Competitive bidding program is doomed, researchers assert

Share this content:
Medicare's competitive bidding program for durable medical equipment was not built to last, new research asserts.
The program requires skilled nursing facilities seeking DME supplies to purchase them only from Centers for Medicare & Medicaid Services-approved companies submitting the lowest bid. Critics charge that the program's rules could force participants to submit low-ball bids, causing prices to be pushed so far down that companies would have to cancel their offers.

Investigators at the California Institute of Technology, who developed models to test this bidding behavior, warn that the government may  end up negotiating prices with individual companies — which undermines the reason for putting a competitive-bidding program in place.

“You can see immediately from theoretical arguments that the potential for disaster is built right in the strategic structures,” Caltech researcher Charles Plott, Ph.D., said.

Full findings were published in the May issue of the Quarterly Journal of Economics.

The study further asserts that Medicare's competitive bidding system “fails to generate competitive prices of goods and fails to satisfy demand.”

The article was written by Plott and two of his students, who conducted a year-long study of the bidding system — or auction — that was designed by the Centers for Medicare & Medicaid Services.

The system was designed to align Medicare reimbursement rates with market prices for medical equipment and services such as respiratory devices, wheelchairs, and hospital beds.

In January 2011, Medicare implemented the bidding program in Charlotte, Cincinnati, Cleveland, Dallas-Ft. Worth, Kansas City, Miami, Orlando, Pittsburgh and Riverside, CA. CMS is now expanding the bidding program to 91 additional metropolitan areas throughout the United States.