Health

Coronavirus

“Borrow crisis tactics to get COVID-19 supplies to where they are needed,” (with Axel Ockenfels, Alvin E. Roth, and Robert B. Wilson) Nature, 18 June 2020. [FAZ April 27, FAZ online April 26, SZ July 4 English German, Wirtschaftswoche Nov 13]

HIV transmission (without abstracts)

“Nonrandom Mixing Models of HIV Transmission,” (with Edward Kaplan, and A. David Paltiel) in Mathematical and Statistical Approaches to AIDS Epidemiology, edited by Carlos Castillo-Chávez, Lecture Notes in Biomathematics Series, Springer-Verlag, 218–239, 1989.

Medicare auctions and how to fix them (without abstracts)

“Designed to Fail: The Medicare Auction for Durable Medical Equipment” (with Sean Ellermeyer and Brett E. Katzman) Economic Inquiry,  53:1, 469-485, 2015.

Anatomy of a Failed “Auction” for Medicare Supplies, 30 January 2013.

“Medicare Auction Reform,” Testimony of Peter Cramton before the United States House Committee on Small Business, 11 September 2012. [Oral Testimony, Transcript of Hearing, Video of Hearing (jump to: my oral, Q&A),  Comments of Peter Cramton (original draft), Freakonomics]

Market Pricing Program Legislation, September 2012. Proposed legislation introduced in the House to replace Medicare’s Competitive Bidding Program with an auction based on best-practice and science. [MPP Summary, FAQs]

Letter from Esta E. Willman to US House of Representatives Committee on Small Business, 11 September 2012.

Letter from Thomas J. Milam to Peter Cramton on the costs of competitive bidding in diabetes, 10 September 2012.

Email Correspondence to Jonathan Blum on Sample RFPs for Auction Services, 23 and 27 October 2010.

Email Correspondence to Jonathan Blum on Second Data Request, 5 and 17 November 2010 and 12 December 2010.

Letter from Al Lewis to Health and Human Services Secretary Sebelius on Program Evaluation Methodology, August 2012.

Plott, Charles R. (2012) “Statement of Charles R. Plot, Professor of Economics and Political Science, California Institute of Technology,” U.S. House of Representatives Committee on Small Business, 11 September 2012.

AMEPA (2012), “Reductions in Allowed Claims Prove Limited Patient Access.”

Coulam, Robert, Roger Feldman, and Bryan Dowd (2009) “Don’t Forget to Save Medicare: Competitive Pricing, Not Price Controls,” American Enterprise Institute for Public Policy Research, 17 July 2009.

“The Hidden Costs of a Flawed Medicare Auction,” University of Maryland, January 2012. [Data, Follow-up FOIA Data Request]

“Medicare Auction Reform,” a 12-minute video with problems and solution from leading experts, July 2011.

Letter from 244 Concerned Auction Experts on the Medicare Competitive Bidding Program to President Obama, the White House, 17 June 2011. [HomeCare 20 June]

“Repeal and Reform Legislation for Medicare DME Auctions,” University of Maryland, July 2011. [pptx, HomeCare 2 June]

“Early Pilots of Medicare Auctions Bring No Solace to Auction Experts” (with Brett E. Katzman), The Economists’ Voice, July 2011. [Thomas J. Hoerger, “Comment on Cramton and Katzman,” The Economists’ Voice, July 2011.]

Competitive Bidding Congressional Update—What You Need to Know, Longworth House Office Building, sponsored by U.S. Representative Sue Myrick (R-NC), 24 May 2011. Also Briefing for Senate Staff on the Impact of the CMS Competitive Bidding Program for Durable Medical Equipment, Russell Senate Office Building, 24 May 2011. [HomeCare 25 May, California Watch 26 May, California Healthline 26 May, HMEnews 27 May]

  • Video of opening remarks (33 minutes) [Transcript of entire event, Presentation, pptx with animation]
    • Peter Cramton, Professor of Economics, University of Maryland
  • Video of panelists(42 minutes)
    • Tom Milam, Member, Program Advisory and Oversight Committee (PAOC), Former COO, AmMed Direct
    • Barbara Rogers, PAOC Member and President/CEO National Emphysema/COPD Association
    • Paul Gabos, Chief Financial Officer, Lincare, Round One Re-Bid Winner
    • Robert Brandt, Owner, City Medical Services, Round One Re-Bid Winner
    • Nancy Johnson, 24-year Congresswoman (R-CT)
    • Sue Myrick, Congresswoman (R-NC)

