Medicare's competitive bidding program is doomed, researchers say

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Medicare's competitive bidding program for durable medical equipment was not built to last, new research asserts.

Under the program, about which long-term care groups have had mixed reviews, skilled nursing facilities seeking DME supplies can purchase them only from companies that submit the lowest bid to, and are approved by, the Centers for Medicare & Medicaid Services. 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 ultimately, the government will end up negotiating prices with individual companies — negating the whole point of a competitive-bidding scheme in the first 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.


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