Medicare’s mispricing

Medicare pays suppliers of medical equipment based on indexed administrative prices from 25 years ago. These prices do not reflect today’s market. For example, a mobility device available on the Internet for $1,300 (as of 10 September 2010) has a Medicare price of $3,641.This divergence in prices distorts the market for medical supplies and raises costs for both taxpayers and Medicare beneficiaries. Moreover, the price divergence has created an inefficient market structure with thousands of small suppliers, many able to hang on because of the inflated administrative prices.

That’s from a paper by Peter Cramton and Brett Katzman (ungated PDF), experts in Medicare’s purchase of durable medical equipment (DME). Much more here.

Competitive bidding, with a sound bidding system, would eliminate such price distortions.

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