Letter to PAOC with Public Comments of Peter Cramton at PAOC Meeting on Medicare DME Competitive Bidding Program, 7 April 2011. [Presentation]

Medicare Auction Conference, Inn & Conference Center, University of Maryland, 1 April 2011. [HomeCare 11 Apr, InsideHealthPolicy 4 Apr]

“Auction Design for Medicare Durable Medical Equipment,” Working Paper, University of Maryland, March 2011. [Full Presentation: .pdf .pptx; Short Presentation; Short Presentation 2-per-Page, HomeCare 1 Feb 2011]

“Medicare Auction Failure: Early Evidence from the Round 1 Rebid,” Working Paper, University of Maryland, June 2011. [Raw Data and Tableau Packaged Workbook, Tableau Reader, FOIA Data Request, Original Paper, HomeCare 27 June]

Dziekonska, Edyta, “Is the Medicare Competitive Bidding Program of Durable Medical Equipment, Orthotics, Prosthetics, and Supplies an Effective Auctioning Process?” Honors Thesis, Economics Department, University of Maryland, May 2011.

“Medicare’s Troubled Auction System,”FIRE Podcast, Out of the Storm News, interview with Arin Greenwood, February 2011.

Brian Merlob, Charles R. Plott, and Yuanjun Zhang, “The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Non-Binding Bids,” Quarterly Journal of Economics, 127, 793-782, May 2012.

Letter to Deputy Administrator Blum (CMS)  on Medicare Auction, 5 November 2010. [Data request, 17 November 2010]

“Reducing Healthcare Costs Requires Good Market Design” (with Brett E. Katzman) The Economists’ Voice, 7:4, October2010.

“Fix Medicare’s Bizarre Auction Program” (with Ian Ayres), Opinion Pages, New York Times, 30 September 2010.

Email to Auction Experts on Medicare Competitive Bidding Program, 20 September 2010.
Source material sent with email:
0. Cramton and  Katzman (2010), a brief note on the current problems and the need for action (final published version).
1. Request for Bid Instructions (Round 1 Rebid), which defines the median pricing rule and other auction rules.
2. Federal Register, which presents the final rule and a discussion of its rationale.
3. Katzman and McGeary (2008), the study of the earlier trials showing the bid skewing and other problems.
4. Request for Bids Bidding Form to see what a bid looks like.
5. Eligibility Requirements to get a sense of bidder qualification.
6. Quality Standards to see the limited information on quality standards and performance obligations.

Excerpts from the Email Replies of Auction Experts Asked to be Signatories of Letter from Concerned Auction Experts, 22 September 2010.

Letter from 167 Concerned Auction Experts on Medicare Competitive Bidding Program to Chairman Stark, Health Subcommittee, Ways and Means, U.S. House of Representatives, 26 September 2010.

Letter from Chairman Stark to Administrator Berwick (CMS), 28 September 2010.
Letter from Representative Braley to Secretary Sebelius (HHS) and Administrator Berwick (CMS), 25 October 2010.
Letter from Representative Tiberi to Secretary Sebelius (HHS) and Administrator Berwick (CMS), 27 October 2010.
Letter from Senator Casey to Administrator Berwick (CMS), 22 October 2010.
Letter from Senator Voinovich to Administrator Berwick (CMS), 18 October 2010.
Letter from Representatives Braley and Myrick to Administrator Berwick (CMS), 24 November 2010.

Letters from 167 Concerned Auction Experts on Medicare Competitive Bidding Program to other Congressmen:
Chairman Altmire, Investigations and Oversight Subcommittee, Small Business Committee, U.S. House of Representatives.
Ranking Member Barton, U.S. House of Representatives Committee on Energy and Commerce.
Chairman Baucus, U.S. Senate Committee on Finance.
Ranking Member Camp, U.S. House of Representatives Committee on Ways and Means.
Chairman Conrad, U.S. Senate Committee on Budget.
Ranking Member Grassley, U.S. Senate Committee on Finance.
Representative Hall, U.S. House of Representatives.
Ranking Member Herger, U.S. House of Representatives Ways and Means Subcommittee on Health.
Chairman Levin, U.S. House of Representatives Ways and Means Committee.
Chairman Pallone, U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Health.
Chairman Rockefeller, U.S. Senate Committee on Finance, Health Care Subcommittee.
Ranking Member Shimkus, U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Health.
Senator Snowe, U.S. Senate Committee on Finance.
Representative Waxman, U.S. House of Representatives Committee on Energy and Commerce.

