Economists: Competitive Bidding Program Will Fail

ATLANTA — CMS and Congress, are you listening? The voices against DMEPOS competitive bidding are growing louder as independent experts continue to raise serious concerns about the Medicare bidding program, with one economist calling it "truly horrible."

In a letter addressed to Chairman Pete Stark, D-Calif., 166 self-described "economists, computer scientists and operation researchers with expertise in the theory and practice of auctions" submitted comments on the program to the House Ways and Means Subcommittee on Health, which is expected to hold a hearing on competitive bidding when Congress returns to Washington after the November elections.

In their comments to the House subcommittee, the letter's signatories — many among them from the country's most prestigious universities including Harvard, Princeton, Yale, Columbia, Stanford, the University of Pennsylvania and others — did not discard the idea of a successful competitive bidding program but said CMS' project needs to be fixed before it is implemented.

"We believe that competitive bidding can be an effective method of controlling Medicare costs without sacrificing quality," they wrote. "However, the current auction program has flaws that need to be fixed before it can achieve the objectives of low cost and high quality."

The experts cited four main flaws:

• The rules violate a basic principle of auction design in that bids for the CMS project are not binding commitments. "In the Medicare auction, bidders are not bound by their bids. Any auction winner can decline to sign a supply contract following the auction. This undermines the credibility of bids, and encourages low-ball bids in which the supplier acquires at no cost the option to sign a supply contract," the letter states.

• The pricing rule is flawed because 50 percent of the winning bidders are offered a contract price lower than they bid, which further encourages low-ball bids. "Even if suppliers bid their true costs, up to one-half of the winning suppliers would reject the supply contract and the government would be left with insufficient supply … This pricing rule does not develop a sustainable competitive bidding process or healthy supplier pool," according to the letter.