COLLEGE PARK, Md. — Peter Cramton, the economist who has
warned Congress about the flaws in CMS' competitive bidding design,
is planning a mock HME auction "to show what a well-run auction
would be like," he said Friday.

Cramton has put together a Medicare auction conference to be
held at the University of Maryland April 1. The event will include
a mock auction for home medical equipment products.

According to the conference invitation, "This is a critical
opportunity to debate the basic issues, as well as learn about the
latest auction methods that could simplify and improve the
effectiveness and sustainability of the auction program. In
addition, the conference provides a forum to debate whether
auctions are feasible in the Medicare setting and how they can best
be structured."

Sponsored by the National Science Foundation and the university,
the event could draw as many as 200, Cramton said, noting that he
is inviting HME providers, representatives from the White House,
CMS, the Office of Management and Budget, the Congressional Budget
Office, congressional staff and auction experts from around the

"I am in discussions with people in the [Obama] administration,
and there is a desire to think about the auctions and how they can
best be done," he said. "My view was that the next step would be to
really get people up to speed on how modern auctions are conducted
and bring those DME providers and the government — especially
CMS — to an event where they actually get to have an

Cramton said he and his colleagues have held similar conferences
and mock auctions for several other industries, including
transportation (Federal Aviation Administration), communication
(Federal Communications Commission) and energy (Federal Energy
Regulatory Commission).

Last fall, Cramton spearheaded a letter to
signed by 166 world-renowned economists warning that
CMS' competitive bidding
was designed to fail. A mock auction, he said, "is a
great example of learning by doing, and I have found it to be very
effective with parties that are new to auctions."

Participants will be broken into two-person bidding teams,
Cramton said.

"In the mock auction, about 90 bidding teams compete to be DME
providers for six product categories in nine regions," he
explained. "Each team is given a specific business plan, including
the company's cost of providing service for the product categories
and regions the company is interested in.

"At the end, there will be prizes for those who have performed
especially well with the hand they were dealt and the outcomes,"
the economist said.

It is conceivable that a provider could be paired with a CMS
representative to make up a team, Cramton said. He recognizes that
could be a big stretch.

"Ultimately, CMS and providers are going to have to work
together, and this sort of thing makes perfect sense even though it
is challenging," he said. "The nice thing about it is that they
both are pretty much coming from the same place. Neither of them is
familiar with how auctions should be done, so they both have a lot
to learn."

He understands, he said, that CMS is staunch in its belief that
its competitive bidding design is a good one. After a November
meeting with CMS officials including Jonathan Blum, deputy
administrator and director of the Center for Medicare, Cramton said
CMS was
"very defensive"
about its approach.

He also knows that providers are strongly opposed to the idea of
competitive bidding, believing that HME products and services do
not lend themselves to such a program. The industry is currently
endeavoring to get the entire project repealed.

"I certainly expect that a lot of people are set in their ways,"
Cramton said. "But I really do think that the most powerful form of
expression is actually letting them see and experience how an
efficient auction works. I just found it incredibly powerful in
helping people to understand the simple economic forces that are at

It's too late for Round 1, Cramton said, but the mock auction
could show CMS where its competitive bidding design needs to be
fixed for Round 2.

"We've got a lot of spilled milk with Round 1, but Round 2 is
now urgent in my mind," he said. According to an agency timeline,
CMS will initiate Round 2 bidding within the next few months,
expanding the program to 91 more areas around the country.

"My hope is that CMS is going to realize that if they do an
efficient auction, it is going to reduce their administrative cost
and free them up to focus on critical tasks, such as performance
monitoring, rather than putting out fire after fire trying to
sustain an unsustainable program," Cramton said.

He believes providers, too, might find something to like about a
well-run auction.

"An efficient auction establishes the lowest sustainable prices
for Medicare supplies and will result in substantial savings for
CMS. It's good for efficient providers, because they can live quite
comfortably with those prices," he said. "In an efficient auction,
they are all getting prices higher than they bid."

Under the current Round 1, contract winners have reported that
they are paid less — sometimes far less — than they

Cramton said he hopes HME providers will attend, if only to find
out how an efficient auction actually operates. He is pressing the
issue, he said, because the stakes are high.

"I wouldn't be so stubborn about this if it wasn't for the fact
that it is so important. There's a lot riding on the economics of
Medicare as we go forward," Cramton said. "If we don't figure out a
way to bring quality health care at affordable prices, then that is
very serious for our economy. I think the stakes are actually in
the trillions, not the billions."

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