Consumer Power Report: Competitive Bidding Isn’t Competitive Enough

Published August 22, 2011

Another August week, another Friday news dump: The Centers for Medicare and Medicaid Services announced last week it would dramatically expand its competitive bidding program, which has been criticized strongly by device manufacturers and auction experts. While the program is well-intentioned, critics claim (accurately, in my view) that the auction process is inherently flawed, designed to create disincentives for real competition. Here’s a report on the decision from The Hill, which indicates CMS is considering expanding the process beyond the current DME limits.

“The president has clearly acknowledged the need for further savings to implement (in) the Medicare program, but I think we also need to take stock and take credit for what’s been achieved so far, and from a CMS perspective, DME competitive bidding is one that we’re proud of and one we believe is working,” CMS Deputy Administrator Jonathan Blum said.

The competitive bidding program is limited to durable medical equipment – such products as wheelchairs, oxygen supplies and hospital beds. Blum said CMS is open to expanding competitive bidding outside of durable medical equipment in the future but is focused for now on expanding the existing program to more areas.

The chief problem with the program isn’t the intent so much as it is the design of the auction process, as my colleagues Matthew Glans and Eli Lehrer have detailed.

Despite the savings, the process has problems. The Centers for Medicare & Medicaid Services (CMS), which oversees it, has transformed a straightforward bidding process into a system that distorts all the incentives for buyer and seller. For reasons that confound academic experts on bidding (more than 150 signed a letter suggesting problems with the process), CMS selects a “median” price, not the lowest price. This means some providers get to sell a product for more than they bid.

Since sellers don’t have to honor their bid price, get-rich-quick opportunists can submit unrealistically low bids knowing they will get to sell at the “median” price. Even worse, CMS’s process has cut down on competition in the market by eliminating most suppliers from the approved list

As stories from the ground level indicate, this is a process that encourages companies to lowball bids to ridiculous points in order to shift the median figure. There’s no indication CMS even bothered to consult auction experts on how such a process ought to work, even though there are plenty of examples from throughout the rest of the federal government.

— Benjamin Domenech


  • As Expected, Government Approval Fans Attack Perry for His Stem Cell Treatment
  • Oklahoma’s Fallin: No Thanks on Exchange
  • Obama Concedes His Health Care Law Won’t Control Costs
  • Your Solution for Drug Shortages: Price Controls!
  • When Does the Administration Want SCOTUS to Weigh Individual Mandate?
  • HHS Caught Campaigning for Democrats
  • Fact Checking on Texas Medicaid Costs


In CPR a few weeks ago I noted Gov. Rick Perry’s use of a non-FDA-approved back treatment that utilized his own adult stem cells was likely to be criticized by elites who think all treatments need to be run through the government’s hoops first, regardless of waivers and the like. Sure enough, as the AP reports, here come the nagging critics!

However, some top scientists are questioning the safety and wisdom of Perry’s treatment, especially because it was not part of a clinical trial in which unproven therapies are tested in a way that helps protect patients and advances medical knowledge.

Perry “exercised poor judgment” to try it, said Dr. George Q. Daley, of Children’s Hospital Boston and the Harvard Stem Cell Institute. “As a highly influential person of power, Perry’s actions have the unfortunate potential to push desperate patients into the clinics of quacks,” who are selling unproven treatments “for everything from Alzheimer’s to autism.”

Daley is past president of the International Society for Stem Cell Research, a group of 3,000 scientists and others in the field. He consults for several biotech companies and favors stem cell research. But of Perry’s treatment he said: “I would never in a million years accept for one of my family members to undergo this.”

On the campaign trail Thursday in New Hampshire, Ray Sullivan, Perry’s chief of staff, said: “The governor consulted with his physician and decided the best course of action for him. He’s very pleased with the results of the surgery, with the rapid recovery and with the procedure that he had. And he feels like that is certainly his right to determine the best course of treatment for him.”

