HERMES
Health Economics, Risk, Markets & Expenditures Simulation
When Medicaid Cuts Cascade Through Entire Healthcare Systems—Model the Collapse Before It Happens
At a Glance
HERMES is an integrated compartmental modeling framework that simultaneously tracks coverage decisions, hospital finances, disease progression, and healthcare costs through explicit feedback loops—running significantly faster than traditional microsimulation by using efficient differential equation systems instead of tracking individuals. Unlike major microsimulation tools that analyze coverage, provider capacity, and health outcomes separately, HERMES captures critical cascades where Medicaid cuts trigger hospital closures, cost-shifting to private insurers, premium increases, employer coverage drops, and accelerating uninsured growth. Building on proven epidemiological modeling foundations and leveraging AI-powered calibration, HERMES provides state governments and federal policymakers with rapid analytical infrastructure to predict hospital closure cascades, optimize intervention portfolios, and stress-test policies under uncertainty.
The Challenge
State governments face an existential healthcare crisis: federal Medicaid cuts threaten $880 billion over 10 years, risking coverage for 11-16 million Americans and closure of 300+ rural hospitals already operating on razor-thin margins. Yet existing policy models cannot answer the questions states urgently need answered: What happens when Medicaid cuts cascade through hospitals, insurance markets, and community health simultaneously? How do we design contingency plans when everything is connected?
The Vicious Cycle No One Models Adequately:
Medicaid cuts → increased uninsured populations → hospitals absorb uncompensated care costs → hospitals raise prices to private insurers (cost-shifting) → insurers increase premiums/deductibles → employer-sponsored insurance drops → more uninsured → worse hospital finances → rural hospital closures → communities lose access AND largest employer → economic multiplier effects exceeding $60 million per facility
Existing Approaches Miss Critical Feedback Loops:
Sequential Analysis Problem
Major microsimulation models analyze pieces separately: coverage OR provider capacity OR health outcomes—but not their dynamic interactions
Computational Barriers
Traditional microsimulation takes hours per scenario—impossible to explore thousands of parameter combinations or optimize across competing policy goals
Missing Dynamics
Cost-shifting imposed through accounting adjustments post-simulation—not endogenously generated through provider financial constraints
The result? Policymakers fly blind into healthcare catastrophes. They cannot predict which hospitals will close under federal cuts, how cost-shifting cascades through insurance markets, or which interventions prevent rural healthcare collapse. Without integrated models capturing full system dynamics at policy-operational speed, states improvise responses after disasters strike rather than designing evidence-based contingency plans.
The Solution: Rapid Integrated Equilibrium Health System Modeling
HERMES does what no existing tool can: simultaneously tracks how coverage decisions, hospital finances, disease progression, and healthcare costs interact in real-time through explicit feedback loops—running significantly faster than traditional microsimulation—enabling comprehensive uncertainty analysis, policy optimization, and stress-testing impossible with current approaches.
Three Game-Changing Advantages
1. Speed That Enables Entirely New Capabilities
- Scenarios run in seconds instead of hours because compartmental models track population groups rather than individual people—achieving speedups of tens to hundreds, even thousands of times faster than microsimulation
- Enables previously impossible analysis: the increased speed allows for a large exploratory design, comprehensive probabilistic uncertainty quantification, multi-objective policy optimization, rapid legislative support
- Aggregates strategically: groups individuals by policy-relevant characteristics while preserving essential heterogeneity
- AI-powered calibration: simulation-based machine learning rapidly tunes models to real-world data with full uncertainty characterization
Why it matters: States can evaluate dozens of Medicaid contingency plans in an afternoon, find optimal interventions, and quantify risks
2. Integration That Captures the Full Story
- Explicit closed-loop coupling: Coverage ↔ Provider Capacity ↔ Access ↔ Health ↔ Costs ↔ Premiums solved simultaneously
- Cascading effects modeled: Medicaid cuts → hospital closures → cost-shifting → premium increases → employer coverage drops → more uninsured
- Disease dynamics evolve based on access to preventive care and treatment
- Provider supply responds endogenously to financial constraints, reimbursement rates, patient volume
- Cost-shifting emerges naturally from provider financial models, not imposed through accounting adjustments
Why it matters: Policy consequences ripple across the entire system—HERMES reveals cascades before they happen
3. Modularity That Fits Your Needs and Budget
- Three standalone modules: Coverage Dynamics, Health Dynamics, Provider Dynamics
- Fund one module ($400K-$750K, 12 months) or integrate all three ($1.3M-$1.8M, 42-54 months)
- Each module delivers immediate value; integration multiplies impact through feedback loops
- State-specific customization: $75K-$250K for calibration to local data and policy scenarios
Why it matters: Start where priorities are highest; expand as needs and funding allow; phased development de-risks investment
What HERMES Enables That Traditional Models Cannot
For State Governments
- Predict hospital closure cascades: Which specific hospitals close under different Medicaid cut scenarios—and what happens to their communities?
- Quantify cost-shifting impacts: How much will private insurance premiums increase? Which employers drop coverage?
- Optimize intervention portfolios: What's the cheapest combination preventing rural hospital collapse while maintaining budget feasibility?
- Design resilient benefit structures: Which Medicaid benefit designs balance access, costs, and provider viability?
