Written by a former healthcare investment banker, who raised over $2 billion for voluntary hospitals, HMOs and related organizations, and the author of Rethinking Primary Care Investment Strategy and Nine Key Levers: A Framework for Implementing States’ Primary Care Investment Strategies.
Any state that wants to invest in primary care should consider establishing a Primary Care Investment Fund as a dedicated capital vehicle that converts a defined share of the state’s growing primary care payment stream, together with public and private financing funds already used elsewhere in health care, into durable primary care infrastructure. This is a theoretical proposition, not an implementation proposition. Its logic rests on the clearest available precedent: the financing architecture hospitals have used for decades to build their capital stock.
Introduction: Primary Care Needs Capital
States and the healthcare community have adopted the convention of referring to increased primary care spending as primary care investment. But most of what is called investment is simply increased reimbursement. Reimbursement alone does not finance the facilities, equipment, information systems, organizational capacity, and shared infrastructure needed to expand and modernize primary care. Hospitals have long financed those capital needs through tax-exempt borrowing, public credit support, and reimbursement that recognizes capital costs. Primary care has no comparable financing architecture. The resulting imbalance is striking. More than 108 million people live in designated primary care shortage areas[i], while hospitals receive most tax-exempt health care bond financing.
The proposed Fund would combine proven public financing tools to meet two distinct infrastructure requirements of a high-functioning statewide primary care system: practice-level assets and shared statewide infrastructure. No state appears to have assembled financing for both within a single primary care capital structure, although the underlying tools are already in use. The policy choice is not whether to invent a new financing method, but whether to adapt proven methods to build the assets and institutions that reimbursement alone cannot create.
Rationale: The Hospital Playbook
States like to call increased primary care spending an “investment” in primary care. But true investment involves spending to build or acquire capital assets, often referred to as “infrastructure”. However, to the best of our knowledge not one of the states that has announced plans to increase primary care spending has included a provision for capital expenditures. Businesses, especially start-ups, need capital to grow. The same is true of primary care Primary Care Organizations (PCOs).
If the underlying purpose of primary care “investment” programs is to increase the proportion of healthcare services provided at PCOs, then it is appropriate to consider how powerful hospitals have become in comparison to primary care providers. In fact, hospitals have been gobbling up primary care providers in recent years to ensure a steady flow of specialty care referrals and acute care admissions. Notwithstanding the fact that many hospitals have acquired PCPs as a defensive tactic, the net effect is to increase the balance of power in favor of acute rather than primary care. So, it is entirely appropriate for acute care providers and their sponsors to adapt financial strategies that acute care providers have used so successfully.
Hospitals do not normally fund their buildings and major equipment out of current operating revenues. They finance them over their useful lives, using tax-exempt debt and repay that debt over time from third party reimbursement of depreciation and interest. For most of the past century, hospitals have had a well-worn, state-sanctioned pathway to capital: federal construction grants under the Hill-Burton Act, he Hospital Survey and Construction Act of 1946 (P.L. 79-725). That act provided $4.6 billion in grants (and $1.5 billion in loans) for the construction and modernization of some 6,800 health facilities in more than 4,000 communities between 1946 and 1997 [1]; tax-exempt municipal and revenue bond authorities operating in nearly every state; and, in states like Maryland, capital cost recovery built directly into regulated rates.
There is broad agreement across payers, purchasers, and policymakers that primary care is underfunded and underdeveloped relative to need. Even financially distressed hospitals generally operate within an established capital-financing architecture; primary care does not. Primary care has never had an analogous pathway. It has no equivalent third party reimbursement of depreciation and interest. A Primary Care Investment Fund is the missing piece: a vehicle whose purpose is converting cash flow into capital assets.
The mechanisms hospitals used are not exotic. They are ordinary public finance instruments: tax-exempt revenue bonds tied to a facility’s own cash flows, rate-based depreciation reimbursement, and loan guarantees and mortgage or bond insurance that let a weaker credit borrow at a stronger one’s terms. None of these mechanisms is hospital-specific by law or design. They are general-purpose tools for financing health care facilities that happen to have been deployed almost exclusively for hospitals.
Acute care hospitals are well established in many communities and have substantial excess inpatient capacity. MedPAC found that hospitals reported an aggregate occupancy rate of 71 percent in FY 2024 with just 5 percent of hospital reporting occupancy rates higher than 90%[ii]. In contrast, HRSA estimates that more than 108 million Americans live in federally designated primary care shortage areas[iii], which would require approximately 18,500 additional primary care physicians to eliminate the current shortage designations. Separately, HRSA projects a national shortage of 70,610 primary care physicians by 2038[iv].
Given that primary care is much less expensive than acute care and there is evidence that more and better primary care can reduce hospital usage, actually investing in primary care capital assets is the prudent thing for a state to do if it wishes to improve its primary care delivery system.
