CRE’s Tozzi: Call in the Exterminator

WASHINGTON — According to Jim Tozzi of the Center for
Regulatory Effectiveness, the theory behind various types of
auctions has been studied by economists for fifty years — and
he thinks CMS should have studied it a little harder.

On Monday, the Washington-based regulatory watchdog organization
sent a letter under Tozzi’s signature requesting that CMS postpone
Round 1 of competitive
bidding “until the agency’s auction rules are revised to
conform with accepted [principles].”

Tozzi cited a Sept. 26 letter to Congress from University of
Maryland economist Peter Cramton and more than 160 others blasting
the bid program’s flaws.

“CRE is not aware of any auction program in existence which
violates accepted auction [principles] as seriously as does CMS
DMEPOS competitive bidding program,” Tozzi wrote. He added the
economists’ letter explained that unless the bidding program is
fixed, it would lead to a situation “in which suppliers become
increasingly unreliable, product and service quality deteriorates,
and supply shortages become common. Contract enforcement would
become increasingly difficult and fraud and abuse would grow.”

In an interview Friday, Tozzi — who has served as deputy
administrator of the Office of Management and Budget — said
it is small wonder CMS has delayed releasing the names of the Round
1 bid winners after a program integrity review raised what the
agency called “red
flags.” While examining the contract winners for possible
fraud, Tozzi said in his letter, CMS should “use this period to
assess the agency’s bidding rules for non-compliance with
established auction [principles].”

Said Tozzi, “If you show that the CMS bidding program violates
the most fundamental principles of auction theory and if you show
the principles have been around for a minimum of a half-century,
then you can go to other people in the executive branch that may
weigh in on this.

“So, CRE is going to take Professor Cramton’s work and is going
to develop a white paper that shows why the CMS competitive bidding
program is in violation of accepted metrics of auction theory,” he
continued. “We are going to approach economists in the
administration who will understand the theories of this violation
and we are going to go to the Federal Reserve Board, the White
House economic advisors and the Federal Trade Commission.”

The goal, he said, is to “get people outside CMS interested in
the problem.

“We have to move this from CMS to other individuals in the
administration that will realize a non-binding competitive bidding
program is not sustainable,” Tozzi said. “When you have a bidding
system where the bids are not binding, you’re going to have every
possible roach crawl out from every rock around … and you are
going to get all kinds of snakeheads coming out of the bushes. They
can manipulate the process because if it is not binding, they can
bid very low or they can bid very high.”

Read Tozzi’s letter in full in a post on the CRE
website.

Read the economists’ letter to CMS in full.

View more competitive bidding
stories.