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Happy Thursday, Hospitalogists.

You should join me and two absolute pro's on September 4th to talk about how Medicaid go to market motions have rapidly evolved for hospitals and health systems, and frameworks to deploy to stay ahead of HR-1. We're going deep. Register here!

Anyway, back to today's programming. 3 years ago, on this exact day, I posted this somewhat whimsical, but fun essay. Who controls the Healthcare Spice?

My stellar retro thumbnail from 2023.

Who wants to take a quick gander as to who that one was about?

(by the way, for those who went back and read that piece, I did in fact finish the re-read of Red Rising and am aptly awaiting the arrival of Red God).

I couldn’t help myself but re-approach the topic given Inc. posted ANOTHER article, 3 years later, on ANOTHER #1 fastest-growing healthcare company, Main Street Health - founded by the same folks.

So when the Spice Trade is actively involved in the space, you best pay attention. And the current Spice Trade movement into everything surrounding the Rural Health Transformation Fund.

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Who Controls the Healthcare Spice? Part 2

If you want to ensure your startup reaches stratospheric, unicorn-levels of hypergrowth and gets sold to Elevance, make sure you’re working alongside Bill Frist, Brad Smith, and that you’re backed by Annie Lamont out of stealth.

So far, this formula has resulted in a 100% success rate with a $440M exit, $2.7B exit, and now a third unicorn company with over $4B in revenue, and almost assuredly poised to sell to a BUCA within the next 12-18 months. Absolute powerhouses.

In American healthcare, the most scarce resource is not capital, technology, or clinical insight. It's advance knowledge of where the government is about to move money — and holding the relationships to be the only vendor standing there when it arrives. Nobody has to break a rule when they have prescience about where the market is already headed. These individuals simply control the spice.

He who controls the spice controls the universe.

Eight days in August and we're seemingly in an entirely different rural health paradigm.

On August 11, Inc. named Main Street Health the fastest-growing private company in America — Nashville, rural value-based care, 546,533% growth, nearly $4 billion in revenue. It’s the second time a Brad Smith company has topped that list in three years, and will be his third successful exit in the past decade once he sells to Elevance in 12-18 months and then starts a fourth company to be named to the Inc list in 3 years.

On August 18, Hopscotch Primary Care announced a $53 million Series D, co-led by Town Hall Ventures, to expand rural primary care across the Southeast.

Then on August 20 — today — Cityblock announced it's acquiring Homeward Health in an all-stock deal alongside a $116 million Series E led by General Catalyst, explicitly to move into rural Medicare Advantage.

Capital does not rotate into the hardest segment in American healthcare in the same month by coincidence.

What changed is that on July 4, 2025, Congress created a $50 billion fund, and then CMS decided that 85% of it cannot go to paying rural hospitals for the care they already deliver. Functionally pulling hundreds of billions of dollars out of facility-based care and replacing it with a transformative, sustainable programs tallied at 37% of total anticipated cuts.

But these dollars create an entirely new markets for names mentioned similar to the above. New healthcare regulations make markets all the time. Some are much more aware than others.

The Grand Rural Health 50-State Experiment

Rural hospitals are in the worst shape they've been in since anyone started measuring. Chartis's 2026 study found 41.2% of rural hospitals operating in the red and 417 vulnerable to closure, with 206 having already closed or dropped inpatient care since 2010. Texas leads the at-risk list with 50 hospitals. Tennessee's share of vulnerable rural hospitals went from 44% to 61% in one year.

The One Big Beautiful Bill Act delivered two things at once. It cut federal Medicaid spending by close to $1 trillion over ten years per CBO, including an estimated $137 billion out of rural areas specifically. And it created the Rural Health Transformation Program: $50 billion across 5 years, half split equally among states and half allocated at the CMS Administrator's discretion. All 50 states were approved in late 2025, with first-year awards ranging from New Jersey's $147 million to Texas's $281 million.

Here is a bit more background and intel on the RHTF based on some recent conversations in the space:

• Money has to be spent this year, or else it compromises the state’s ability to get funding for next year. Some states are deer in the headlights. They’re not used to this commitment to money, but that you have to mobilize to prove your worth → instilling a sense of urgency from CMS. Many are behind given back and forth around guidelines with CMS. I’m sure there will be some leeway here.