Coronavirus

“Borrow crisis tactics to get COVID-19 supplies to where they are needed,” (with Axel Ockenfels, Alvin E. Roth, and Robert B. Wilson) Nature, 18 June 2020. [FAZ April 27, FAZ online April 26, SZ July 4 English German, Wirtschaftswoche Nov 13]

Emergency procedures that keep electricity running and food banks stocked can also keep health workers in protective equipment.

HIV transmission (with abstracts)

“Nonrandom Mixing Models of HIV Transmission,” (with Edward Kaplan, and A. David Paltiel) in Mathematical and Statistical Approaches to AIDS Epidemiology, edited by Carlos Castillo-Chávez, Lecture Notes in Biomathematics Series, Springer-Verlag, 218–239, 1989.

Models of HIV transmission and the AIDS epidemic generally assume random mixing among those infected with HIV and those who are not. For sexually transmitted HIV, this implies that individuals select sex partners without regard to attributes such as familiarity, attractiveness, or risk of infection. This paper formulates a model for examining the impact of nonrandom mixing on HIV transmission. We present threshold conditions that determine when HIV epidemics can occur within the framework of this model. Nonrandom mixing is introduced by assuming that sexually active individuals select sex partners to minimize the risk of infection. In addition to variability in risky sex rates, some versions of our model allow for error (or noise) in information exchanged between prospective partners. We investigate several models including random partner selection (or proportionate mixing), segregation of the population by risky sex rates, a probabilistic combination of segregation and random selection induced by imperfect information (or preferred mixing), and a model of costly search with perfect information. We develop examples which show that nonrandom mixing can lead to epidemics that are more severe or less severe than random mixing. For reasonable parameter choices describing the AIDS epidemic, however, the results suggest that random mixing models overstate the number of HIV infections that will occur.

Medicare auctions and how to fix them (with abstracts)

 “Designed to Fail: The Medicare Auction for Durable Medical Equipment” (with Sean Ellermeyer and Brett E. Katzman) Economic Inquiry,  53:1, 469-485, 2015.

We examine the theoretical properties of the auction for Medicare Durable Medical Equipment. Two unique features of the Medicare auction are (1) winners are paid the median winning bid and (2) bids are nonbinding. We show that median pricing results in allocation inefficiencies as some high-cost firms potentially displace low-cost firms as winners. Further, the auction may leave demand unfulfilled as some winners refuse to supply because the price is set below their cost.We also introduce a model of nonbinding bids that establishes the rationality of a lowball bid strategy employed by many bidders in the actual Medicare auctions and recently replicated in Caltech experiments. We contrast the median-price auction with the standard clearing-price auction where each firm bids true costs as a dominant strategy, resulting in competitive equilibrium prices and full efficiency.

Anatomy of a Failed “Auction” for Medicare Supplies, 30 January 2013.

“Medicare Auction Reform,” Testimony of Peter Cramton before the United States House Committee on Small Business, 11 September 2012. [Oral Testimony, Transcript of Hearing, Video of Hearing (jump to: my oral, Q&A),  Comments of Peter Cramton (original draft), Freakonomics]

Chairwoman Ellmers, Ranking Member Richmond, and members of the House Committee on Small Business, I am honored to appear before you today and have this opportunity to speak to such a critical committee on a matter of great significance to our future: Medicare auction reform. Without the effective use of market methods to control costs and encourage efficient supply and demand, Medicare is unsustainable. This is why it is essential for Congress to step in and insist that the Centers for Medicare and Medicaid Services (CMS) replace its fatally-flawed competitive bidding program for Durable Medical Equipment with a modern auction based on best-practice and science (see Market Pricing Program Summary 2012). CMS has had ten years to adopt a sensible auction, but has refused to do so. Congress must give CMS more specific instructions.

Market Pricing Program Legislation, September 2012. Proposed legislation introduced in the House to replace Medicare’s Competitive Bidding Program with an auction based on best-practice and science. [MPP Summary, FAQs]

Letter from Al Lewis to Health and Human Services Secretary Sebelius on Program Evaluation Methodology, August 2012.

