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Happy Tuesday, Hospitalogists,

Today, I’m sharing some Hospitalogy reader thoughts from my last post on the Advocate-Atrium merger - a few nuances that readers mentioned that are worth highlighting, plus some dissents and opinions. They were all awesome, so thanks to all those who took the time to share your thoughtful responses with me!

Then, revisiting a conversation I had with Ian Koons, CEO and co-founder of Karoo Health, on my podcast. Ian breaks down how Karoo went from planning de novo cardiac clinics to becoming the single source of truth for cardiology VBC, without doing BD in two years.

Also, join me at HFMA: If you're heading to HFMA next month, I'd love to see you at our Healthcare Happy Hour on June 8. Open bar, great food, and out of earshot of the expo-hall circus. If you’re on the finance side of healthcare, you’ll be in good company. Learn more here!

Enjoy!

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Responses to the Atrium-WakeMed merger announcement and instant analysis:

Thanks to everyone who replied to the original analysis! Here was some of the more notable feedback I got from the piece along with any responses I had. (note these responses are purposefully kept anonymous):

• Response 1: As a fellow end consumer, I’m surprised by this. The underpinning point of your post is that you think wakemed should charge more for its services similar to the other big hospitals in NC. This seems to run counter for the push for affordability we have heard from so many. Can you share more about your position about why in this case you are okay with higher prices for healthcare?

  • My response: I don’t think I was necessarily trying to make a broader statement around costs - rather conducting an analysis on the merger itself in a vacuum, but I appreciate the consideration around cost in any argument. I would be curious to see the ultimate impact on cost from this pending merger - depending on where investment dollars go (e.g., virtual and ambulatory capabilities vs. high acuity inpatient, likely a mix of both) - and its effect on the overall market given the high cost academics here.

• Response 2: Appreciate this article, but it seems to miss a fundamental aspect of the dynamic facing WakeMed in the Triangle, which is that WakeMed is the safety net hospital that serves the majority of the Medicaid population in this region. That is a meaningful dynamic that affects margins for the hospital and is a constant challenge when WakeMed otherwise has to compete with its two AMC neighbors in terms of offering comparable services and competing for clinical talent. While additional investment may help WakeMed compete from a service offering and facility perspective, that structural imbalance from a payer mix perspective is not something Atrium can fix unless they choose to reduce access to care for Medicaid populations that WakeMed has historically served. I'm not suggesting that is Atrium's plan, but rather that a stronger balance sheet does not, in the long run, solve the payer mix challenges facing many safety net hospitals across the country - even if they are in competitive, growing markets that should, in theory, be able to weather the storm.

• Response 3: UNC is NOT the only public medical school in North Carolina. The Brody School of Medicine of East Carolina University was established in the 1970s…The school of medicine at ECU has been the redheaded stepchild of medical education in North Carolina for years, so it is no surprise that you presumed that UNC is the only public medical school in North Carolina - UNC gets the lion share of the funds from the state legislature. The medical school at ECU serves a 29-county area of rural eastern North Carolina and takes care of some of the sickest and poorest people in the United States. So please forgive us it we are a bit offended when you only mention UNC.

  • My response: damn…I got cooked here. My apologies to all the ECU Pirates out there as I CLEARLY missed this in my original write-up. Sounds like North Carolina should shore up some funding for ECU eh?

• Response 4:

  • UNC Rex, Wake Med, and Duke Raleigh hospitals are effectively on the same road and 10 miles apart with Duke Raleigh in the middle and UNC Rex and Wake Med at opposite ends and assets scattered in between.

  • The payer mix in Wake county is favorable with higher commercial insurers with WakeMed historically having a slightly higher Medicaid population.

  • Wake Med has been to the altar with both UNC and Duke in different types of partnerships but they never could get to the stage of a more full partnership for many reasons.