• These allocations are earmarked for transformation efforts with an emphatic, resounding onus on finding sustainable programs (since federal funding ‘ends’ after 5 years). So many initiatives are focused on things like chronic disease management and workforce transformation and training to increase provider or labor supply. For instance, Jefferson Health is partnering with Delaware to create Delaware’s first medical school. Then there’s Wisconsin who is using a portion of RHTF to deploy Epic across the state to everyone who doesn’t have a HITECH certified EHR

• From some of my background conversations, states are allocating many of the dollars to known people and known enterprises.

• RHTF won’t make up for cuts in Medicaid and trends in rural health. It’ll help and slow them down, but hopefully these investments will create sustainable programs that allow folks in rural communities to get better care and see specialists, to have applications and leverage technology and increase quality of care - organizations that can better predict utilization and capacity.

• For every dollar put into RHTF, you really need 2-3 bucks to get back to status quo from cuts from the OBBBA.

Now here is the part almost nobody wrote about. Harold Miller, who runs the Center for Healthcare Quality and Payment Reform, explained what CMS did after the awards went out:

"That's a sub-regulatory decision CMS made that said that no more than 15% of the funds can be used to supplement payment for services that are already being offered. So, 85% of the money is essentially not available to go to the single biggest problem that rural hospitals have, which is that they're losing money on the services that they're already delivering, which are services that people in the communities need."

Add the other constraints stacked on top: no construction, a 5% cap on EHR replacement, no supplanting existing funding streams, and a two-year obligation window per fiscal year. Approved uses run to prevention and chronic disease management, consumer-facing technology, workforce, data infrastructure, and — to appease the spacing guild — testing new primary care and value-based care models.

So the $50 billion is not a rural hospital rescue. Nor was it intended to be a band-aid.

Really it's a forced, intentional conversion of rural healthcare from facility-based delivery to ambulatory, technology-enabled, risk-bearing delivery, executed by starving the first and funding the second, with 85% of the money walled off from the buildings.

Whether that's good policy is a legitimate debate. Rural inpatient volumes have been falling for two decades and propping up half-empty med-surg floors is not a strategy. Somebody at CMS made a defensible bet.

I found Brad Smith's interview from a few years back fascinating from this regard discussing these dynamics. He talks a lot about the formation of CareBridge and Main Street Health along with the plight of rural hospital economics and capital constraints in a 2022 Vital Signs interview, alluding to this rural health policy future:

• Our first idea was trying to partner with rural hospitals because we read about all these hospital closures. And in many of these communities, they're the largest provider of care. And what was interesting is when we went out and spent a lot of time with them, we realized how hard of a financial set of circumstances they were in, and also honestly, how much capital investment was required in their physical plants, for which was typically disproportionate to the level of care they were either providing or could provide in the future. And so it really felt like there was this capital constraint.

But understand what a bet like that produces. When the federal government pulls billions out of one delivery model and pushes billions into another, it isn't just changing how care gets delivered. It's creating a market, naming its size, and publishing the eligibility rules. And in healthcare, the scarce resource has never been capital or clinical insight. It's knowing where the money is about to move before it moves — and having the standing to be the only vendor there when it lands.

That's the Spice. Not relationships, which is what I called it when I wrote about this in 2023 and got the metaphor myopically wrong. Sigh.

Melange (AKA, spice) in Dune isn't valuable because it's rare but rather because it grants prescience.

• Guild navigators consume spice to see the route through folded space before they fly it.

• The Bene Gesserit, an Illuminati-like society of women advisors, used spice to see the future, and manipulate leadership via breeding.

• Under the influence of spice, Paul Atreides destroyed the galactic empire and created a Jihad leading to the death of 61 billion people across the universe.

In healthcare, the Spice Trade holds this prescience, and relationship leverage to capitalize on the trade.