A letter to Secretary Sebelius from a pioneer  in the analysis of disease management on the flaws in CMS’ methodology for evaluating the impact of the DME competitive bidding program.

“The Hidden Costs of a Flawed Medicare Auction,” University of Maryland, January 2012.  [Data, Follow-up FOIA Data Request]

In the fall of 2010, 167 auction experts from top universities around the country sent a letter to Congress expressing concern regarding the Centers for Medicare and Medicaid Services (CMS) planned implementation of the durable medical equipment (DME) competitive bidding program which was scheduled to be begin in nine cities beginning January 2011. In June of 2011, 244 economists, computer scientists, and engineers from top universities across the country, including four Nobel laureates, wrote the White House warning that continued implementation of the current CMS competitive bidding program would lead to market failure and thereby deny seniors access to this critical health care benefit while increasing health care costs. Pursuant to a Freedom of Information Request (FOIA), CMS has now released startling new data which demonstrates how destructive the current competitive bidding program was in its first year of implementation. The following is an analysis of this recently released data and recommendations of how Congress can address these problems before the program is expanded to 91 cities across the country.

“Medicare Auction Reform,” a 12-minute video with problems and solution from leading experts, July 2011.

Controlling Medicare costs is essential to our health care system. Yet as we look to the future, unfunded Medicare expenses are estimated to be about 70 trillion dollars—an unsustainable amount. Effective use of market methods in Medicare is our best hope for controlling these costs while maintaining quality. Unfortunately, the current Medicare auction program is fatally flawed. This 12-minute video summarizes the problems and the solution. Experts from government and industry voice their concerns and propose a path forward.

Letter from 244 Concerned Auction Experts on the Medicare Competitive Bidding Program to President Obama, the White House, 17 June 2011. [HomeCare 20 June]

We are economists, computer scientists and engineers with expertise in the theory and practice of auctions. In September 2010, many of us signed a letter to Congressional leaders pointing out the numerous fatal flaws in the current Medicare competitive bidding program for durable medical equipment (DME). We also emphasized that the flaws could easily be fixed by adopting modern auction methods that have been developed over the last fifteen years and are now well-understood.

The flaws in the auctions administered by the Centers for Medicare and Medicaid Services (CMS) are numerous. The use of non-binding bids together with setting the price equal to the median of the winning bids provides a strong incentive for low-ball bids—submitting bids dramatically below actual cost. This leads to complete market failure in theory and partial market failure in the lab. Another problem is the lack of transparency. For example, bidder quantities are chosen arbitrarily by CMS, enabling a wide range of prices to emerge that have no relation to competitive market prices.

We write today, nine months later, to report that—much to our dismay—there are to date no signs that CMS has responded to the professional opinions of auction experts or taken any serious steps to fix the obvious flaws to the competitive bidding program. Rather CMS continues to recite the mantra that all is well and that CMS does not plan to make any changes to the program as it expands from nine pilots to the entire United States.

Since 1997 CMS has demonstrated an inability to conduct xanaxcost proper auctions. Congress must therefore give CMS explicit guidance on competitive bidding, while at the same time immediately repeal the fatally flawed auction program. I provide an outline of the necessary statutory language that effective repeal and reform legislation would have. The legislation would be a win-win-win-win: Medicare beneficiaries would receive the quality goods and services they require, efficient Medicare providers would win the supply contracts their business plans require and be paid prices that support profitable operation, taxpayers would pay the least-cost sustainable prices, and CMS would spend less time defending and manipulating a flawed system, handling complaints, and addressing fraud and corruption.

“Early Pilots of Medicare Auctions Bring No Solace to Auction Experts” (with Brett E. Katzman), The Economists’ Voice, July 2011. [Thomas J. Hoerger, “Comment on Cramton and Katzman,” The Economists’ Voice, July 2011.]

Our Economists’ Voice column of October 2010 summarized the severe problems with the current and proposed Medicare auctions. The column was based on a careful reading and analysis of the auction rules. Since that time we and other auction experts have studied the Medicare auctions with theory, experiment, and the limited amount of field data that the Centers for Medicare and Medicaid Services (CMS) has made available. This substantial body of evidence is available at www.cramton.umd.edu/papers/health-care. The evidence strongly supports our preliminary analysis that the auction program is fatally flawed and must be fixed.

