Austin and I were kicking ideas back and forth today related to administrative pricing and competitive bidding. The question is: why does Congress propose and sometimes pass competitive bidding systems (Medicare Part D, insurance exchanges) when there are clearly political and process reasons (paying off interest groups, getting a good score from CBO) for them to prefer administrative pricing?
My best answer to this is the political barnacle theory once relayed to me by Peter Hiam, former Insurance Commissioner for the Commonwealth of Massachusetts. The idea is that the public gets fed up with special interest dominance of an issue when problems become severe enough. Elected representatives respond to the public demand for reform and sweep away the accumulated rules that have been tailored to benefit narrow interests in favor of simpler, often market-based approaches. Then the public’s attention shifts to the next crisis, and the interest groups regain control and start adding and tweaking again (Get it? Barnacles!).
This is a nice explanation for the periodic demand for tax reform, for example. The application to competitive bidding might be that it’s easier to impose bidding on a new benefit (Part D and subsidized insurance exchanges) than one that already has entrenched interest groups (Medicare Advantage, durable medical equipment). It also suggests that bidding in Part D and exchanges could be undermined in the future.
This conversation led me to ask whether there’s a scholarly literature on this. Guess what? There is! Eric Patashnik has a nice article (gated) and a book on the topic that are a lot deeper than this post. They don’t seem to mention barnacles though.