This case illustrates imperfect competition. At equilibrium in a perfectly competitive market, price equals marginal cost. If companies were to produce more product or deliver more service beyond equilibrium, then this would be considered inefficient since the value of the additional output would be less than its' cost (Lee, 2015). In an imperfect market, every producer has some level of market power, which allows them to adjust prices to make marginal revenues equal marginal costs. Regulation isn't always a bad thing in that it established rules needed for the market to work; however, regulation cannot replace the market. The involvement of government in establishing regulations that drive down prices contributes to the imperfect market that typifies the healthcare and many other industriesThe student, functioning as an external consultant hired by CMS to revise the competitive bidding process so that it results in lower prices to beneficiaries for public goods; is easier and less expensive to setup and implement; and will likely be less objectionable to medical equipment manufacturers and retailers then previous bidding models. It is expected that the consultant will prepare a formal recommendation. To aid in the development of the recommendation, it would be prudent to art least consider how you would respond to the following questions:
1. What are the risks of a bidding process like the one described in this case?
2. Why would elected representatives side with the manufacturers and retailers on this issue?
3. Suppose that Medicare sought bids for enough cardiac care to serve beneficiaries in your hometown. What would happen economically and politically? Could you design a way of insulating Medicare from political pressure? Would you want to?
4. What problems other than paying too much might distorted fee schedules cause?
In addition, to how you would respond to the above questions, you should reply of outside sources when preparing for recommendation to the leadership team at CMS.