8
Min read
The PolicySphere Briefing is brought to you by Baron Public Affairs
Baron Public Affairs and PolicySphere have cooperated on a series of articles on the upcoming EU directive CS3D:
"Understanding CS3D: The New EU Law That Could Cost U.S. Industry Trillions"
"CS3D Is Just One Way In Which Europe Exploits American Economic Vitality"
—
NEW: Opinion: If We Don't Change Our Regulatory System, We Won't Be Able To Produce The Energy The AI Revolution Needs — New guest article by Josiah Neeley of R Street Institute
How to Reform the CMS Innovation Center
Yesterday we mentioned how the good folks at Paragon Health Institute wrote a very interesting report, authored by Senior Policy Analyst Jackson Hammonds, on the CMS Innovation Center.
What's the CMS Innovation Center you ask? Well, it's an agency, created by Obamacare, with a $10 billion per decade statutory budget.
And it sucks.
The goal was to reduce spending while maintaining or improving care quality. The empirical record reveals systematic failure. Despite CBO projections of $34 billion in savings between 2017 and 2026, the Center instead increased net spending by $5.4 billion from 2011 to 2020. Of 90 models tested over 14 years, only four achieved certification for nationwide expansion.
Reading through the analysis of the failures of the CMS Innovation Center is a case study in basic public choice theory and institutional design.
The Center's reliance on voluntary participation creates predictable gaming dynamics. Healthcare providers participate only when they can reasonably expect financial benefit, meaning models attract those already positioned to meet benchmarks. This favorable selection ensures that apparent "savings" often reflect participant characteristics rather than model effectiveness. The Oncology Care Model exemplifies this pathology: despite a 2.1% reduction in episode costs, additional payments to ensure participation resulted in net losses of $639 million.
Prospective benchmarking, that is to say, setting savings targets before market conditions unfold, introduces systematic measurement error. The Comprehensive Care for Joint Replacement model demonstrated this problem acutely: when independent evaluators used retrospective benchmarks, models showing apparent gross savings of $1.9 billion actually produced net losses exceeding $583 million. The benchmark failed to capture natural market evolution, particularly rapid decreases in skilled nursing facility use following hip and knee surgeries.
Perhaps most troubling, the Center has paid providers for meeting quality standards that cannot be validated against control groups. Across nine representative models, 71 quality metrics determined performance payments, yet only 39 appeared in formal evaluations.
The Paragon report proposes reforms grounded in two complementary principles: stricter institutional constraints on bureaucratic discretion and greater orientation toward market-based mechanisms.
The first recommendation is a switch to mandatory models. Rather than allowing healthcare providers to opt into payment models they expect to profit from, the CMS Innovation Center would require participation from all providers within defined geographic regions or service categories. Under a mandatory framework, the Innovation Center designates specific metropolitan areas or states where providers must participate in the new payment model (or choose from a limited set of alternatives that preclude maintaining the status quo), effectively creating a natural experiment with proper treatment and control groups. Concerns about executive overreach are addressed through strict limitations: demonstrations should span 5-7 years maximum, cover limited geographic areas (perhaps the 10 largest metropolitan statistical areas), and require Congressional approval for nationwide expansion.
They recommend a new strategy based on market orientation: market-informed pricing, shoppable services, competitive bidding mechanisms.
Most fundamentally, the report proposes that models should launch only when the CMS Office of the Actuary's midpoint projections show positive net savings, with periodic reassessment and termination provisions if costs exceed predetermined thresholds. This embeds fiscal accountability into the operational structure rather than treating it as an aspirational goal.
The Paragon report embodies intellectual honesty about institutional capacity. It acknowledges that the Innovation Center, despite broad authority and substantial funding, has failed its stated mission. Yet rather than simply advocating abolition, it proposes structural reforms that align incentives with outcomes. It's trying to make better government.
For Republican policymakers, this represents an opportunity to demonstrate serious governance: addressing a clear failure of the ACA not through partisan rhetoric but through evidence-based reform. The report's recommendation of eventual termination if reforms fail establishes appropriate accountability.
Policy News You Need To Know
The PolicySphere Briefing is brought to you by Baron Public Affairs
Baron Public Affairs and PolicySphere have cooperated on a series of articles on the upcoming EU directive CS3D:
"Understanding CS3D: The New EU Law That Could Cost U.S. Industry Trillions"
"CS3D Is Just One Way In Which Europe Exploits American Economic Vitality"
#AI #WeMissYouShinzo — US and Japan signed a cooperation memorandum aimed to advance both countries' development of AI as well as joint research on photonic networks, quantum networks, biotechnology as well as fusion energy. This includes software, hardware, infrastructure and supply chains. This will go hand in hand with Japanese investments in the US electric grid in another deal signed this weekend. And a third agreement signed concerning the mutual procurement and stockpiling of minerals.
