Designing Competitive Bidding for Medicare

Publication Date: March 2008

Publisher: IBM Center for The Business of Government

Author(s):

Research Area: Health

Keywords: Presidential transition; Healthcare industry; Medicare

Type: Brief

Coverage: United States

Abstract:

Since 1998, large numbers of HMOs have exited Medicare's coordinated care plan Medicare + Choice (now called Medicare Advantage), involuntarily un-enrolling hundreds of thousands of Medicare beneficiaries. These exits are due to the fact government-specified pricing for medical services causes Medicare to pay too much for some services and too little for others. Program payments to HMOs rarely reflect the variations in costs in different geographic areas.

The system needs a better way of determining the amount to be reimbursed. The system of setting M+C payments requires the Center for Medicare and Medicaid Services (CMS) to set HMO payments that accurately reflect the costs in the local market for each county of the United States. An alternative system is competitive bidding.