  • There is a lot of discussion in the community about the former CEO of Atrium Health Wake Forest Baptist returning to Duke as the new CEO this past month as well (he was also a former leader at Duke Raleigh so knows that market well)

  • The state employee health plan of whom approximately 70% or ~750,000 members is delivered in just 10 counties surrounding Raleigh/Durham/Chapel Hill so the state auditor and county commissioners concerns about cost of care increasing for that population are valid, particularly when providers will most likely be limited to those in the Advocate network once they move over to Advocate benefits.

  • The cost of care and poorer outcomes is a real data point for large acquisitions like this as you well know, however, the other key data points that I think we don't talk enough about are impact on existing staff in the orgs getting acquired: cost of benefits, salaries, % of labor expense, and something the industry hasn't considered but I can promise you I have seen is the significant cost of loss of identity and values by the organization being acquired. Mission hospital is a great case study on this. The Asheville community is still rip roaring angry about that acquisition. The nursing staff unionized as a direct result of the for profit operating model, their quality and labor issues persist and when you really dig in there, the root cause of the unionizing and community ire is loss of care and concern for each other and what it means to care for your neighbor. I get that sentiment does not pay the bills, but it's a real cost to an acquiring organizations bottom line particularly when the integration is botched - which most are.

  • …This decision has real consequences because in the arms race of health care, merging is such an unimaginative yet harmful solution and the people who seem to meaningfully benefit in the end, are system execs who have consolidated power and increased salaries...people aren't getting healthier, they are staying sick.

If anyone else has any additional thoughts around the merger (I appreciate the passion!) feel free to drop me a note by replying to the email.

Finally, I had a chance to dive into Advocate’s most recent annual financials, published a month or two ago - here’s an overview of their year from a financial and operating perspective:

BLAKE’S BREAKDOWN

Cardiology Finally Gets Its VBC Moment - And How Karoo Health Got Their First

Listen to our conversation here.

Every specialty in healthcare eventually has its value-based care moment. Nephrology had its turn with the ESCO model and the subsequent wave of kidney care platforms. Oncology followed with OCM and then the Enhancing Oncology Model. And now, after years of being the largest cost center that nobody was organizing around alternative payments, cardiology is up.

Ian Koons, CEO and co-founder of Karoo Health, joined me on my Claims Denied podcast recently, and the conversation made one thing very clear: Karoo isn't riding cardiology's VBC wave. They were paddling out before anyone else saw it coming.

The numbers speak for themselves. Karoo is now the largest cardiac VBC enabler in the country — over 600 cardiologists, 11 states, 25K lives under management. And perhaps the most telling data point: they haven't done outbound business development in almost two years. Payors are coming to them. That's a fundamentally different position than the typical specialty enabler pitch deck, and it tells you something about where the market has shifted.

From De Novo Clinics to Platform Play: The Origin Pivot

What struck me about Karoo's origin story is how nonlinear it was. Ian told me the original plan was to build de novo cardiac clinics — stand up their own practices, take risk directly, and prove the model from scratch because they didn't think the market was ready. Cardiologists, historically, hadn't participated in alternative payment models. There was no CMMI cardiac model. The muscle memory didn't exist.

But then something organic happened. A subset of cardiologists, squeezed by professional fee compression and working harder for less, went to their payors and essentially asked: is there anyone who can help me navigate this? The payors asked if they had a technology partner or enabler. The cardiologists Googled it. And Karoo, apparently, was the only company with a website.

I love that story because it cuts against the venture-backed narrative of growth-at-all-costs customer acquisition. Karoo's early traction was pull, not push. That matters because it reflects genuine market need rather than manufactured demand, and it set the tone for how Ian thinks about growth, capital, and partnerships.

The Payor Pressure Cooker

The macro environment is doing a lot of Karoo's selling for them right now, and Ian was pretty direct about why. From the payor side, the story is familiar to anyone who's been following managed care earnings: MedEx ratios are elevated, margins are compressed, and the old playbook of risk-adjusting your way to profitability is getting demolished by V28.

