Peter Cramton: Medicare Auction Gadfly

From: Freakonomics Blog

Ian Ayres

My friend and co-author Peter Cramton continues his two-year crusade to improve the workings of “Medicare’s Bizarre Auction Program.”  You can watch his YouTube testimony before the United States House Committee on Small Business here:

(See also his Oral Testimony, Transcript of Hearing, Video of Entire Hearing.)

Peter’s supplemental comments are particularly devastating in rebutting two claims of Lawrence Wilson, Centers for Medicare and Medicaid Services (CMS) Director of the Chronic Care Group:

CMS [claim]: “CMS worked closely with stakeholders to design and implement the program.”

Mr. Wilson. “CMS worked closely with stakeholders to design and implement the program in a way that is fair for suppliers and sensitive to the needs of beneficiaries.”

Despite this supposed collaboration with stakeholders, CMS managed to come up with a design that stakeholders—beneficiaries, providers, non-CMS government leaders, and auction experts—all agree is flawed.

Mr. Cramton. “So there is unanimous consent on this, and, in fact, I have been working on this for 2 years. I have talked to people around the world, and, indeed, I have never heard anybody disagree with the remarks that I presented today and that are presented in my written testimony before you.”

CMS [claim]: “We are open to improvements as the program expands.”

Mr. Wilson. “We continue to be open to further improvements as the program expands.”

Really?  Then why in the face of overwhelming practical scientific evidence of severe problems, does CMS make no significant changes to the program as the program expands to one-half of the country. The most serious flaws, non-binding bids and the median pricing rule were identified by 167 auction experts in September 2010 and sent to CMS not only by the experts but by numerous Congressman.

Why does CMS not release any of the essential data necessary to properly evaluate the pilot program? Remarkably, the absence of data even extends to the DMEPOS Competitive Bidding Program Advisory and Oversight Committee (PAOC) established by Congress to monitor the program.

Peter’s comments end with the postscript:

Immediately following the Medicare auction hearing, I left for Washington Dulles Airport to fly to London, where I spent the rest of the week advising the United Kingdom’s Department of Energy and Climate Change on the design of the U.K. electricity market and the Office of Communications on the U.K.’s upcoming 4G spectrum auction for mobile communications.

The contrast with my CMS experience over the last two-years was so dramatic that I thought I had been transported to an alternate universe where truth was truth and rational thought was not only valued but essential to government decision making. My three days in London were filled with tireless informed debate of the difficult issues of designing auctions in complex economic settings—electricity and telecommunications. As discussed in my testimony, I am well aware that the U.S. government also is capable of such innovative expert decision making—my testimony gave the FCC’s spectrum auctions and FERC’s electricity markets as clear examples.

One thing I do know: Congress and the White House must act to reform the Medicare auction. If we do not effectively apply market methods to health care, Medicare is unsustainable.