Competitive Bidding Congressional Update—What You Need to Know, Longworth House Office Building, sponsored by U.S. Representative Sue Myrick (R-NC), 24 May 2011. Also Briefing for Senate Staff on the Impact of the CMS Competitive Bidding Program for Durable Medical Equipment, Russell Senate Office Building, 24 May 2011. [HomeCare 25 May,California Watch 26 May, California Healthline 26 May, HMEnews 27 May]

On 24 May 2011, a Medicare competitive bidding update was presented to Congress. The event organized by Congresswoman Nancy Johnson and Professor Peter Cramton included a diverse and talented panel of experts: Peter Cramton, Professor of Economics, University of Maryland; Tom Milam, Member, Program Advisory and Oversight Committee (PAOC), Former COO, AmMed Direct; Barbara Rogers, PAOC Member and President/CEO National Emphysema/COPD Association; Paul Gabos, Chief Financial Officer, Lincare, Round One Re-Bid Winner [on Video]; Robert Brandt, Owner, City Medical Services, Round One Re-Bid Winner. Congresswoman Sue Myrick (R-NC), the event’s sponsor, provided comments.

A frank and honest assessment of the DME competitive bidding program was give. About 60 Hill staffers learned about the fatal flaws in the program. The briefing included a diversity of viewpoints. Barbara Rogers, a PAOC member, is a knowledgeable and articulate advocate for Medicare beneficiaries, a voice that too often goes unheard until there is a train wreck. Paul Gabos and Robert Brandt both represent DME providers who were winners in the Round One (Rebid). A second abbreviated briefing was presented to Senate Staff on the Impact of the CMS Competitive Bidding Program for Durable Medical Equipment.

  • Video of opening remarks (33 minutes) [Transcript of entire event, Presentation, pptx with animation]
    • Peter Cramton, Professor of Economics, University of Maryland
  • Video of panelists(42 minutes)
    • Tom Milam, Member, Program Advisory and Oversight Committee (PAOC), Former COO, AmMed Direct
    • Barbara Rogers, PAOC Member and President/CEO National Emphysema/COPD Association
    • Paul Gabos, Chief Financial Officer, Lincare, Round One Re-Bid Winner
    • Robert Brandt, Owner, City Medical Services, Round One Re-Bid Winner
    • Nancy Johnson, 24-year Congresswoman (R-CT)
    • Sue Myrick, Congresswoman (R-NC)

Letter to PAOC with Public Comments of Peter Cramton at PAOC Meeting on Medicare DME Competitive Bidding Program, 7 April 2011. [Presentation]

Medicare Auction Conference, Inn & Conference Center, University of Maryland, 1 April 2011. [HomeCare 11 Apr, InsideHealthPolicy 4 Apr]

The Medicare Auction Conference, sponsored by the National Science Foundation and the University of Maryland, was an opportunity for collaboration among the stakeholders of the Medicare DME Competitive Bidding program: DME providers, Medicare beneficiaries, government agencies, Congressional staff, and auction experts. The Medicare auction program is currently in a pilot stage, but will soon be expanding nationwide (with Round 2). The conference provided an opportunity to debate the basic issues as well as learn about the latest auction methods that could simplify and improve the effectiveness and sustainability of the auction program. In addition, the conference provided a forum to debate whether auctions are feasible in the Medicare setting and how they can best be structured.

On 1 April 2011, 110 stakeholders in the Medicare Durable Medical Equipment (DME) industry came to the University of Maryland to discuss how the CMS’ current competitive bidding program could be improved. The participants included Medicare providers, government leaders, and auction experts. A major part of the event was the conduct of a mock auction based on the auction design proposed in Cramton (2011a). This design addresses the fatal flaws in the CMS design (Letter from experts 2010, 2011). The proposed design has been shown to be highly effective in theory (Cramton et al. 2012), in the experimental lab (Merlob et al. 2012), and in practice (Ausubel and Cramton 2004, 2006). This paper presents the mock auction results. The mock auction demonstrated the feasibility of the proposal as well as its excellent performance. Despite the complex bidding environment, the mock auction achieved high levels of economic efficiency: 97% of the potential gains from trade were realized. Moreover, the participants were able to understand the auction format and auction platform, and successfully execute bidding strategies for 6 products in 9 regions, all in a matter of hours. The conference also demonstrated the advantages of advancing the Medicare auctions through collaboration among industry, government, and auction experts. To avoid program failure, the Medicare auctions must be reformed to take advantage of modern auction methods. The mock auction demonstrates the high efficiency of the proposed approach.

