In a bold move, 166 economists, computer scientists, and operation researchers from some of the country’s most prestigious universities sent a letter to Rep. Pete Stark (D-CA), chairman of the House Ways and Means Subcommittee on Health, to express their “concerns with the Medicare Competitive Bidding Program.” The signatories, who describe themselves as having expertise in the theory and practice of auctions, claim that the current competitive bidding program for Durable Medical Equipment, Prosthetic, Orthotics & Supplies (DMEPOS) operated by the U.S. Department of Health and Human Services (HHS), is flawed.
Recommendations include discouraging low-ball bids by instituting what they see as a basic principle of auction design: bids must be binding commitments. Other upgrades encourage paying winners the clearing price (or last-accepted bid). They also recommend doing away with composite bids, as they claim this provides incentives to distort bids away from costs—a problem called bid skewing. Finally, they said that the system lacks transparency. It is “unclear,” the letter stipulates, “how quantities associated with each bidder are determined” and that “both quality standards and performance obligations are unclear.”
The signatories claim that “complex auctions like the Medicare competitive bidding program can be designed to achieve the objectives of low cost and high quality with little implementation risk.” The letter was mailed on September 26, and on September 28, Stark sent a request to Centers for Medicare & Medicaid Services (CMS) administrator Donald Berwick, requesting that he review the letter and to “give these comments and recommendations serious consideration.” Stark also asked that Berwick inform him “whether CMS plans to incorporate any of the recommended changes and if not, why not.”