• CRE’s Tozzi: Call in the Exterminator

    From: Home Care Magazine

    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.

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