PACE at a Crossroads

PACE is the only model that fully integrates Medicare and Medicaid financing under a single capitation for community-dwelling, nursing-home-eligible adults. As of the end of 2025, approximately 90,580 participants were enrolled across 194 organizations operating more than 376 centers in 32 states. Enrollment grew 12 percent in 2025 alone, with existing programs accounting for 91 percent of that growth. The program has been “about to scale” for twenty years. The end of the FAI, the FIDE SNP build-out, and MA market volatility may have finally created the conditions for meaningful expansion. The structural barriers that have constrained PACE for decades have not disappeared.

What PACE Actually Is

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PACE receives a blended Medicare-Medicaid capitation and bears full risk for all medical, behavioral health, and long-term services and supports for each participant. The adult day center is the care hub, the physical facility that distinguishes PACE from every other integration model. Participants attend the center for primary care, therapeutic services, meals, socialization, and clinical monitoring. An interdisciplinary team of physicians, nurses, social workers, therapists, home health aides, and dietitians develops and manages the care plan. Transportation to and from the center is a covered service.

Eligibility requires that participants be at least 55 years old, reside in a PACE service area, and meet their state’s nursing home level of care criteria. Approximately 80.5 percent of PACE participants are dually eligible for Medicare and Medicaid. Another 19 percent are enrolled in Medicaid alone. Fewer than 1 percent pay a private premium. The average length of enrollment is two to three years, and the primary reason for disenrollment is death. This population is, by design, among the frailest and highest-cost beneficiaries in the Medicare and Medicaid programs.

PACE is not a Medicare Advantage plan. It operates outside the MA regulatory framework under its own statutory authority at Section 1894 of the Social Security Act. It is not a D-SNP. It provides full Medicaid integration natively, without the tiered D-SNP structure of CO, HIDE, and FIDE. And it is not scalable in the conventional managed care sense. Each PACE site serves a defined geographic area from a physical center, which means expansion requires building new facilities, not extending network contracts.

The Cost and Quality Evidence

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The cost evidence on PACE is mixed in the peer-reviewed literature and contested among researchers. PACE per-member costs for its nursing-home-eligible population are generally lower than actual nursing home placement. The comparison that matters, and the one that is harder to make cleanly, is whether PACE costs less than what would have been spent on the same individuals through other community-based and institutional care combinations in the absence of PACE.

Studies have found that PACE reduces hospitalizations and emergency department use relative to comparable non-PACE populations. Approximately 94 percent of PACE participants live in the community rather than in nursing facilities, which is the program’s core outcome metric. Research has shown that PACE participants experience slower functional decline and higher satisfaction than comparison groups, though the evidence base is limited by small sample sizes, geographic concentration, and selection effects. Individuals who choose PACE may differ systematically from those who do not, and disentangling the program’s effect from the population’s characteristics remains methodologically challenging.

The quality evidence is more consistently positive than the cost evidence. PACE participants and their families report high satisfaction with care coordination, the interdisciplinary team model, and the social connection the adult day center provides. For a population at high risk of isolation, depression, and institutional placement, the day center’s role as a social infrastructure, not just a clinical one, is a dimension of care quality that standard metrics undercount.

Why PACE Has Not Scaled

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Startup capital is the first barrier. Establishing a new PACE site requires approximately $4 to $6 million for facility construction or renovation, staffing, and pre-enrollment operating costs. PACE organizations must carry a census through an initial ramp-up period during which fixed costs exceed capitation revenue. Few community-based organizations have access to that capital without external support.

State Medicaid rate adequacy is the second. PACE Medicaid capitation rates are set by state Medicaid agencies and vary enormously. Over half of PACE enrollees are concentrated in three states: California, New York, and Pennsylvania. The states with the highest PACE enrollment per capita, Colorado, Massachusetts, and Pennsylvania, set rates that cover the cost of the interdisciplinary model. States with inadequate rates cannot attract PACE applicants. Rate-setting is the single most powerful lever states hold over PACE growth, and it is a lever many states do not exercise.

The adult day center requirement is a non-scalable constraint by design. Each center serves a limited geographic radius determined by transportation logistics. Expanding PACE’s reach requires building new centers, not extending provider networks. In rural areas where the eligible population is dispersed over large distances, the center model becomes economically unviable unless the service area is redesigned or the center requirement is relaxed.