“Auction Design for Medicare Durable Medical Equipment,” Working Paper, University of Maryland, March 2011. [Full Presentation: .pdf.pptx; Short Presentation; Short Presentation 2-per-Page, HomeCare 1 Feb 2011]

An auction design for Medicare Durable Medical Equipment is presented. The design addresses the flaws in the current program. Bids are binding commitments. Each bid binds the bidder to particular performance obligations depending on the auction outcome. The bids are made credible through a rigorous qualification one month before the auction. Each bidder provides a financial guarantee in the form of a bid bond or a deposit in proportion to the bidder’s capacity. Capacity is objectively estimated based on the bidder’s supply in recent years, with the most recent year given the most weight. Each winner provides a performance guarantee in proportion to the winner’s estimated volume won. The auction establishes a market clearing price for each product in each service area. The price paid to all suppliers is the clearing price that balances supply and demand. These prices are found in a simultaneous descending clock auction, a simple price discovery process that allows both substitution across items and complementarities. Competition in the auction comes from new entry or the expansion of existing suppliers into new product categories and service areas. After the auction, the winners compete for Medicare beneficiaries by offering quality products and services. Thus, beneficiary choice is used to further strengthen incentives to provide high quality products and services.

“Medicare Auction Failure: Early Evidence from the Round 1 Rebid,” Working Paper, University of Maryland, June 2011. [Raw Data and Tableau Packaged Workbook, Tableau Reader, FOIA Data Request, Original Paper, HomeCare 27 June]

On November 2, nearly one year after bids were taken for the Centers for Medicare and Medicaid Services (CMS) auction for durable medical equipment, CMS announced the winning bidders. This paper examines the change in market structure in each of the nine service areas for the three largest product categories—CPAP, Diabetes, and Oxygen. The change in market structure is dramatic. The vast majority of existing suppliers both by volume and number will be excluded from supplying Medicare beneficiaries. This radical transformation of the industry is the result of a fatally flawed auction design and not the outcome of an efficient competitive process. The result will be immediate harm to Medicare beneficiaries and the vast majority of Medicare providers in the nine service areas covered by the auction. Beneficiaries will face poor service, selective fulfillment of orders, fraud, and other abuses. Existing suppliers will have to lay off employees and in many cases cease operation. The disruption in terms of job loss and involuntary supplier substitution will be large. Fortunately, the troubled program is still in the pilot stage, so the harm will be limited to the millions of Medicare beneficiaries and thousands of Medicare suppliers in the nine service areas covered in the pilot. Nonetheless, Congress and CMS should immediately stop the implementation of the Round 1 Rebid and move quickly to address the design flaws before the program is scaled up to the entire nation.

Dziekonska, Edyta, “Is the Medicare Competitive Bidding Program of Durable Medical Equipment, Orthotics, Prosthetics, and Supplies an Effective Auctioning Process?” Honors Thesis, Economics Department, University of Maryland, May 2011.

Brian Merlob, Charles R. Plott, and Yuanjun Zhang, “The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Non-Binding Bids,” Quarterly Journal of Economics, 127, 793-782, May 2012.

We report on the experimental results of simple auctions with (i) a median-bid pricing rule and (ii) nonbinding bids (winning bids can be withdrawn)—the two central pillars of the competitive bidding program designed by the Centers for Medicare and Medicaid Services (CMS). Comparisons between the performance of the CMS auction and the performance of the excluded-bid auction reveal the problematic nature of the CMS auction. The CMS auction fails to generate competitive prices of goods and fails to satisfy demand. In all proposed efficiency measures, we find the excluded-bid auction significantly outperforms the CMS auction.

Letter to Deputy Administrator Blum (CMS)  on Medicare Auction, 5 November 2010. [Data request, 17 November 2010]

Thank you for meeting with me and my colleague, Larry Ausubel, on Monday, 1 November 2010, to discuss the Medicare competitive bidding program.  A discussion with auction experts is an important first step in fixing the problems with the program. Although I entered the meeting with high hopes that we could quickly move from a discussion of identified problems to a discussion of solutions, I was disappointed that we did not have time to give proper attention to the discussion of solutions. This letter and the references are intended as an initial follow-up to clarify some of the points raised.

