Getting the Price Right? The Impact of Competitive Bidding in the Medicare Program
We study Medicare's competitive bidding program (CBP) for durable medical equipment (DME). We exploit Medicare claims data to examine both prices and utilization, focusing on continuous positive airway pressure (CPAP) devices to treat sleep apnea. We find that spending falls by 47.2% percent after a highly imperfect bidding mechanism is introduced. The effect is almost entirely driven by a 44.8% price reduction, though quantities also fall by 4.3%. To disentangle supply and demand, we leverage differential cost sharing across Medicare recipients. We measure a demand elasticity of -0.272 and find that quantity reductions are concentrated among less clinically appropriate groups.
We thank seminar participants at Stanford and the ASSA meetings, especially Zack Cooper, for helpful comments. The views expressed in this paper are solely those of the authors and do not necessarily represent the views of the institutions or other individuals mentioned above, nor of the National Bureau of Economic Research. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.