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Medicare and Auctions

The federal government has successfully held auctions to allocate wireless spectrum, raising substantial amounts of revenue in the process. This experience would suggest that the same methods used to successfully carry out these auctions would be used by other government agencies. Apparently this is not the case.

The Medicare system has recently implemented an auction system to obtain goods and services for Medicare recipients that is seriously flawed. The system recently put in place does not require commitment by any winning bidders, meaning that the winners are not required to deliver the services and products associated with their winning bid. Further, in pilot programs that were tried, winning bidders were not knowledgable about the products they were to deliver and the winners were often found to be financially suspect. A pilot program testing these auctions was scrapped and, despite the problems observed in the pilot study, the auctions were implemented with the same design flaws used in the pilot programs.

The design deficiencies in these Medicare auctions prompted a number of professional economists, expert in auction theory, to send a letter to the Obama administration expressing their concerns detailing the problems associated with the auctions used by Medicare. The link to this letter is here.

Categories: Health Care Policy
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A blog by John B. Taylor

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