for-medicaid-managed-care-plans-medical-loss-ratios-risk-corridors-and-rate-amendments/
• MACPAC, “Medical Loss Ratios in Medicaid Managed Care,” issue brief, January 2022. https://www.macpac.gov/wp-content/uploads/2022/01/Medical-loss-ratio-issue-brief-January-2022.pdf
• Fisher Investments, “What is a Fiduciary?” https://www.fisherinvestments.com/en-us/personal-wealth-management/how-we-are-different/fiduciary
• FINRA, “FINRA Rule 2111 (Suitability) FAQ.” https://www.finra.org/rules-guidance/key-topics/suitability/faq
• SEC, “Regulation Best Interest” (effective June 30, 2020). https://www.sec.gov/rules/final/2019/34-86031.pdf
• CMS, “Programs of All-Inclusive Care for the Elderly Manual, Chapter 13.” https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/pace111c13.pdf
• CMS, “PACE Final Rule (CMS-4168-F) Fact Sheet,” May 2019. https://www.cms.gov/newsroom/fact-sheets/programs-all-inclusive-care-elderly-pace-final-rule-cms-4168-f
• Better Medicare Alliance, “Medicare Advantage Medical Loss Ratio (MLR) Fact Sheet,” 2020. https://bettermedicarealliance.org/publication/medicare-advantage-medical-loss-ratio-mlr-fact-sheet/