Medicare competitive pricing: lessons learned in Phoenix and Kansas City

Many lawmakers have embraced the idea of bringing more competition to the Medicare program as a way to achieve greater cost efficiency and provide more choice for beneficiaries. Advocates of this strategy believe Medicare should move away from its historical administrative pricing approach toward a competitive bidding process similar to those used by many private purchasers. Yet, despite support for the concept, every effort to test it in the marketplace has been met with strong opposition. Most recently, competitive bidding demonstration projects set to take place in Phoenix and Kansas City have been delayed by congressional action. Nevertheless, it is clear that those participating in the demonstration projects-notably private purchasers, consumers, health plans, and the Health Care Financing Administration-have already learned a great deal about the types of issues that must be considered if Medicare is truly to pay health plans in a competitive manner. This article explores the lessons learned so far in Phoenix and Kansas City, including design considerations such as plan participation, the standard benefit package, the bidding process, and the government contribution to premiums. It also examines the reasons for opposition to the project and their implications for broader Medicare reform efforts.