title: Competitive bidding in Medicare: who benefits from competition?
abstract: To conduct the first empirical study of competitive bidding in Medicare.
  
  
  
  We analyzed 2006-2010 Medicare Advantage data from the Centers for Medicare and Medicaid Services using longitudinal models adjusted for market and plan characteristics.
  
  
  
  A $1 increase in Medicare's payment to health maintenance organization (HMO) plans led to a $0.49 (P <.001) increase in plan bids, with $0.34 (P <.001) going to beneficiaries in the form of extra benefits or lower cost sharing. With preferred provider organization and private fee-for-service plans included, higher Medicare payments increased bids less ($0.33 per dollar), suggesting more competition among these latter plans.
  
  
  
  As a market-based alternative to cost control through administrative pricing, competitive bidding relies on private insurance plans proposing prices they are willing to accept for insuring a beneficiary. However, competition is imperfect in the Medicare bidding market. As much as half of every dollar in increased plan payment went to higher bids rather than to beneficiaries. While having more insurers in a market lowered bids, the design of any bidding system for Medicare should recognize this shortcoming of competition.
authors.affiliation: Department of Health Care Policy, Harvard Medical School, National Bureau of Economic Research, Boston, MA 02115, USA. zirui_song@hms.harvard.edu
authors.forename: Zirui
authors.initials: Z
authors.lastname: Song
authors.forename: Mary Beth
authors.initials: MB
authors.lastname: Landrum
authors.forename: Michael E
authors.initials: ME
authors.lastname: Chernew
mesh_terms: D019985:Benchmarking; D003163:Competitive Behavior; D017046:Cost Savings / Q000706:statistics & numerical data*; D036262:Empirical Research; D017048:Health Care Costs / Q000706:statistics & numerical data*; D006279:Health Maintenance Organizations / Q000706:statistics & numerical data*; D006801:Humans; D008137:Longitudinal Studies; D006278:Medicare / Q000191:economics* / Q000706:statistics & numerical data; D018803:Models, Economic; D015999:Multivariate Analysis; D014481:United States