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The example of bidding processes described in the case presents several problems that can be analyzed and mitigated. First of all, the pricing of final bids is based on the median of all offers from participants (Zimmerman & Warren, 2016). Therefore, small companies that cannot set high prices or have brands with a low level of recognition may choose to offer low bids, which reduces the median price. The companies with high-quality products and more expensive equipment cannot win the bid and have to either refuse or accept to supply their products at extremely low prices. Such decisions can endanger businesses.
Recommendation for Bidding
Second, this type of bidding offers non-binding offers, where suppliers can refuse to accept the contract after they win the bid (Schatz & Cefalu, 2016). Moreover, CMS (Centers for Medicare and Medicaid Services) does not recalculate the bid after the winners refuse and withdraw from the contest. This practice means that when bidders who set low prices remove their initial offers from the auction, the final bid stays reduced, limiting the financial resources for other companies who choose to accept the costs. Thus, these manufacturers and retailers lose money or have to supply products of lower quality to cover the expenses. This decision brings on another possible risk that directly affects beneficiaries of Medicare. Patients who receive low-quality products or cannot access the usual range of available equipment may suffer as a result. Their health may deteriorate as a result of being treated improperly.
The elected representatives can agree with manufacturers and sellers because they may anticipate the risks explained above. Although low prices may seem beneficial to the government, the overall quality of supplies may bring more dangers to the beneficiaries and their health. Moreover, companies with better products may refuse to accept these unfair regulations and ignore the bid, leaving only dubious products available for clients (Cramton, Ellermeyer, & Katzman, 2015). Thus, it may be unwise to ignore the political pressure and focus on revising the bidding process.
If Medicare would seek bids for cardiac care, it may influence companies that supply these products. Their assortment may decrease and change to less recognizable and reliable brands (Cramton et al., 2015). The economic state of these manufacturers could worsen, which would affect all aspects of the manufacturing process. Politically, the government officials may encounter many concerns from retailers and suppliers with high-quality equipment. Distorted fee schedules offered by Medicare may not only increase the prices but also provide worse care to its patients. Their health outcomes may suffer, leading to more expenses and less favorable results. Thus, the economic side of this problem might also negatively affect Medicare and its beneficiaries.
The primary recommendation that can be given to CMS based on this analysis is to change the bidding system to have binding bids, a lower limit for offers, and quality guarantees of supplied goods. First, the existence of nonbinding bids allows unreliable manufacturers to make small bids and affect the final costs. Thus, a contract where the company would not be able to refuse a winning offer might make companies approach this auction more seriously. Furthermore, it could be helpful to consider setting some quality regulations for the auction to ensure that the prices are retained to be as low as possible without damaging the quality and hurting both suppliers and beneficiaries as a result. In the end, this auction would be more suitable for well-established manufacturers and recipients. It would also be easier to implement as it would not require any additional recalculations in the end.
Cramton, P., Ellermeyer, S., & Katzman, B. (2015). Designed to fail: The Medicare auction for durable medical equipment. Economic Inquiry, 53(1), 469-485.
Schatz, D., & Cefalu, W. T. (2016). Reevaluation of CMS’ competitive bidding program. Diabetes Care, 39(7), 1078-1079.
Zimmerman, E., & Warren, J. (2016). Medicare competitive bidding program for durable medical equipment. AADE in Practice, 4(1), 54-55.