Comment on Hoerger: Early Pilots of Medicare Auctions Bring No Solace to Auction Experts

O ur Economists' Voice column summarized the severe problems with the current and proposed Medicare auctions. The column was based on a careful reading and analysis of the auction rules. Since that time we and other auction experts have studied the Medicare auctions with theory, experiment, and the limited amount of field data that the Centers for Medicare and Medicaid Services (CMS) has made available. This substantial body of evidence is available at www.cramton. umd.edu/papers/health-care. The evidence strongly supports our preliminary analysis that the auction program is fatally flawed and must be fixed. Dr. Hoerger suggests that we should find comfort in his evaluations of early pilots that showed that prices were reduced with little impact on access and quality. Very little can be learned from the pilots. They were essentially a one-sided test. Failure would have been telling but success means little. The administrative Medicare prices were generally high and therefore the price reductions found in early pilots were easily absorbed by suppliers. Hoerger' s evaluation supports this widely held view. Whatever success the pilots had has little bearing on the long-term efficiency and stability of the current auction design. The true measure of the auction rests on whether it leads to sustainable, least-cost prices going forward, without creating any shortages. It will not.