What States Are Already Doing
No state appears to have assembled the integrated Primary Care Investment Fund proposed here. Its principal financing components, however, are already used in health care. But taken together, Texas, Tennessee, Minnesota, Louisiana, Oklahoma, Hawaii, and federal CDFI and HRSA programs illustrate that every component of the Fund already exists somewhere in practice.
Incubation and start-up capital. The Texas FQHC Incubator Program provides grants for new clinical sites, renovations, equipment, mobile units, and organizations working toward FQHC or look-alike status. Tennessee similarly designates primary care seed funding within its RAMP program, while Minnesota provides grants for community clinics, FQHC expansion, and primary care training. Louisiana and Oklahoma are also using federal Rural Health Transformation funds to support rural facilities, equipment, telehealth and other technology, workforce development, and primary care delivery reform. Together, these programs demonstrate the delivery-site and organizational-development functions that the Fund could consolidate and finance more systematically.
Tax-exempt financing. Hawaii’s Special Purpose Revenue Bond program authorizes tax-exempt financing for nonprofit health care facilities, including community health centers. It demonstrates that existing state bond authority can finance primary care facilities without requiring a new form of public finance.
Credit enhancement. The federal CDFI Bond Guarantee Program supports long-term financing that can include health-clinic facilities. It provides a model for using guarantees or other credit enhancement to lower borrowing costs for primary care organizations with limited collateral or credit history.
Workforce development as start-up investment. HRSA’s Rural Residency Planning and Development Program finances the start-up costs of new rural residency programs. It supports treating selected workforce-development expenditures as capital investments rather than solely as recurring operating expenses.
Capital-cost recovery through reimbursement. Hospitals have long been able to finance buildings and major equipment because hospital reimbursement recognizes capital costs, whether explicitly or through prospective rates designed to cover depreciation, interest, leases, and related expenses. That expectation of capital-cost recovery is fundamental to hospital revenue-bond financing. The proposed Fund would extend the same principle to primary care by including a defined capital component in the payment stream available to support debt service. Maryland’s regulated all-payer hospital system is an especially explicit example, but the underlying practice is national rather than unique to Maryland.
Taken together, these precedents demonstrate the principle elements of the proposed Fund: capital-cost recovery through reimbursement, tax-exempt borrowing, grants and incubation assistance, credit enhancement, and financing for workforce development. The Fund’s innovation is not any individual instrument, but their integration into a dedicated primary care financing structure with separate windows for statewide infrastructure and delivery-site investment.
Description of a State Fund
A Primary Care Investment Fund would be a dedicated, purpose-built capital vehicle housed within or affiliated with state government. Its sole function is financing the durable assets and organizational capacity that a statewide primary care system needs. Neither ordinary reimbursement nor private financing fills that bill. To be clear, financing is needed for two distinctly different capital assets:
1. Practice level assets located on site at health centers.
2. Statewide infrastructure such as interoperable and quality reporting systems.
Practice-level assets are those that a primary care organization needs to function: buildings, leasehold improvements, medical equipment, telecommunications, and the practice’s own core information systems (electronic health records, scheduling, billing, telehealth). High on the list for all primary care locations will be the deployment of AI applications that can improve both productivity and clinical decision-making.
Statewide infrastructure, the shared systems that let individual primary care organizations function as a coordinated network rather than as isolated clinics: interoperability across EHR systems, common patient and provider identification, statewide referral and consultation networks, connections to hospitals, laboratories, pharmacies, specialists, and public health agencies, population health management and quality reporting, shared cybersecurity and data-governance standards, centralized contracting and analytics, and the financial infrastructure needed to allocate population-based payments across participating organizations.
This is a public good: no single primary care organization should carry its debt; any more than a single hospital carries the debt for a statewide health information exchange it merely connects to. This window is naturally suited to general-obligation-backed or state-appropriation-backed financing, with the state absorbing repayment over five, ten, twenty, or even thirty years, the same way it finances other long-lived public infrastructure. It can begin as soon as a state commits to the Fund, independent of how quickly primary care payment reform itself matures.
Debt Financing instruments
The primary source of funds or seed capital, initially, would likely be a tax-exempt bond issue, whether funded from state general obligation (GO) bonds or revenue bonds secured by cash flows from primary care payers. In either case, the state would be the creditor or guarantor of the bonds. Considering that tax-exempt borrowing rates are in the range of 3% to 5%, the financial logic is compelling. Additional financing may be available from a variety of sources.
• Revolving loan funds, which recycle principal repayments into new lending rounds.
• Loan guarantees and credit enhancement, letting early-stage organizations borrow at rates their standalone credit would not support.
• Leases for equipment and, in some cases, facilities.
