CMS’ competitive bidding program for Durable Medical Equipment (DME) has, as has been explained by over two hundred economists including several Nobel laureates, two fatal flaws:

  1. The bids are not binding B people can game the system by bidding low and then raising their price after the lower price was accepted.
  2. Since the low-ball bids are not binding, CMS ends up setting DME prices, not bidders – a continuation of fee-for-service under another name.

The health community at large should be concerned about CMS’ covert price manipulation since, in this era of ever-tighter budgets, CMS is likely to expand their “competitive bidding” price-setting program to retail pharmacies for diabetic supplies, pharmaceuticals, diagnostic tests, and physician services.

CRE’s solution is very simple. CMS should adopt the same taxpayer-friendly strategy that was used by the Federal Communications Commission when it implemented a competitive bidding system for spectrum auctions, namely perform a clinical (laboratory) test on its bidding system. During the course of the clinical trials CMS should postpone actions to utilize its flawed system in the Round 2 areas presently which presently are in design phase but no yet implemented.

Since the question of how to maximize taxpayer benefits through an auction process is a scientific issue, the crucial office to opine on the issue is the White House Office of Science and Technology Policy.  See the letter attached below to OSTP Director Dr. Holdren explaining that when hundreds of eminent economists describe a major federal health care program as “the antithesis of science” there is the need for scientific review of the bidding methodology.

Click to read Holdren letter

http://www.thecre.com/pdf/HoldrenLetter.CompetitiveBidding.pdf

Click to read CRE’s study Auctioning Healthcare: The Need for a Clinical Trial of CMS’ Competitive Bidding Program for Durable Medical Equipment

http://www.thecre.com/pdf/AuctioningHealthcare.2012.CRE.pdf