#AI — In an unprecedented disclosure, OpenAI has declared it estimates that hundreds of thousands of its ChatGPT users may exhibit signs of manic or psychotic crises each week, based on data from its 800 million weekly active users, with approximately 560,000 potentially experiencing psychosis or mania, 1.2 million showing indicators of suicidal ideation, and another 1.2 million developing unhealthy emotional attachments to the AI. OpenAI say they are collaborating with over 170 mental health experts worldwide to update GPT-5, enhancing its ability to detect distress signals, respond empathetically without reinforcing unfounded beliefs, and direct users to professional help. They say the improvements reduced "undesired responses" by 39% to 52% compared to previous models. The phenomenon of AI psychosis, which we don't doubt is at least in large part just selection bias, but possibly not only, is deeply worrisome.
#AI — Speaking of, OpenAI has completed a corporate restructuring that represents a masterclass in having one's philanthropic cake while eating it too. The newly christened "OpenAI Foundation" now controls equity in the for-profit entity valued at approximately $130 billion, conveniently making it "one of the best resourced philanthropic organizations ever." No doubt. The company has also adopted something called a public benefit corporation structure to ensure, in the words of board chair Bret Taylor, that "mission and commercial success advance together." The Foundation has also announced a $25 billion commitment to health research and "AI resilience." OpenAI began as a non-profit in 2015, with significant funding from Elon Musk, and its pivot to a for-profit structure is the cause of the feud between Musk and Sam Altman. The hybrid non-profit/for-profit structure has always been a headache for OpenAI, and this arrangement follows nearly a year of negotiations with the Attorneys General of California and Delaware.
#Hahahahahaha #YouDontSay #WelcomeToThePartyPal — In a stunning move, Bill Gates has published a post essentially repudiating his prior climate alarmism. His memo urges a strategic pivot in global climate efforts. In a text that will make conservatives have to pinch themselves to not fall over laughing, he argues that while climate change poses serious risks, it will not end civilization (shocker), that temperature alone is an inadequate metric for progress (crazy), and that building health and prosperity in vulnerable populations offers the best defense against its impacts (who would have thought?). Gates, who has invested over $2 billion in climate technologies through Breakthrough Energy and billions more in global health via his foundation, went on to explain that climate catastrophism has overly emphasized short-term emissions cuts, and diverted resources from more effective adaptations like drought-resistant crops or zero-emission steel production. Citing International Energy Agency data showing a 40% drop in emissions projections since 2010, he called for refocusing on human welfare rather than carbon emissions reduction as such. Truly an extraordinary document.
#VotingRights — Some news on the redistricting front. While previously reticent, the Governor of Indiana called a special session on redistricting after facing pressure. New York is facing a lawsuit against one of the five congressional districts represented by a Republican. The lawsuit is enabled by the state’s Voting Rights Act and alleges that the district needs to be redrawn to give more representation for minority voters. In Virginia, House Democrats have passed a resolution allowing the General Assembly to hear proposals on new congressional districts. The new congressional map passed by the GOP in Missouri is facing lawsuits and a referendum ahead of the November 2026 election. California’s Prop 50 allowing further severe gerrymandering in the state is set to pass next week, with golden state Republican opposition collapsing. North Carolina’s GOP-favoring map was passed last week and faces no electoral challenge.
#RuleOfLaw — The House Oversight Committee have released a report on the Biden presidency comprised of depositions of Biden aides. The report documents the cognitive decline of the former President and the misuse of the Autopen, culminating in the demand that all Executive actions signed via Autopen be declared null and void.
#Chyna — Chinese robotaxi companies are expanding internationally faster than American ones.
#OhLook — Universities have doubled their spending on lobbying compared to this time last year, totalling around $24 million in these first 9 months of the Trump admin. Does your congressman have dual loyalty to the University of Pennsylvania?
The PolicySphere Briefing is brought to you by Baron Public Affairs
Baron Public Affairs and PolicySphere have cooperated on a series of articles on the upcoming EU directive CS3D:
"Understanding CS3D: The New EU Law That Could Cost U.S. Industry Trillions"
"CS3D Is Just One Way In Which Europe Exploits American Economic Vitality"
Chart of the Day
60% of grades granted at Harvard are now As. (via Steve McGuire)
