What would happen economically and politically


Discussion

Introduction

Synopsis of Mini-Case 16.1: Setting Prices for Walkers (p. 257; Lee textbook): This case highlights approaches that the Centers for Medicare and Medicaid Services' (CMS), through the passage of the Medicare Modernization Act of 2003, used to lower beneficiary prices for public programs through the implementation of competitive bidding. This impacted the profits of many equipment manufacturers and retailed who were able to successfully lobby Congressional representatives to eliminate the bids and delay the program. The passage of the Patient Protection and Affordable Care Act of 2010 permitted Medicare to once again launch competitive bidding. In 2013, 200 members of Congress signed a letter to delay the program. Prior to competitive bidding, Medicare established a fee schedule, which did little to lower prices, since it was found that the fees the agency paid were "substantially higher" than the typical retail prices. This case demonstrates three points: 1) a well-developed bidding process can lower prices for public programs; 2) these programs are expensive to set up and can take a long-time to implement; and 3) efforts to switch to a bidding process will encounter opposition from those whose profits are adversely effected.

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 industries.

Sources

Lee, R. H. (2015) Economics for Healthcare Managers Third edition. Chicago, Ill: Health Administration Press.
Unit Learning Outcomes

ULO 1. Examine the importance of market power. (CLO 1, 6, and 7)

ULO 3. Evaluate the impact of policies and regulations on market power. (CLO 3)

ULO 4. Examine factors that contribute to inefficient and imperfect markets. (CLO 2, 3, 6, and 7)

Directions

Initial Posting

The 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.

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.

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Microeconomics: What would happen economically and politically
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