Bryan O’Roark

Rare is the public official—elected or appointed—who has a grasp of basic economic principles, let alone a firm grasp on the fundamental workings of the market. It's enough to drive an economics professor (such as myself) crazy.

One need not search much further than the giant Medicare bureaucracy, CMS, for an example. CMS has launched a program that it has inappropriately dubbed "competitive bidding."

A competitive market by definition is one where many sellers serve many buyers in an industry where profit margins are small, innovations are quickly copied, and entry into the fray is relatively easy. If this sounds familiar, it is because it describes the market that currently exists (or previously existed depending on when you are reading this) for DME. There are some big players, of course, but smaller firms can compete (here the term means using skill and innovation to distinguish oneself from other sellers in the market) at a variety of levels, be it price, service, or specialization.

If someone is making large profits, then entry by other firms occurs to compete (here by challenging the supremacy of the leading seller and offering better service) and win away the original firm's profits. That is how markets work. They aren't fair and they can certainly get messy, but from an historic perspective, competitive markets result in a better deal for consumers than anything else that has been tried. Prices are lower, product variety is broader, and product availability is more widespread.

CMS' unusual form of competition creates a barrier to entry in the market. When you prevent firms from accessing a market, you necessarily interfere with the ability of the market to satisfy consumers. Prices rise, quality usually suffers, lines form, bribes are taken to move people up in the queue, and people go without service. In short, the results are those ghastly features of the socialist paradise that are largely ignored by advocates of bigger government—not to mention those who advocate universal health care.

Combine this with price controls that might now be in place due to the bidding process, and reinforced by a contract that says you are willing and able to provide a product to the largest buyer of DME in the country, and the possible problems multiply. Price controls work as well as a college professor with tenure.

The DME competitive bidding process contains more fundamental flaws than any self-respecting economics professor would care to see. A basic economic analysis could have brought them to light. Unfortunately, a galling lack of rudimentary economic acumen is on display in the hallowed halls of CMS.

Brian O'Roark, PhD, is assistant professor of economics at Robert Morris University, Moon Township, Pa.