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Medicare looks to the free market

Bob Moon Jun 25, 2008

Medicare looks to the free market

Bob Moon Jun 25, 2008


Bob Moon: A relatively small change in the way Medicare does business is set to go into effect next week, but we’re not talking small change when it comes to the money that the government and Medicare patients could save.

It seems Medicare has been paying as much as double the retail price for some medical equipment, but as of July 1, suppliers are supposed to start submitting bids.

David Leonhart writes about this today in his business column in The New York Times.

David, thanks for joining us here once again.

David Leonhart: It’s nice to be back.

Moon: You start your story today with a basic piece of medical equipment — a walker — and you show a huge gap in what you’d pay at Wal-Mart, for example, and what Medicare pays. Why is there such a difference?

Leonhart: Well, it’s because Medicare doesn’t buy these things on an open market. Instead, Congress has established this fee schedule that determines how much the government — which is taxpayers — pays for all sorts of pieces of equipment like walkers or beds or oxygen equipment. As a result, the companies selling this don’t have to compete with each other in an open marketplace and the government ends up overpaying for almost all of this equipment.

Moon: So what kind of price disparity are we talking about here?

Leonhart: On Wal-Mart’s website, you can buy this kind of walker that I looked into for $60. Medicare has been buying them for $110. Now, the equipment makers will point out that they also deliver it and they will help you set it up and that’s fair enough, so maybe we shouldn’t expect Medicare to be paying as little as Wal-Mart sells it for, but Medicare recently conducted a bidding experiment and that really showed how much these things should be priced.

Moon: And how did that work?

Leonhart: Basically, these walkers that are selling for $110 by congressional law instead went for about $80 once they did the bidding. On average, the things that Medicare is buying are overpriced by 26 percent, which is really quite stunning.

Moon: Now you point out that there’s actually some holdup in Congress to get these prices lowered. Why the opposition?

Leonhart: Some of it is that the Democrats who now control Congress are sometimes skeptical of the workings of the free market — sometimes they’re right to be skeptical of the workings of the free market; In this case, I think they’re wrong. Some of it is also that the medical equipment industry has launched a very effective public relations campaign. They’ve increased their contributions to Congress and they’re raised all sorts of little issues including some scare tactics about how this could potentially deprive people of medical equipment that they need and what they’re really trying to do is prevent competition from coming to this market and they’re trying to protect their outsized profits. And I think if we have a real push for health care reform, we’re going to see this again and again in which constituencies that benefit from the waste we now have in our medical system are going to go to Congress and fight to keep their share of the waste and they’re not going to say “We’re fighting to keep our share of the waste.” They’re going to claim that they’re actually protecting patients.

Moon: You’re suggesting that this is a sneak peak at a battle royale that would ensue if we tried to change the entire health care system. Are you suggesting that this is just impossible?

Leonhart: I don’t want to suggest that it’s impossible. To me, it’s really a sign of how hard health care reform is going to be. All of us would benefit from a competitive bidding system in Medicare because we would pay less in taxes to fund Medicare. But the numbers are so small for each one of us, whereas for these equipment makers that are now benefiting from this closed system, it’s a huge part of their business and so they have such a bigger incentive than we do to fight it.

Moon: I guess the bottom line here is if you’re interested in this issue, you’d better write your congressman, huh?

Leonhart: I think that’s right.

Moon: David Leonhart is a business columnist for The New York Times. Thanks for joining us.

Leonhart: Thanks a lot.

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