Case Study:Setting Prices for Walkers Wal-Mart sells a walker called the Carex E
ID: 2765645 • Letter: C
Question
Case Study:Setting Prices for Walkers
Wal-Mart sells a walker called the Carex Explorer for $59.92. Medicare covers the Explorer, but it used to pay more than $100 (Leonhardt 2008). Between 1989 and 2011, Medicare 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 kept Medicare fees substantially higher than typical retail prices (US Government Accountability Office 2012).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 existing 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. In fact, it was only with the passage of the Affordable Care Act that Medicare was able to launch competitive bidding in 2011 (Japsen 2013). Even though Medicare anticipated savings of 45 percent on competitively bid products and 72 percent for mail-order products, in 2013 more than 200 members of Congress signed a letter asking that the program be delayed (Blum 2013). This example demonstrates three points. First, a well-designed bidding process can result in lower prices for public pro-grams. 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 hometown. What would happen economically and politically? Could you design a way of insulating Medicare from political pressure? Would you want to?
• What problems other than paying too much might distorted fee schedules cause?
Explanation / Answer
• What are the risks of a bidding process like the one described in this case?
The main risk is derailing the program approval as interested parties- the manufacturers , dealers may not get the target profit
• Why would elected representatives side with the manufacturers and retailers on this issue?
First the concerned department cannot increase allocation for federal funds if there is a proper bidding system, as this would deny the elected representatives to show generous allocation of funds to the lobbyst who put them to power.
• 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?
Economically people will become more productive as more will be treated to be able to work better and produce more goods and services
Politically the local elected leaders good will will increase.
As the elected representative of the particular constituency will benefit /gain political mileage they may not be a need to design a plan for insulation.
• What problems other than paying too much might distorted fee schedules cause?
A distorted fee will have an immediate effect on those sections of society who cannot afford the higher premium, middle and lower class of people will be left out, and towns and cities where these classes ratio is high will lead to loss of productivity leading to lover standard of living