OLR Report 2012-R-0156 gives an explanation of competitive bidding in Medicare.
For the vast majority of its covered services, Medicare currently uses an “administrative pricing” approach, in which the price of any service Medicare covers is calculated and set by the government. “Competitive bidding” is an alternative approach, in which health care providers bid for contracts to provide goods or services. Currently, Medicare uses competitive bidding on a limited basis for select medical equipment and devices. Evidence suggests that these limited experiments have been successful in lowering the price the government pays for these goods.
Recent health care proposals from both Democrats and Republicans have sought to expand the use of competitive bidding in Medicare. These range from small expansions of services that use competitive bidding to large overhauls of the entire Medicare system.
Those in favor of competitive bidding argue that increased competition would lower health care costs and shave billions of dollars off the federal deficit. Critics argue that the potential savings under such plans are unrealistic and would lead to reduced access for Medicare beneficiaries.
