Getting the Price Right? The Impact of Competitive Bidding in the Medicare Program (WP-21-07)
Hui Ding, Mark Duggan, and Amanda StarcThe researchers study Medicare's competitive bidding program (CBP) for durable medical equipment (DME). They exploit Medicare claims data to examine both prices and utilization, focusing on continuous positive airway pressure (CPAP) devices to treat sleep apnea. They 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, the authors leverage differential cost sharing across Medicare recipients. They measure a demand elasticity of -0.272 and find that quantity reductions are concentrated among less clinically appropriate groups.