- Real-time legislative support: Evaluate dozens of amendment scenarios during fast-moving debates
For Federal Policymakers
- Complement existing microsimulation with rapid scenario exploration and feedback loop analysis
- Stress-test budget proposals across parameter uncertainties
- Analyze integrated effects: Medicare buy-in → coverage shifts + premium effects + provider capacity + health outcomes + fiscal implications simultaneously
- Optimize transition pathways: Single-payer implementation phasing that minimizes disruption
- Quantify prevention investment breakeven: Which interventions generate long-term fiscal savings?
For Foundations & Researchers
- Test policy tipping points: Where do small parameter changes create large consequences?
- Evaluate prevention investments: Do childhood obesity interventions pay for themselves? Over what time horizon?
- Assess reform robustness: How do value-based payment models perform under economic shocks?
- Compare intervention mechanisms: Which approach to universal coverage is more efficient?
For Healthcare Systems
- Strategic planning incorporating policy scenario analysis
- Payment model design: How do value-based payment structures affect provider participation and outcomes?
- Geographic expansion analysis: Where do capacity gaps create market opportunities?
Innovation Grounded in Established Expertise
Compartmental Modeling Foundation
Adapts successful epidemiological SEIR framework to health policy: individuals aggregate into strategic groups (coverage types, disease states, geographic regions, demographic categories). Achieves significant computational speedup versus microsimulation through differential equation systems while maintaining policy-relevant accuracy.
Coverage Dynamics Module
Builds on decades of labor economics research on employer-sponsored insurance decisions, wage-benefit tradeoffs, behavioral economics insights, and established premium-sensitivity elasticities
Health Dynamics Module
Disease natural history models validated in clinical literature, prevention effectiveness from systematic reviews, QALY frameworks from health economics
Provider Dynamics Module
Hospital cost accounting from Medicare Cost Reports, uncompensated care data, cost-shifting evidence from health services research, closure predictors from rural health policy studies
Cutting-Edge Calibration & Validation
- BayesFlow: Simulation-based inference using neural density estimation—handles complex high-dimensional parameter spaces efficiently
- Robust Decision Making: Identifies policies performing well across uncertain futures
- Multi-objective optimization: Pareto frontiers balancing coverage, costs, access, health outcomes, equity
- Validation: Component testing, counterfactual validation, cross-model comparison, expert elicitation
- Open and transparent: Full source code, documentation, replication materials
Flexible Development Pathways
HERMES offers modular development allowing funders to invest in specific capabilities or the complete integrated system. Each phase delivers standalone value while building toward full integration.
| Phase | Investment | Timeline | Key Deliverables |
|---|---|---|---|
| Phase I: Coverage Dynamics Module + Architecture | $235K-$305K | 9-12 months |
• Working standalone coverage model • Integration architecture • BayesFlow calibration to enrollment data • Proof-of-concept in 3 states • Validation report & policy brief |
| Phase II: Provider Dynamics Integration | $335K-$430K | 12-15 months |
• Hospital financial model with closures • Cost-shifting mechanics • Two-way coupling coverage ↔ providers • Medicaid cut cascade analysis • Rural hospital subsidy optimization |
| Phase III: Full Integration & Deployment | $260K-$335K | 12-15 months |
• Disease progression models • Prevention effectiveness integration • Full three-way coupling • Complete HERMES framework • Comprehensive validation • User interface for stakeholders • State customization templates • Production-ready platform |
Partnership Options
Seed Investment
Coverage module + architecture proof-of-concept; decision milestone for Phase II
Two-Module Integration
Coverage + Providers; validated two-module system for analyzing specific policy priorities
Full Vision
Complete three-module system with production deployment; founding sponsor recognition; co-branding; advisory board seat
State Customization Add-Ons:
- Basic ($75K-$100K): State data calibration, standard scenarios
- Comprehensive ($150K-$250K): Custom policy scenarios, ongoing technical support, training
Why Now
Immediate Policy Opportunity
Federal cuts are already legislated, and states are allocating emergency resources—decision tools are needed now to inform rapid, high-impact actions.
Existing Models Inadequate
Decades-old microsimulation frameworks aren’t designed for integrated feedback loops or rapid scenario analysis demanded by the current healthcare crisis.
Technical Capabilities Mature
BayesFlow and modern computational methods now enable rapid calibration of complex, integrated models—capabilities that were impossible just a few years ago.
Team Expertise Ready
Established expertise in epidemiological modeling, health economics, Bayesian methods, and robust decision making converges at this critical moment.
States face billion-dollar decisions with models that cannot capture cascading effects. Rural hospitals close without understanding cost-shifting consequences. Insurance markets destabilize while analysts run overnight simulations missing critical feedback loops. HERMES fills the gap between existing capabilities and what policymakers urgently need—transforming health policy modeling from sequential partial equilibrium to integrated general equilibrium at operational speed.
Ready to Discuss HERMES for Your Organization?
Whether you're a state government, federal agency, foundation, or healthcare system, we'd like to explore how HERMES can address your specific policy priorities and funding timeline.
CausalPaths Analytics LLC
Advancing expert modeling through AI-augmented capabilities and 20+ years of domain expertise