Ian framed this bluntly — a lot of VBC companies historically lived on the revenue side, juicing risk scores without meaningfully bending the cost curve. V28 changes the math. You can't code your way to performance anymore, which means payors are now forced to evaluate which of their delegated partners are actually creating value. That's the real disruption, and it's why payors who previously had no interest in specialty-specific VBC arrangements are suddenly very interested in cardiology.

I pushed back a little here, or at least tried to sharpen the point — someone recently told me that "managed care actually has to manage care now," which I thought was a great line. Ian agreed, and the implication is significant: if payors can no longer paper over medical cost trends with revenue-side adjustments, the entire delegated care model gets re-evaluated. The winners are the organizations that can actually guarantee savings and prove outcomes, not just the ones with the best coding programs.

The Death of Siloed Specialty Models

One of the most forward-looking parts of our conversation was around what comes after the siloed specialty VBC model. Ian described a deal Karoo is working on — still in its early stages at the time of the podcast episode — that bundles cardiology, nephrology, oncology, and at-risk PCPs into a single collaborative risk arrangement with a private payor.

This is significant because it mirrors the philosophy behind CMMI's ACCESS model before ACCESS even launched. The premise is intuitive: nobody wants to manage 70 different subspecialty contracts. Payors want a single source of truth — or at least a small number of trusted partners — that can manage total cost of care across complex populations where the real spend is happening downstream with specialists.

Ian made a point that resonated with me: the historical tension in VBC has been between at-risk PCPs and fee-for-service specialists. PCPs in risk contracts get punished every time they refer downstream to specialists who aren't aligned. The incentives are misaligned by design. A collaborative model that brings specialists into the risk arrangement alongside PCPs doesn't just fix the economics — it fixes the care delivery dysfunction.

I asked Ian a deliberately provocative question: if you get a bunch of smart specialty risk-bearers managing total cost of care really well together, what's the role of the payor? He didn't dodge it. His answer was nuanced — he doesn't think payors disappear — but he acknowledged that if these models work, a lot of traditional payor functions become obsolete. You don't need aggressive utilization management and claim denials if the providers managing risk are already optimizing cost and quality. The friction just goes away.

That's a bold claim, and I think the reality is messier than the theory. But directionally, it's where the industry is heading, and the fact that a specialty enabler CEO is saying it out loud tells you something about the confidence level in these models.

CMMI, ACCESS, and the Policy Angle

We spent some time on CMMI's ACCESS model, and Ian's reaction was more measured than I expected. He acknowledged the early skepticism around rates — which is the standard industry reaction to any new CMMI model — but said he doesn't get hung up on that. His view is that the framework matters more than the initial parameters, and he actually applauded Abe and Jacob (CMMI leadership) for thinking outside the siloed model box.

The interesting wrinkle is that Karoo originally went to Capitol Hill to architect a cardiac-specific CMMI model. Through the process, they realized that a cardiology-only model might actually be too narrow and could limit the collaborative dynamic that makes the real difference. Instead, they're now focused on how cardiology participates within broader collaborative specialty models — and whether there are specific levers within that framework where cardiologists can deliver outsized value.

I tried to get Ian to share specifics, but he kept his cards close. "I'll leave that for another day" — fair enough, but I'm holding him to the promise that I'll be the first call when those details drop.

The Funding and Capital Philosophy

Ian confirmed what I'd been hearing — Karoo has signed a term sheet with what he described as a "legendary" investor for a substantial round. The capital is earmarked for scaling national payor deals, adding engineering talent, and further experimentation with the platform's offerings.

What I found more interesting than the funding itself was Ian's philosophy around venture capital in healthcare. He was refreshingly blunt: there are certain VC firms he stays "a million miles away from" despite constant outreach, because their incentive structures would push Karoo toward growth patterns that are detrimental to long-term sustainability. He talked about the cost of capital being more expensive than the capital raised in a lot of recent healthcare funding rounds — a subtle shot at the ZIRP-era raise-and-burn playbook that torched value across digital health.

