Rep. Pete Stark (D-CA), chair of the House Ways and Means health subcommittee, is urging CMS to consider recommendations by auction experts to revamp the competitive bidding program for durable medical equipment. CMS is supposed to announce the winning bidders of that program by early next week, and it’s not clear whether Stark’s request will delay the announcement.
Stark received a letter signed by 167 academics — including economists, computer scientists and operation researchers with expertise on auctions — who harshly criticized the design of the competitive bidding program. He forwarded the letter to CMS with a brief letter of his own. (Stark letter attached below.)
“I urge you to give these comments and recommendations serious consideration,” Stark wrote to CMS Administrator Donald Berwick. “I would also request that you inform me in a timely way as to whether CMS plans to incorporate any of the recommended changes and if not, why not.”
Flaws in the competitive bidding program could lead to suppliers charging private insurers more to make up for the below-market Medicare payments, the letter from the auction experts states. The Medicare auction does not make bids binding, they say, which encourages low-ball bids because suppliers know they can turn down contracts at no cost if the Medicare payment level is too low.
The program’s pricing rule is flawed, too, the experts say. The standard approach in multi-unit procurement auctions is to sort bids from lowest to highest, select the winners based on estimated demand and pay them the highest bid among the winning bidders, they say. “What is odd is that rather than paying winners the clearing price (the last-accepted bid), the auction pays winners the unweighted median among the winning bids. This is unique in our collective experience. The result is that fifty percent of the winning bidders are offered a contract price less than their bids,” the letter states.
The letter takes issue with CMS’ use of composite bids, an average of a bidder’s bids across many products weighted by government estimated demand. This approach skews bids away from costs.
“The fourth problem is a lack of transparency,” the letter states. “It is unclear how quantities associated with each bidder are determined.”
Those who signed, which include two Nobel prize winners, did not accept industry money for the letter, according to Peter Cramton, a University of Maryland economics professor, who wrote the letter.
Industry wants to scrap the competitive bidding program, but those signing the letter think it’s salvageable. “We believe that competitive bidding can be an effective method of controlling Medicare costs without sacrificing quality,” they write. “However, the current auction program has flaws that need to be fixed before it can achieve the objectives of low cost and high quality.
John Wilkerson (firstname.lastname@example.org)