Perry’s procedure was done by his longtime physician, who works at a private, doctor-owned orthopedics center in Houston. There has been nothing but good news about it, and even the critics can point to no potential negative side effects. The worse thing you can say about an unproven treatment of this nature is that it might do nothing to help. But that ought to be Perry’s decision! Daley says he would not “accept” for one of his family members to undergo the treatment in question – but who is he to decide for them? Beyond a busybody, of course.



Good news from Oklahoma, where Gov. Mary Fallin decided against the deployment of a state health care exchange.

Under pressure from conservatives, the Republican governor declined a $54 million grant from the U.S. Department of Health and Human Services in April, two months after she had initially accepted the money to help the state set up an exchange mandated under Mr. Obama’s signature health care law. The action, she said at the time, would allow the state to bypass a federal exchange while setting up a network governed chiefly by the private sector.

It was hard to reject such a large sum of money, Mrs. Fallin said in an interview this week with editors and reporters at The Washington Times. But the former congresswoman who became her state’s first female chief executive in January, said she was deeply skeptical that the administration would grant the promised flexibility in setting up exchanges.

“You just told us you want us to have some leeway to develop innovative systems, but yet you’re tying our hands,” she said, recounting an early meeting with administration officials on implementing the new law. “In the end, they’re going to have specific things we have to meet.”

Mrs. Fallin and dozens of fellow GOP governors are holding out hope that the Supreme Court will derail the law sometime next year. The court is likely to hear cases filed by nearly 30 states, including Oklahoma, challenging the law and in particular the mandate on individuals to purchase health insurance or pay a fine.

Fallin joins a list that includes Louisiana’s Bobby Jindal, Florida’s Rick Scott, and New Mexico’s Susana Martinez in deciding against an exchange.

SOURCE: Washington Times


The president admits what Peter Orszag acknowledged months ago, and Kathleen Sebelius acknowledged weeks ago: PPACA, despite being sold as a cost-minded reform, does nothing of the kind.

During a rant against Republican intransigence, Obama said that he could tackle the deficit tomorrow if his opponents would agree to raise taxes and “were willing to take on some of the long-term costs that we have on health care.”

Sound familiar?

Back in February 2009, days after signing an economic stimulus package then valued at $787 billion, Obama convened a Fiscal Responsibility Summit at the White House.

At the time, the event was advertised as Obama’s “pivot” to tackling the nation’s debt burden, but it was really the opening pitch for imposing national health care on America.

“Health care reform is entitlement reform,” said Peter Orszag, then Obama’s budget director. “The path to fiscal responsibility must run directly through health care.”

Obama amplified this message in his own remarks, calling rising health care costs “the single, most pressing fiscal challenge we face, by far.” He added that in the 2008 election, Americans had rejected the “casual dishonesty of hiding irresponsible spending with clever accounting tricks.”

As I’ve pointed out multiple times in recent weeks on radio and in writings, Obama’s health care law is looking more and more irrelevant to the major issues affecting health care policy. For all the political capital spent on passing it, Obama has achieved precious little in terms of solving the real problems of the system, lowering costs, or lowering premiums to the levels he promised – all the most tangible ways that the American people will judge his system.

SOURCE: The Washington Examiner


The New York Times writes an update on the shortages of generic cancer drugs, which were cited recently by former White House advisor Ezekiel Emanuel in an oped. In a piece at NRO, Paul Howard of the Manhattan Institute writes on how Emanuel’s solution won’t help matters.

Unfortunately, Emanuel also sets up a false dichotomy between cheap generic drugs that cure a range of cancers and newer, branded drugs that may cost tens of thousands of dollars per patient, but “just extend life for a few months.” Emanuel takes a cheap shot against branded drugs, since he neglects to mention that every generic drug was once an expensive branded medicine. And while many pediatric cancers (and some adult cancers, like testicular cancer) can respond very well to older medicines, companies are now targeting much harder-to-treat cancers, including metastatic colon, lung, and prostate cancer.

