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Wal-Mart sells a walker called the Carex Explorer for $59

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Wal-Mart sells a walker called the Carex Explorer for $59.92. Medicare covers the Explorer, but it pays over $100 (Leonhardt 2008). Since 1989, Medicare has paid for equipment such as walkers using a fee schedule equal to 95 percent of a product’s average wholesale price (an unverified number provided by manufacturers). This system keeps Medicare fees substantially higher than typical retail prices (GAO 2000). As a part of the Medicare Modernization Act of 2003, Medicare accepted bids for ten types of equipment in ten metropolitan areas. The median accepted bid was 26 percent lower than the current Medicare fee. Equipment manufacturers and retailers responded by lobbying Congress to discard the bids and delay the program, and the House of Representatives obliged by passing a bill to ditch the bids. This example demonstrates three points. First, a well-designed bidding process can result in lower prices for public programs. Second, such programs are expensive and take a long time to set up and implement. Third, efforts to switch to a bidding process will encounter opposition from those whose profits are at risk. Discussion questions:

• What are the risks of a bidding process like the one described in this case?

• Why would elected representatives side with the manufacturers and retailers on this issue?

• Suppose that Medicare sought bids for enough cardiac care to serve beneficiaries in your home town. What would happen economically and politically? Could you design a way of insulating Medicare from political pressure? Would you want to?

• The main problem with the current fee schedule is that Medicare overpays. What other problems might distorted fee schedules cause?