Revitalizing Medicare’s Pricing System with Auctions

Abstract

This paper examines some of the flaws in Medicare’s pricing system and considers some potential fixes. As currently structured, Medicare’s reimbursement system stifles incentives to seek lower prices. Prices are recommended by provider groups and centrally administered. With what amounts to an elaborate cost-plus-pricing model, systemic reductions in costs will spark systemic reductions in prices and profits, thereby discouraging moves to lower costs. This is especially important as Medicare costs are among the largest financial challenges facing the United States government over the long haul.

Keywords: Medicare, Medicare pricing, Medicare costs, Medicare Private Fee For Service (MPFFS), Resource-Based Relative Value Scale (RBRVS), Relative Value Units (RVUs), Public Choice, price competition, auction pricing, Medicare Advantage, healthcare

JEL Classification: D44, I180, I130, H510