• Grants and appropriations, chiefly for start-up, working capital, and stabilization reserves rather than for long-lived assets.
• Philanthropic and hospital community-benefit contributions, which can supplement but should not be relied upon as the primary funding source.
Debt Repayment
Initially, at least, the Fund should not depend on individual primary care organizations finding room in a thin operating margin to make debt-service or lease payments. In time, however, PCOs may be reimbursed for capital expenditures just as hospitals are and be able to bear the cost of debt service. Instead, as all-payer primary care payment reform matures, a defined capital charge may be carved out of the payment flow from payers to primary care. That capital charge can be routed either: Directly to the primary care organization; or to the Fund itself.
Possible Additional Fund Uses
A state agency or state-mandated NGO whose main purpose is to strengthen and increase the capacity of the state’s primary care delivery system may be an appropriate place to manage funds for related purposes, such as:
· Medical education targeted to alleviate the shortage of primary care physicians and advanced practice clinicians in the form of student loan support or forgiveness and establishing new rural residency programs, treating residency creation explicitly as a start-up cost rather than an ongoing operating expense.
· A conduit for primary care capital expenditures or debt service resulting from same.
· A reserve or stabilization fund to provide financial support for primary care organizations when ordinary reimbursement is insufficient to support unanticipated medical or related expenses.
Not a Primary Care Stabilization Fund: Although there are some similarities, this fund should not be confused with a Primary Care Stabilization Fund proposed (but not enacted) in Massachusetts. That was, in essence, both a financing mechanism and a payment intermediary. It had three purposes:
- Pool and stabilize primary care funding. It would collect money from insurers and other healthcare entities into a common statewide fund, rather than leaving each payer to finance primary care independently.
- Provide predictable payments to practices. The fund would make prospective monthly payments to participating primary care practices, generally adjusted for the number and needs of their patients. This would reduce practices’ dependence on individual office visits and other fee-for-service billing.
- Support primary care transformation. In addition to routine payments, the fund could help smaller and independent practices develop team-based care, technology, data systems and other capabilities needed to operate under a more advanced primary care model.
The Fund’s financing needs split naturally into two categories with different repayment logic, and the proposition treats them as two separate windows rather than one undifferentiated pool.
The Policy Choice
A stronger primary care system requires capital: facilities, equipment, information systems, workforce pipelines, and the organizational capacity to establish and sustain new practices and for the interconnectedness needed to provide state residents with the healthcare services needed to reduce mortality and morbidity.
Every new or expanding enterprise requires capital. In the private sector, that capital ordinarily comes from equity investors, supplemented by borrowing once the business has sufficient collateral and predictable cash flow. But conventional equity investment can bring demands for financial return, control, and eventual exit that do not always align with the enduring, community-serving mission of primary care.
A Primary Care Investment Fund offers another path. Through grants, loans, guarantees, tax-exempt financing, and shared infrastructure, it can provide capital that is patient, purposeful, and aligned with the public interest. Its role is not to replace reimbursement. It is to build the assets and institutions that reimbursement alone cannot create, and to ensure that the primary care system we say we value has the means to endure.
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References & Citations
CDFI Fund. https://www.cdfifund.gov/news/725
Minnesota Department of Health. https://www.health.state.mn.us/facilities/ruralhealth/funding/grants/index.html
Louisiana Department of Health. https://www.ldh.la.gov/news/7673
Oklahoma State Department of Health – RHTP. https://oklahoma.gov/health/rhtp.html
Oklahoma RHTP funding. https://oklahoma.gov/health/rhtp/rhtp-funding.html
NY Assembly – 2026–27 Budget Proposal. https://www.assembly.state.ny.us/Reports/WAM/AssemblyBudgetProposal/2026/2026AssemblySummary.pdf
HRSA – RRPD Program. https://www.hrsa.gov/rural-health/grants/rural-health-research-policy/rrpd
HRSA – Hill-Burton program. https://www.hrsa.gov/get-health-care/affordable/hill-burton/compliance
[i] Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy (Washington, DC: MedPAC, March 2026), chap. 3, “Hospital Inpatient and Outpatient Services: Assessing Payment Adequacy and Updating Payments,” 68.
[ii] IBID.
[iii] U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Workforce, Designated Health Professional Shortage Areas Statistics: Third Quarter of Fiscal Year 2026, Designated HPSA Quarterly Summary, as of June 30, 2026 (July 15, 2026), 2, table 1
[iv] U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Workforce, Designated Health Professional Shortage Areas Statistics: Third Quarter of Fiscal Year 2026, Designated HPSA Quarterly Summary, as of June 30, 2026 (July 2026), 3; Health Resources and Services Administration, National Center for Health Workforce Analysis, State of the Primary Care Workforce, 2025 (December 2025), 5
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