Some newer cancer drugs may, on average, only extend life for a few months at high cost, but this is a function of the scientific complexity of cancer treatment and the costs involved in developing cancer drugs for FDA approval. Even so, more cancer drugs are coming to market that are tailored to attack specific genetic abnormalities of cancer cells, allowing physicians to tailor drug treatments to the patients most likely to benefit – and producing much higher response rates.

And, like their older cousins, today’s expensive cancer drugs will eventually lose patent protection and become cheap generics.

Emanuel also oversimplifies the problem, suggesting that pricing is the only issue driving the current shortage of generic cancer drugs. But, for instance, pediatric cancer drugs aren’t covered by Medicare, and thus aren’t subject to Medicare’s cap on drug price increases for Medicare Part B. Many other types of drugs, including anesthetics, are also in short supply.

For current producers, technical and regulatory issues are more likely to affect supply than price alone. This is borne out by the data, since many drug shortages involve generics called sterile injectables, which are complex and expensive to manufacture. If one or more manufacturers have their manufacturing line temporarily shut down by the FDA due to regulatory violations, or if there’s a spike in demand, it can be very difficult and time-consuming for other companies to quickly compensate by ramping up production.

SOURCE: The New York Times


The White House faces a dilemma: Do we want our health care law ruled unconstitutional before the election, or after?

Many political analysts think the White House will try to delay Supreme Court consideration as long as possible.

“They definitely don’t want to see it go to the Supreme Court until after the elections,” said Kirsten Powers, a former Democratic operative and a Fox News analyst. “So my expectation is they would do whatever they can to slow walk this so that this does not get to the Supreme Court where possibly the individual mandate could be struck down which would be very damaging for the administration.”

There is no doubt the health care law is headed for the Supreme Court – the only question is when. The recent decision by a panel of judges from the 11th Circuit Court of Appeals in Atlanta is only the broadest challenge to the law, brought by 26 states and the nation’s largest association of small business owners. But there are multiple, conflicting appellate court rulings and huge stakes for the case. …

So one might think the president has some interest in getting a quick decision from the Supreme Court. But most analysts believe the White House will try to delay a decision as long as it can – first, by asking the full appeals court to rehear the case, which could postpone a final decision there for months. Then, the administration could take the maximum time to request Supreme Court consideration, hoping to push a final decision past the 2012 election.

Expect the states to work as hard as possible to get an answer before then.



With taxpayer dollars, no less.

The documents include correspondence between HHS officials and representatives from The Ogilvy Group, the public relations firm hired to drive web traffic to an HHS site promoting Obamacare as “the Affordable Care Act.”

On October 25, 2010, HHS New Media Communications Director Julia Eisman sent an email to Ogilvy Senior Vice President Imani Green, reading, “Given the high performance, we’re wondering if we should consider reallocating resources from the lesser performing words and put more $$ to ‘Obamacare’ – at least for the next 7 days.” Seven days from October 25, 2010, was November 2nd, Election Day.

“There is nothing special about November 2nd other than the fact that it was Election Day,” Judicial Watch President Tom Fitton told The Examiner. “What possible reason could the Obama HHS have for maximizing their propaganda dollars in the seven days before Election Day other than to elect Democrats? This seems to be a blatant violation of the Hatch Act, among other laws. Congress needs to get on the ball and investigate,” he concluded.

SOURCE: The Washington Examiner


Last week I took issue with a rather disappointing piece of poor analysis from the folks at (who I typically find to be better than the far more biased folks at Politifact). This follows on my frustrating Medicaid argument with the Washington Post‘s Glenn Kessler, who invoked the dreaded “four Pinnochios” on Haley Barbour. As a colleague of mine put it, the most important thing to understand about these new fact checkers is that they don’t.

To summarize for this case: is faulting the governor of Texas for basing his remarks on the calculations of his own state administrative office assigned to make such estimates, as opposed to a study conducted by a center-left think tank in Washington, DC – one the think tank itself readily admits concerns a more limited period of time and assumes a more limited Medicaid population, assumptions that are limited to the period prior to a dramatic increase in the state percentage of costs and are inconsistent with the methodology of other state commissions. This seems rather unfair.

SOURCE: The Heartland Institute