Inside the Spice Trade and how Brad Smith went 3 for 3

Brad Smith is, by all intents and purposes, one of the best, if not the best healthcare entrepreneurs of our day. Objectively. He has founded three healthcare companies. All three landed on the Inc. 5000. Aspire came in at #189 in 2018. CareBridge was #1 in 2023. Main Street Health was #1 this month. He is the only entrepreneur in 25 years with two different companies at the top of that list.

Prescience aside, credit where credit is due - no doubt it is incredibly difficult to scale 3 companies to that size, identify those market opportunities, and execute. But more interesting to me is the timeline of how it all transpired.

Aspire Health (2013–2018).

Frist and Smith build community-based palliative care for the seriously ill, sold to health plans. By 2018 it has contracts with 20+ plans across 25 states. Anthem acquires it in June 2018 for a reported $440 million, a figure Anthem has never confirmed. Smith then becomes Chief Operating Officer of Anthem's Diversified Business Group, the unit that becomes Carelon.

CareBridge (2019–2024).

In December 2016, the 21st Century Cures Act was signed, a section of which required every state to mandate electronic visit verification (EVV) for all Medicaid personal care services by January 1, 2020, and home health by 2023. States that missed it took an FMAP cut escalating from 0.25 points in 2020 to a full point by 2023. Fifty state Medicaid agencies, one hard date, real money for missing it.

January 13, 2019 → CareBridge launch announcement. Created by combining two firms HealthStar (electronic visit verification, AKA…EVV) and Sinq Technologies (data aggregation and value-based payments) 12 months before the EVV deadline and while Smith was a sitting Anthem executive. Emerged from stealth with $40M in funding from the Spice Guild led by Oak HC/FT.

So CareBridge did not start life as a care management company. It started as a compliance layer bolted to an analytics layer, assembled one year before every state in the country was legally obligated to buy the compliance layer.

CareBridge started as the meter, then took risk on what the meter showed. Five years later Elevance bought it for a reported $2.7 billion. At the time it had roughly 500 employees and $4 billion of annualized revenue.

• (One detail I just can’t help but mention: Smith was a sitting Anthem executive in January 2019 and isn't named anywhere in CareBridge's launch announcement. Four years later Inc. describes it as a company "the two men co-founded" in 2019. Something is being mischaracterized here.)

Main Street Health (2021– ).

In August 2020, as CMMI director, Smith launched the Community Health Access and Rural Transformation Model — $75 million to move rural providers into value-based payment. 10 months later he launched a rural value-based care company. By October 2023 it had raised $315 million from Oak HC/FT and all five of the largest national Medicare Advantage plans, covering over 74% of MA members.

• Sound familiar? This was from CareBridge’s 2023 story from Inc:

  • “Existing investor Oak HC/FT led the financing round. The company also has gained the backing of four of the nation’s five largest managed Medicaid plans: Optum Ventures, CVS Ventures, Anthem Inc. and HLM Venture Partners. Together those organizations serve nearly 60% of all Americans receiving home and community-based services.”

Main Street today: 3,800 providers, 24 states, ~4 million rural Americans, $4 billion in revenue.

Smith’s playbook is incredible and clearly repeatable. Same shape three times:

• Find a segment where federal policy is about to move money and nobody is standing there (’we want to be the first or second to market’)

• Build the thing the policy will require before the policy requires it (AKA be on the Spice)

• Leverage existing relationships, sell equity to every payer who could ever be a customer, competitor, or acquirer

• Exit to one of them

Annie Lamont's advice to Smith, quoted in his own words, is the strategy compressed to one sentence: "it's way easier to build something really special, if you're the first person starting in a space versus if you're the 10th person starting in a space."

It’s also way easier to be the first person in the space if you know what’s coming and where to look.

Main Street’s RHTF Prescience

Under the Rural Health Transformation Fund, CMS writes checks to states, and each state decides its own procurement structure — direct agency RFP, pass-through to a hospital association, a new quasi-governmental entity, or some hybrid its legislature fought over for four months. Which means capturing this money requires fifty separate GTM motions, 50 relationships with 50 state agencies, and the operational ability to stand up programs in a Kansas county and an Alabama county in the same quarter. 2-year obligation windows per fiscal year, so states have to move fast and, as previously mentioned, are more likely to reach for vendors who are already operating rather than vendors who promise to be.

