CASE $16\mathrm{.}1$

Setting Prices for Walkers

Walmart sells a walker called the Carex Explorer for $$63\mathrm{.}98.$ Medicare covers the Explorer, but it used to pay between $$99\mathrm{.}77$ and $$143\mathrm{.}65($CGS $2015).$ As a result of competitive bidding, the current price ranges from $$44\mathrm{.}90$ to $$50\mathrm{.}61($CGS $2018).$ Between $1989$ and $2011,$ Medicare paid for equipment such as walkers using a fee schedule equal to $95$ percent of a product's average wholesale price $($an unverified number provided by manufacturers$).$ This system kept Medicare fees substantially higher than typical retail prices.

As a part of the Medicare Modernization Act of $2003,$ Medicare accepted bids for ten types of equipment in ten metropolitan areas. The median accepted bid was $26$ percent lower than the existing Medicare fee. Equipment manufacturers and retailers responded by lobbying Congress to discard the bids and delay the program, and the House of Representatives obliged by passing a bill to ditch the bids. In fact, it was only with the passage of the Affordable Care Act that Medicare was able to launch competitive bidding in $2011($Newman$,$ Barrette, and McGravesLloyd $2017).$ Even though Medicare anticipated savings of $45$ percent on competitively bid products and $72$ percent for mail$-$order products, in $2015$ then congressman Tom Price and $82$ cosponsors introduced a bill to suspend competitive bidding $($Newman$,$ Barrette, and McGravesLloyd $2017).$ Although the bill did not become law, this example demonstrates three points. First, a well$-$designed bidding process can result in lower prices for public programs. Second, such programs are expensive and take a long time to set up and implement. Third, efforts to switch to a bidding process will encounter opposition from those whose profits are at risk.

Some supplier organizations argue that that the program encourages bidders to offer only the lowest$-$cost products rather than those best suited to beneficiaries' needs. An analysis reported that competitive bidding did not affect beneficiary access and satisfaction $($US Government Accountability Office $2014).$

Discussion Questions

What are the risks of a bidding process like the one described in this case?

Why would elected representatives side with the manufacturers and retailers on this issue?

If Medicare sought bids for cardiac care to serve beneficiaries in your hometown, what would happen economically and politically?

Bidding has led to a drop in the number of medical equipment firms. Is this drop a concern?

Could you design a way of insulating Medicare from political pressure? Would you want to$?$

What problems other than paying too much might distorted fee schedules cause?