System practically guaranteed outcome

Tuesday, December 21, 2010

BALTIMORE - The design of Medicare's competitive bidding program all but guaranteed that the majority of mail order diabetes contracts would go to suppliers with very small market share in the product category, says economist Peter Cramton.

"As it's currently constructed, it will tend to select suppliers that are less informed about what the cost of providing service is," he said. "It will also select suppliers who are desperate and have to win at any cost, and suppliers who have a competitive advantage in that they are willing to cut corners that others might not be willing to."

The winning bidders drove down pricing for the product category by 56%, a tough number for anybody to sustain. Cramton predicted some winners could go bankrupt or out of business.

Others could practice what he calls "selective fulfillment."

"You supply the products that you can make a little bit of money at and, for the ones on which you lose money, you don't supply," he said. "That's a dismal outcome for the Medicare beneficiary."

One saving grace for beneficiaries: They can pick up diabetes supplies at their local pharmacy or DME provider. Of course, that goes against Medicare's goal with the program, which is to save money, said Cramton.

"The price will be much higher--in some cases I've found the price difference can be 250% more than mail order--so the net savings to Medicare is going to be negative," said Cramton.