His framework is simple: take the capital you need to hit your milestones, calculate your dilution, understand the true cost, and pick partners you'd want to call at 2 AM. That's a far cry from the 2021 vintage of raising the biggest round possible and figuring out deployment later.

Karoo’s Culture Thesis

Ian spent a meaningful chunk of our conversation on culture, which I thought was great because it's an area most healthcare CEO interviews skip. Karoo's hiring philosophy is explicitly contrarian — they seek out people who've overcome adversity, who don't come from the "standard pedigree path," and who are mission-driven rather than mercenary. He even said there are firms they won't hire from because "if we hire all these people from places like that, we end up like them."

That's a strong stance, and I respect it. The Pursuit of Happyness reference was apt — Ian wants the Chris Gardner types who will grind through the jungle, not the consultants who want to whiteboard an app. Whether that hiring philosophy scales is an open question, but at the current stage, it seems to be a genuine competitive advantage. The personal connection is real: most Karoo employees have family members who've had cardiovascular events.

A Contrarian Bet

I asked Ian what Karoo believes about healthcare that most people don't. His answer: the multi-specialty VBC platform play — the companies trying to be oncology AND nephrology AND PCP AND everything else — is fundamentally a VC play, not a sustainable business model. He finds it "laughable" that some groups are pretending that path is reasonable.

It's a spicy take, and it directly challenges some well-funded competitors. His argument is that the superpower comes from deep specialization — understanding every nuance of cardiovascular care delivery, economics, and clinical pathways — and that you can't replicate that depth across four or five different clinical domains simultaneously. The collaboration between specialties should happen at the contract level, not the organizational level.

I think there's real tension here, because the bundled deal Karoo is working on requires exactly the kind of cross-specialty collaboration that a consolidated platform could theoretically deliver more efficiently. But Ian's counter is clear: a cardiologist will never work for a nephrology company at scale. The collaboration has to be between sovereign specialty entities, not within a conglomerate.

Looking Ahead

Ian teased several upcoming national payor announcements and "innovative deal structures" without revealing specifics. Between the funding round, the Humana partnership, and the multi-specialty private payor deal, Karoo is entering 2026 with more tailwinds than most companies in the specialty VBC space.

The broader takeaway from this conversation is that cardiology's VBC moment isn't just about one company or one model — it's about a structural shift in how payors, providers, and policymakers think about specialty care costs. The era of delegating risk solely to PCPs and hoping the downstream specialist spend takes care of itself is ending. The era of collaborative, specialty-inclusive risk arrangements is beginning. And Karoo, for better or worse, got there before the crowd.

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ON YOUR RADAR 

• Read: The CMS WISeR model, which launched January 1, 2026 in six states (New Jersey, Ohio, Oklahoma, Texas, Arizona, and Washington), uses AI and machine learning alongside clinical review to require prior authorization for select outpatient Medicare services. Modern Healthcare reported providers are experiencing a rocky rollout, with administrative friction around the new submission workflows generating headaches across affected markets. CMMI has signaled it intends to pilot a "gold carding" exemption feature by mid-2026, which would exempt clinicians with consistent approval track records from future prior authorization review.

• Breakdown: According to Becker’s, per-physician expenses increased nearly 8% in Q1 2026 compared to 2025, reaching almost $1.3 million, and net patient service revenue per physician FTE increased 13% year over year to $879,588. Get 6 other takeaways from Q1 data on physician revenue and expenses here.

• Retreat: The Hospitalogy AI Retreat is coming, November 1-4, 2026 in Phoenix! 100 seats available. 3 days. 100% curated. Join me for a retreat tailor-made for senior executives from hospitals, health systems, and leading care organizations, focused on how AI, automation, and new operating models are reimagining healthcare. Apply here.

• Roundtable: The May Roundtable for Hospitalogy Plus Members takes place May 22 at 1PM EDT. Register here.

That’s all for this Tuesday. I would love to know your thoughts — is the multi-specialty VBC platform model a viable long-term business, or is deep specialization the only sustainable path? Hit reply and let me know.

– Blake