“Reducing Healthcare Costs Requires Good Market Design” (with Brett E. Katzman) The Economists’ Voice, 7:4, www.bepress.com/ev/vol7/iss4/art8, October2010.

One sensible way to reduce healthcare costs is to harness market forces, where practical, to nurture competition and innovation. Lower prices and improved services should follow. However, the switch to market pricing is not an easy one.  Medicare’s experience with medical supplies illustrates the challenges and offers some important lessons. The key lesson is that government programs can benefit from introducing market methods, but doing so requires good market design—something that may not come naturally to the implementing agency, especially in light of political forces and organizational inertia.

“Fix Medicare’s Bizarre Auction Program” (with Ian Ayres), Opinion Pages, New York Times, 30 September 2010.

Economists and other auction experts agree that using administrative prices from 25 years ago to set Medicare prices is a bad idea, and that a much better approach is to price Medicare supplies in competitive auctions. That is not surprising. What is surprising is the degree of consensus that Medicare’s shift to auctions is fatally flawed and must be fixed for the Medicare auctions to succeed in lowering costs while maintaining quality for medical equipment and supplies.

Email to Auction Experts on Medicare Competitive Bidding Program, 20 September 2010.
Source material sent with email:
0. Cramton and  Katzman (2010), a brief note on the current problems and the need for action (final published version).
1. Request for Bid Instructions (Round 1 Rebid), which defines the median pricing rule and other auction rules.
2. Federal Register, which presents the final rule and a discussion of its rationale.
3. Katzman and McGeary (2008), the study of the earlier trials showing the bid skewing and other problems.
4. Request for Bids Bidding Form to see what a bid looks like.
5. Eligibility Requirements to get a sense of bidder qualification.
6. Quality Standards to see the limited information on quality standards and performance obligations.

Excerpts from the Email Replies of Auction Experts Asked to be Signatories of Letter from Concerned Auction Experts, 22 September 2010.

Letter from 167 Concerned Auction Experts on Medicare Competitive Bidding Program to Chairman Stark, Health Subcommittee, Ways and Means, U.S. House of Representatives, 26 September 2010.

We are economists, computer scientists, and operation researchers with expertise in the theory and practice of auctions. We write to express our concerns with the Medicare Competitive Bidding Program for Durable Medical Equipment operated by the U.S. Department of Health and Human Services. We believe that competitive bidding can be an effective method of controlling Medicare costs without sacrificing quality. However, the current auction program has flaws that need to be fixed before it can achieve the objectives of low cost and high quality.

Letter from Chairman Stark to Administrator Berwick (CMS), 28 September 2010.
Letter from Representative Braley to Secretary Sebelius (HHS) and Administrator Berwick (CMS), 25 October 2010.
Letter from Representative Tiberi to Secretary Sebelius (HHS) and Administrator Berwick (CMS), 27 October 2010.
Letter from Senator Casey to Administrator Berwick (CMS), 22 October 2010.
Letter from Senator Voinovich to Administrator Berwick (CMS), 18 October 2010.

Letters from 167 Concerned Auction Experts on Medicare Competitive Bidding Program to other Congressmen:
Chairman Altmire, Investigations and Oversight Subcommittee, Small Business Committee, U.S. House of Representatives.
Ranking Member Barton, U.S. House of Representatives Committee on Energy and Commerce.
Chairman Baucus, U.S. Senate Committee on Finance.
Ranking Member Camp, U.S. House of Representatives Committee on Ways and Means.
Chairman Conrad, U.S. Senate Committee on Budget.
Ranking Member Grassley, U.S. Senate Committee on Finance.
Representative Hall, U.S. House of Representatives.
Ranking Member Herger, U.S. House of Representatives Ways and Means Subcommittee on Health.
Chairman Levin, U.S. House of Representatives Ways and Means Committee.
Chairman Pallone, U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Health.
Chairman Rockefeller, U.S. Senate Committee on Finance, Health Care Subcommittee.
Ranking Member Shimkus, U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Health.
Senator Snowe, U.S. Senate Committee on Finance.
Representative Waxman, U.S. House of Representatives Committee on Energy and Commerce.

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