Mississippi Association of Medical Equipment Suppliers
||NCB Paper on Impact of Competitive Bidding and why it is so bad !
The Impact of Competitive Bidding on the Market for DME – An Update1
By: Brian O’Roark, PhD2
February 18, 2010 127 non‐profit organization.
This report was funded by Last Choice for Patient Choice, a 52 Associate Professor of Economics, Robert Morris University
3 The Department of Justice touts the protection of competition on its website www.justice.gov in a number of places.
The gold standard for market structure has always been competition. Many companies striving to outwork and out‐service other firms in an industry lead, both in theory and in practice, to lower prices and greater availability for consumers. Economists and policy makers are so certain of this that competition has been codified as a goal.3 Markets of course are not infallible. In the course of time, some markets appear to yield outcomes that are suboptimal. Put another way, some markets, when left to their own devices, result in too much or too little of a good being produced from society’s perspective. Alternatively, a market might determine a price that is subjectively either too high or too low. W.
hen markets fail in this way, government has stepped in to fix the perceived failureAt the heart of the debate over CMS’s bidding plan for durable medical equipment (DME) is whether a failure has occurred. This question has been answered to no one’s satisfaction. In fact, the implementation of a so‐called "competitive" bidding program has all the makings of destroying the only component of the DME market that is competitive. In essence, CMS has already dealt with the concern over what they see as unsatisfactory prices. Since CMS sets the reimbursement rates for Medicare patients, the price issue should be off the table. Firms therefore are left to compete on a basis of service. A continuation of the bidding plan will prevent this from being possible, and is likely to lead to a decrease in social w
elfare – a typical goal of public policy that seems to be ignored by CMS. This brief analysis will establish that the CMS bidding program will make patients worse off, and may even lead to more inadequate price containment in the future. While markets sometimes fail from the perspective of policy makers and the general public, overnments can also fail by making outcomes inferior to those before intervention.
g 4 The work of Tullock (1965) and Demsetz (1968) explains franchise bidding as a way to achieve o
ptimal social welfare without the inherent costs of regulation.