Medicare Part B spending has become a runaway train. At $500 billion in 2023 and projected to hit $1.17 trillion by 2034, it now represents nearly half of all Medicare spending. Yet despite this massive expenditure, we're not seeing corresponding improvements in health outcomes or patient access. The culprit? As the vast majority of healthcare wonks will tell you, fundamentally flawed fee-for-service payment system that rewards volume over value.

Which is why we welcome this recent policy brief by the Bipartisan Policy Center (PDF), whose work we always find of very high quality and pertinent to current policy debates. Nearly a decade after MACRA promised to transform Medicare payments from volume-based to value-based care, fee-for-service remains king. Conservatives who believe in efficient, effective government programs that serve their beneficiaries well should be alarmed.

The story is well-known at this point. Fee-for-service creates perverse incentives. Providers get paid for doing more procedures, not for keeping patients healthy. With 78% of physicians now employed by hospitals or corporate entities, this volume incentive gets amplified through institutional pressure to maximize billing. The result? Unnecessary tests, procedures, and visits that drive up costs without improving outcomes.

This system particularly fails the most vulnerable beneficiaries, that is to say, those with chronic conditions who need coordinated care, not just more services. It's telling that despite Part B spending increasing 80% since 2011, we still face critical shortages in primary care, behavioral health, and rural medicine. The payment system actively works against the kind of comprehensive, preventive care that keeps people healthy and out of expensive emergency rooms.

Congress passed MACRA in 2015 with overwhelming bipartisan support, promising to finally fix the broken Sustainable Growth Rate formula and shift Medicare toward value-based payments. The law created two pathways: MIPS (Merit-based Incentive Payment System) for those staying in fee-for-service with quality adjustments, and Advanced APMs (Alternative Payment Models) for those willing to take on financial risk for better care coordination.

The incentive structure seemed straightforward—make fee-for-service less attractive while rewarding those who moved to accountable care models. But the execution has been disastrous. Of 1.3 million clinicians billing Medicare, only about 386,000 participated in Advanced APMs in 2022, while 624,000 remained in MIPS. Why? Several critical design flaws:

First, the Advanced APM bonus payments are expiring. The original 5% bonus dropped to 3.5%, then 1.88%, and will disappear entirely after 2026 under current law. Meanwhile, MIPS has become a compliance exercise where almost everyone gets a small bonus because CMS sets the performance bar too low. The administrative burden is crushing for both programs, but MIPS lets providers stay in their comfort zone of fee-for-service billing.

Second, the budget neutrality requirement creates an annual crisis. Every time medical inflation or coding changes increase costs, the conversion factor must be cut to maintain neutrality. Famously, this creates the ridiculous annual "doc fix" fiasco that has occurred since 2021, creating uncertainty that makes long-term practice planning impossible (because debt ceilings and continuing resolutions weren't enough).

The Bipartisan Policy Center's proposals offer a pragmatic path that should appeal to conservative reformers. Rather than throwing more money at a broken system, they focus on restructuring incentives to reward efficiency and quality.

Their key recommendations include extending and restructuring the Advanced APM bonus payments, reforming the participation thresholds that currently discourage smaller practices from joining accountable care organizations, and addressing the budget neutrality threshold that triggers automatic cuts. These aren't radical changes—they're common-sense fixes to make the system work as originally intended.

The evidence supporting this approach is compelling. Medicare Shared Savings Program ACOs have demonstrated modest but real savings, with physician-led ACOs performing best. The ACO Investment Model, which provided upfront funding for infrastructure, achieved over 2% net Medicare savings annually while reducing hospital readmissions and emergency visits. When providers have the right incentives and resources, they deliver better care for less money.

Particularly promising is the new ACO Primary Care Flex Model, which enhances coordination between primary care and specialists. This addresses a critical weakness in current models where specialists operate outside the accountability framework, continuing to bill fee-for-service even when primary care providers are trying to manage total costs.

These are good reforms that would show that Republicans aren't monomaniacally obsessed with cutting government, but also want to make the parts of government that are necessary work well, and deliver value for the end user. They are also reforms with bipartisan appeal. Good stuff.

