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Does Medicare Advantage Bidding Hold the Key to Reducing Costs?

New research on Medicare Advantage spending is fueling interest in using competitive bidding to drive down healthcare spending.

Medicare Advantage spending

Source: Thinkstock

By Kyle Murphy, PhD

- In light of future research on Medicare Advantage spending compared to Medicare fee-for-service, a trio of researchers writing on the Health Affairs blog see the promise in competitive bidding to drive down healthcare spending.

“Overpayment of MA plans could be eliminated by basing government payments on bids submitted by both fee-for-service Medicare and MA plans to cover the cost of Medicare’s entitlement benefits,” write Coulam et al. “Medicare beneficiaries would be guaranteed access to at least one health plan in their county for no more than the Part B premium, but if they chose a more expensive health plan, they would pay the extra cost out of pocket.”

The authors of research published in the Journal of Health Politics, Policy and Law concluded in their findings in 2011 that of the dozen examples of competitive bidding they investigate, all had the potential to realize “substantial” savings. “Moreover, competitive bidding in various forms has been used successfully for major Medicare benefits, including durable medical equipment and Part D prescription drugs,” they added.

Forthcoming research out of Stanford University has the researchers again calling for more competitive bidding under Medicare. Curto et al. analyzed data from the Health Care Cost Institute and the Centers for Medicare & Medicaid Services in 2010 and found that MA plans spend between 9- and 30- percent less per enrollee each month than traditional Medicare. Simply put, Medicare Advantage beneficiaries have lower utilization rates.

“There are three reasons to care about these results. First, wasteful spending on government-sponsored health care programs creates an unnecessary financial burden for beneficiaries and other taxpayers. Second, it robs other government programs of needed revenue. Third, unnecessary encounters with the health care system can place beneficiaries in harm’s way,” claim Coulam et al.

Competitive bidding, however, is limited by the data used to determine costs and has led to instances of overpayment to payers offering MA plans. The Stanford research team identified $21 billion in overpayments as a result of using Medicare fee-for-service costs for benchmarking.

To grow support for competitive bidding, stakeholders must overcome political opposition, argue Coulam et al.

“MA plans are accustomed to competing through marketing and services. Competitive bidding based on the entitlement benefit package forces all health plans to compete on price. MA plans and many beneficiary advocates have resisted competitive bidding on price since the inception of the program, and that has translated into serious political resistance to competitive bidding,” they write.

“Opponents of competitive pricing rightly point out that charging ‘extra’ (above the Part B premium) for fee-for-service Medicare would require a change in the entitlement legislation,” they continue. “However, the recent evidence on cost and quality of MA versus fee-for-service Medicare, coupled with the pressure that entitlement programs put on the federal budget, suggests that the time has come to seriously consider such a change.”

Coulam et al. acknowledge the importance of addressing consumer needs, namely out-of-pocket expenses and limited coverage and make two recommendations.

“First, the new system could be introduced over a number of years,” they propose. “The new benchmark could be a mix of fee-for-service Medicare costs and the bids, gradually increasing the contribution of the bids over time and allowing beneficiaries to adjust. Second, the savings from competitive bidding could be used to enhance what beneficiaries are receiving: for example, to improve the entitlement benefits or to reduce the Part B premium.”

Many new Medicare Advantage health plans are expected to draw a larger pool of seniors attracted to lower premiums, expanded benefits, and additional choices for 2019. “More than 91% of people with Medicare will have access to 10 or more Medicare Advantage plans in 2019, compared to nearly 86 percent in 2018,” CMS has stated.

The Medicare Advantage market is already a competitive one still managing to draw new interest. But time will tell whether Medicare Part C can drive down healthcare spending without negatively impacting.


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