Improving Value

Competitive Bidding

Competitive bidding is a way of establishing government payments for a service or product, in this case health care. What the government will pay is based on the bids submitted by vendors within a market area. Researchers suggest that well-defined products, such as durable medical equipment, available from multiple vendors are the best candidates for competitive bidding. 

States have periodically tried this approach, as has Medicare. In 2011, Medicare instituted a competitive bidding program for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS).¹ In its first year of operation, DMEPOS saved Medicare approximately $202 million, compared to the prior fee-schedule approach. The program initially applied to only a limited services and only a limited number of devices in 9 metropolitan statistical areas but was expanded to include 100 metropolitan statistical areas beginning July 1, 2013. GAO found that the initial bidding process was mostly implemented successfully and that CMS has processes in place to ensure beneficiary access to DME products.² For example, CMS has processes to make sure small suppliers get contracts to avoid driving out smaller competitors from the market. Other studies have found savings for Medicare under the program.³ Critics contend that the program encourages bidders to offer only the lowest-cost products rather than what's most needed. The program was temporarily suspended in 2019 to address these concerns. 

Medicare Advantage plans and some "active purchaser" exchanges use elements of the competitive bidding model to establish how much they will be paid but most industry observers have noted that short-comings in the approach mean that Medicare Advantage plans are overpaid by CMS.⁴ 

Notes

1. The DMEPOS Competitive Bidding Program was mandated by Congress through the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 

2. Unoted States Government Accountability Office, "Medicare Bidding Results from CMS's Durable Medical Equipment Competitive Bidding Program," (November 2014). 

3. Kacik, Alex, "Competitive Bidding Nets Up to $26 Billion in Savings on Medical Equipment," Modern Healthcare (August 8, 2017). 

4. Lieberman, Steven M., "The Case for Reforming Competitive Bidding in Medicare Advantage," USC-Brookings Schaeffer on Health Policy (May 10, 2018).