Now line up the three companies that raised or sold in the last eight days:

• Hopscotch: 15,000 patients, 12 clinical locations, concentrated in western North Carolina

• Homeward: roughly 50,000 members, primarily Michigan and Minnesota, being acquired

• Main Street Health: 3,800 providers, 24 states, nearly 4 million rural Americans, contracts with every major national payer

One of those is not like the others. Main Street already has the thing that takes five years and $300 million to build, and it built it starting in June 2021, four years before anybody knew a $50 billion state-administered fund was coming.

Add the second constraint. RHTP funds cannot duplicate existing reimbursement or pay for clinical services already covered by insurance, which sounds like a limitation on Main Street until you look at what it actually screens out. It screens out anyone whose only product is care — the rural hospital, the FQHC, the primary care group. What survives and is incentivized through the screen is technology, care coordination infrastructure, workforce programs, data platforms, and value-based model design.

Main Street is perfectly positioned because it spent four years building the exact asset that the eligibility rules were later drawn around, in the exact geographies where the money landed, with the exact payer relationships states will want their vendors to have.

That's either the most incredible product roadmap in the history of American healthcare or it's the Spice at play, once again.

Credit Where Credit is Due

I want to iterate that, just as in my previous post about the Spice, this essay isn’t intended to be a hit piece, so I hope it doesn’t come across that way. I think everyone involved is, generally speaking, well intentioned and wants to improve healthcare within some incredibly difficult segments.

Rural is brutally hard, and Smith's own account of building Main Street is the best evidence I have. Before landing on the model that worked, they killed three ideas. Rural hospitals first, then urgent care: "putting a new box in one of these small communities, it's just really hard to make the volume work." Then independent pharmacies, where they ran an actual pilot and discovered that a folding table in the back of a rural drugstore is not a clinic. They also built an app patients were supposed to use, and "nobody ended up wanting to use it to talk to us."

Finally, Smith is the harshest critic of his own former agency. He reviewed all 54 CMMI models, found that five saved meaningful money and two expanded nationally, cut CMMI's operating budget 18%, and said out loud: "we've spent $15 billion, and it's basically not working." His explanation of why is correct — voluntary models with average benchmarks select for participants already beating the benchmark, because that's what an average is. And this line is the most honest sentence any CMMI director has produced:

"I had lots of people come pitch me ideas at CMS, but every one of them was a version of will you pay me more."

Rent-seekers don't usually volunteer that.

I don’t mean to shut down the immense workload that goes into entrepreneurship or building businesses. But I do think questioning the methodologies around dictating healthcare payment policy or regulation, then capturing that regulation with companies, is fair game.

This is not alpha

Alpha means excess risk-adjusted return.

But when you can see the Golden Path, there is no uncertainty to be compensated for - or, certainly much less risk involved for investors. What gets collected isn't alpha. It's a toll on an information asymmetry that federal policy manufactured and that maybe 40 people in America can access. And that asymmetry isn't a byproduct of government service...government service is the mechanism. You go in, you learn the compliance calendar and the model pipeline and what the plans will actually bid, you come out and build the thing you now know somebody will have to buy, and ideally you go back in.

And I obviously would be remiss to mention the counterfactual / argument to this essay: information advantage exists in every industry, expertise isn't a conspiracy, and if we barred everyone who ever ran a federal payment program from ever working in that market, we'd staff CMMI entirely with people who have never operated anything.

Everyone in this story is very good at their job. That's precisely the problem. If Main Street Health were a scam this would be an easy essay to write and an easy one to dismiss. Main Street appears to work — 51% improvement in quality star scores, 11% reduction in medical costs, 53% drop in readmissions.

Real companies, real insight, real outcomes, positioned in advance of policy that a handful of the founders' peers wrote. While it’s not fraud, it’s market making.

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This is my conclusion, and these are my rambling thoughts. As always, I welcome any of your thoughts as Hospitalogy is always intended to be a place fostering open dialogue. If you feel I misrepresented or misinterpreted anything (which is likely; I'm fallible), hit me with it. Now I'm gonna go hang with my toddler.

-Blake