Bloomberg Government issues report on competitive bidding

WASHINGTON, July 11, 2012—Bloomberg Government, a division of Bloomberg dedicated to government news and analysis, issued a new report on competitive bidding. The report summarizes the history of the controversial program and examines criticism of competitive bidding.

• “CMS’s assertions that the program saved $202 million in its first year may be overstated for a number of reasons, including a spike in claims seen in late 2010 and CMS’s intentional selection of areas with higher-than-normal usage levels for Round 1 of the program.

• The bidding process employed by CMS will likely reduce the number of market participants and spur a wave of consolidation within the highly fragmented home medical equipment industry. In the nine metropolitan areas covered under Round 1, more than 2,300 entities had submitted Medicare claims immediately before the program’s implementation. As a result of the new program, the government awarded Medicare contracts to just 356 providers for 2011 in those same nine markets, an 85 percent reduction.

• Rather than setting the price for a product based on the amount of the market-clearing bid (the bid at which the aggregate supply meets the government’s estimated demand), CMS stipulates that the price is equal to the amount of the median of all the winning bids. Because of this rule, about half of the “winners” in each bidding process are offered a contract for a value that’s less than they bid. Academic auction experts contend that this policy, along with the non-binding nature of supplier bids, encourages unrealistic, low-ball bids that threaten the long-term integrity of the bidding process.”

In a video about the report, a Bloomberg Government analyst said competitive bidding should be watched closely because the government may attempt to use the system for purchasing outside the home medical equipment industry.