Workforce requirements compound the problem. The interdisciplinary team model requires physicians, nurse practitioners, registered nurses, social workers, physical and occupational therapists, home health aides, and dietitians. Recruiting these professionals in underserved markets, where PACE expansion would have the greatest impact, is the same workforce challenge that constrains every other delivery model serving these communities.

The application pipeline is slow. New PACE programs require a state Medicaid plan amendment, a CMS application, and an approval process that can take years from initial interest to operational enrollment. Georgia announced a PACE RFP in late 2024 with sites expected in a phased rollout. New Jersey, Ohio, and Oregon released RFPs between 2023 and 2025. The timeline from RFP to operating program typically spans two to three years.

The Post-FAI Landscape

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The FAI ended in ten states. PACE is now the only remaining model offering truly integrated Medicare-Medicaid capitation under a single entity outside of FIDE SNPs. The distinction matters. FIDE SNPs integrate Medicare and Medicaid coverage through aligned managed care contracts but maintain separate financing streams. PACE blends the funding into a single capitation and bears unified risk. For the nursing-home-eligible population that PACE serves, this unified risk structure creates financial incentives that FIDE SNPs, with their separated Medicare and Medicaid payment flows, cannot fully replicate.

MA market volatility is creating enrollment pools PACE could absorb. D-SNP benefit degradation in 2025 and the termination of the VBID model for 2026 reduced supplemental benefits available to dual eligibles in some markets. Beneficiaries dissatisfied with D-SNP benefit changes who meet nursing home level of care criteria are potential PACE candidates, though PACE’s geographic limitations and enrollment capacity constrain how much of this demand it can capture.

OBBBA’s $50 billion Rural Hospital Transformation Program, distributed at $10 billion per year from 2026 through 2030, is intended to improve healthcare access and outcomes in rural communities. Whether RHTP funding can be directed toward PACE expansion in underserved rural markets depends on how states design their spending plans. The statutory language is broad enough to accommodate PACE as one component of a rural health strategy, and HRSA announced $2 million in fiscal year 2025 grant funding specifically for PACE expansion into rural communities. The amounts are small relative to the capital requirements, but they signal federal interest in rural PACE development.

PACE-Adjacent Models

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Proposals for “PACE without walls” would decouple the model from the adult day center requirement, allowing PACE organizations to deliver the interdisciplinary team model through home-based and virtual care without requiring participants to attend a physical facility. Proponents argue this would unlock rural and suburban expansion. Opponents, including many within the PACE community, argue the day center is the model’s clinical and social core and that removing it would produce something that shares PACE’s name but not its essential character.

Institutional Special Needs Plans serve the population PACE is designed to keep out of nursing homes: residents already in institutional settings. I-SNPs and PACE are complementary rather than competitive. I-SNP enrollment has been flat at approximately 115,000 for several years, while PACE enrollment is growing. The policy question is whether a beneficiary’s trajectory should flow from community-based PACE to I-SNP institutional care when nursing home placement becomes necessary, creating a continuum under managed care rather than a disruptive transition to fee-for-service institutional Medicaid.

What States Need to Do

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Rate adequacy is the threshold condition. States that set Medicaid capitation rates covering the actual cost of PACE’s interdisciplinary model will see PACE applications. States that set rates below cost will not. The rate-setting decision is the single most consequential action a state Medicaid agency can take to enable or constrain PACE growth.

Application pipeline streamlining matters. The state Medicaid plan amendment process, the CMS application, and the approval timeline collectively add years to PACE development. States that commit to PACE expansion should establish dedicated application pathways and coordinate with CMS regional offices to compress timelines.

Workforce development partnerships connect PACE expansion to existing state programs. PACE organizations need the same clinical and paraprofessional workforce that home health agencies, community health centers, and Medicaid managed care plans compete for. States that align PACE workforce needs with training programs, loan forgiveness, and recruitment incentives can address the staffing constraint that limits new site development.

The post-FAI moment is real, but it is not self-executing. PACE will not scale through federal policy alone. It will scale in states where Medicaid agencies set adequate rates, streamline applications, and invest in the workforce the model requires. The twenty-year question of whether PACE can move from demonstration success to population-level impact depends on whether enough states are willing to make those investments simultaneously.

Related Reading

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MCR-04_06 Regional Plans vs. National Giants: Who Survives the Rate Compression MCR-12_05 Home Care and PACE Organizations: HHVBP, AHEAD, and the LTSS Policy Moment