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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.

SUBMITTER: Song Z

PROVIDER: S-EPMC3519284 | biostudies-literature | 2012 Sep

REPOSITORIES: biostudies-literature

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Competitive bidding in Medicare: who benefits from competition?

Song Zirui Z Landrum Mary Beth MB Chernew Michael E ME

The American journal of managed care 20120901 9

<h4>Objectives</h4>To conduct the first empirical study of competitive bidding in Medicare.<h4>Study design and methods</h4>We analyzed 2006-2010 Medicare Advantage data from the Centers for Medicare and Medicaid Services using longitudinal models adjusted for market and plan characteristics.<h4>Results</h4>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 e ...[more]

PMID: 23009305

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Project description:ObjectiveTo assess how beneficiary premiums, expected out-of-pocket costs, and plan finances in the Medicare Advantage (MA) market are related to coding intensity.Data sources/study settingMA plan characteristics and administrative records from the Centers for Medicare and Medicaid Services (CMS) for the sample of beneficiaries enrolled in both MA and Part D between 2008 and 2015. Medicare claims and drug utilization data for Traditional Medicare (TM) beneficiaries were used to calibrate an independent measure of health risk.Study designCoding intensity was measured by comparing the CMS risk score for each MA contract with a contract level risk score developed using prescription drug data. We conducted regressions of plan outcomes, estimating the relationship between outcomes and coding intensity. To develop prescription drug scores, we assigned therapeutic classes to beneficiaries based on their prescription drug utilization. We then regressed nondrug spending for TM beneficiaries in 2015 on demographic and therapeutic class identifiers for 2014 and used the coefficients to predict relative risk.Principal findingsWe found that, for each $1 increase in potential revenue resulting from coding intensity, MA plan bid submissions declined by $0.10 to $0.19, and another $0.21 to $0.45 went toward reducing plans' medical loss ratios, an indication of higher profitability. We found only a small impact on beneficiary's projected out-of-pocket costs in a plan, which serves as a measure of the generosity of plan benefits, and a $0.11 to $0.16 reduction in premiums. As expected, coding intensity's effect on bids was substantially larger in counties with higher levels of MA competition than in less competitive counties.ConclusionsWhile coding intensity increases taxpayers' costs of the MA program, enrollees and plans both benefit but with larger gains for plans. The adoption of policies to more completely adjust for coding intensity would likely affect both beneficiaries and plan profits.

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Competitive bidding in Medicare: who benefits from competition?

Publications

Competitive bidding in Medicare: who benefits from competition?

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