Policy News You Need To Know

#FamilyPolicy — Heritage's "Manhattan Project for the family" plan, parts of which leaked to the Washington Post, have set tongues wagging in Washington. Or have they? The whole debate seems extremely passé. The idea that there is some contradiction between supporting families and "free market conservative principles" or whatever no longer seems credible in an era of cratering rates of marriage and births. The politics of income rate cuts have worn themselves out: there's nothing left to cut, and supporting families seems like an obvious, inevitable way to maintain and grow the coalition. Heritage's pivot towards a national conservative/new right orientation under President Kevin Roberts has been slow, as befits a very large and august non-profit, but certainly noticeable (and noticed). Everyone understands that JD Vance is the future of the Republican Party (in one form or another), and that he is very sympathetic to these types of proposals. The "debate", such as it is, was muted, and felt like going through the motions. Everyone, even the opponents, understands that this is the future now.

#PermittingReform #NEPA — EPA has announced plans to revise Clean Air Act permitting rules to allow companies to construct non-emitting portions of power plants and industrial facilities before obtaining New Source Review permits. The goal is to accelerate infrastructure development amid rising energy demand from AI data centers and manufacturing. The proposed guidance would enable developers to build foundations and other emissions-free components while permit applications are pending, potentially speeding project timelines but also creating financial risk if permits are ultimately denied. While this is definitely good news, this new rule's impact will likely remain limited without comprehensive legislative reform. The fundamental challenge is that most permitting delays stem from litigation risk, overlapping jurisdictional reviews, and statutory requirements that cannot be addressed through agency guidance alone.

#AI — OSTP today announced that over 50 major technology companies and organizations have committed to providing AI education resources to millions of American students and educators, marking a significant expansion of the White House Task Force on AI Education. Commitments include $1 billion from Google, free AI CoPilot access for all K-12 students from Microsoft, 10 million worker certifications by 2030 from OpenAI, and many more. Of course, the devil is in the details of those commitments. But we happen to know that the White House is very serious about promoting AI in education and AI education.

#HigherEd — Education Secretary Linda McMahon recently gave a speech at Hillsdale College where she outlined a refreshingly bold vision for reforming higher education. Her key proposals include restoring academic standards, restoring truth-seeking as education's highest goal, returning American history to classrooms, and expecting college leaders to serve as role models. McMahon's speech put emphasis on challenging students academically as a "trial by fire" and preparing them for citizenship. This is part of her 50-state tour promoting educational federalism. More here.

#Immigration — The Supreme Court ruled 6-3 on Monday to lift restrictions on ICE immigration enforcement operations in Southern California, overturning a lower federal court's July order that had barred agents from conducting stops based on race, ethnicity, or language spoken. In a 6-3 decision, the justices overturned a July 11 ruling by U.S. District Court Judge Maame Ewusi-Mensah Frimpong that had restricted federal immigration raids in Los Angeles. Justice Kavanaugh, writing for the majority, wrote that "apparent ethnicity alone cannot furnish reasonable suspicion" but it can be relevant when considered along with other factors, and that multiple factors combined can justify brief immigration status inquiries. This is part of what we would call the "reality is real" clause of the Constitution. Yes, obviously, a 5 foot man with the physique of an indigenous Peruvian speaking Spanish is more likely, statistically, to be an illegal immigrant, than a 6 foot white cowboy in a pickup truck or, for that matter, a 6 foot African-American male in a du-rag speaking African-American Vernacular English, and obviously law enforcement officers should be allowed to consult, er, reality, while engaged in the business of law enforcement.

#LawAndOrder — Today in "very easy policy problems to fix": just 63 people have committed a combined 5,000 offenses underground in New York. Just 5 are currently incapacitated. More here.

#LawAndOrder — Speaking of: new German study finds "legal cannabis harms far outweigh the benefits." You don't say.

#BLS #LaborMarket — BLS just published a new, huge revision, saying that 911,000 fewer jobs were created between April 2024 and March 2025. It turns out the labor market was already weakening even when President Trump came into office. Meanwhile, this provides more fuel to those who argue some significant change at BLS was needed.

#Journalism — The great Rob Bluey, who founded the Daily Signal some 15 years ago, has written an extensive article hailing the "conservative counterrevolution" in journalism. He is certainly right to take a victory lap. The self-incineration of their own legitimacy by legacy journalism outlets has opened up space for more outlets. Conservative donors have understood the value of reporting, as opposed to just commentary. There is much, much more to do. But we've come a long way.