Will Competitive Bidding Decrease Medicare Expenditures?

24 Pages Posted: 9 Dec 2004

See all articles by Kerry Anne McGeary

Kerry Anne McGeary

Ball State University - Department of Economics

Brett Katzman

University of Miami - School of Business Administration - Department of Economics

Date Written: December 2004

Abstract

Recent measures to reduce Medicare spending include the use of competitive bidding in determining reimbursement prices. Several competitive bidding experiments have recently been conducted by The Centers for Medicare and Medicaid Services (CMS) to determine reimbursement prices. This paper investigates the use of competitive bidding to specifically set reimbursement prices for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS). First, the competitive bidding process is examined on a theoretical level. It is shown that the CMS competitive bidding process (auction) is inefficient, may actually lead to price increases, and may cause decreases in the quality of services. Next, data supporting the theoretical predictions is analyzed. Finally, we suggest switching to a Vickrey style auction that does not suffer from the problems of the current design.

Keywords: Health economics, auction theory

JEL Classification: C70, H40, H51, I18

Suggested Citation

McGeary, Kerry Anne and Katzman, Brett Eric, Will Competitive Bidding Decrease Medicare Expenditures? (December 2004). Available at SSRN: https://ssrn.com/abstract=628721 or http://dx.doi.org/10.2139/ssrn.628721

Kerry Anne McGeary (Contact Author)

Ball State University - Department of Economics ( email )

2000 W. University Ave.
Muncie, IN 47306-0340
United States
765-285-5378 (Phone)

Brett Eric Katzman

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States
305-284-1654 (Phone)

HOME PAGE: http://www.bus.miami.edu/~eco/aaa/faculty/List/katzman.htm

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