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Cannabalistic Competition Is Not The Answer

The Happy Hospitalist has proposed a solution to correct underpayment by Medicare.

“Medicare should role into town once every two years with a silent auction to set rates. Providers bid on the CPT rate schedule for the next two years. The lowest CPT bid gets to set that CPT rate for all other providers within that regional district. But here’s the kicker. The winning provider gets a 25% bonus for that procedural code for ONE OF THOSE TWO YEARS, as a reward for coming in with the lowest bid.”

Happy’s suggested price-setting scheme pits doctor against doctor, and leaves all physicians in a region vulnerable to just one physician’s (group’s) business strategy.  In general, physicians are poor business people.  The majority of physicians in this bidding war would be at the mercy of the few who do have business sense.  

The winning (lowest) bidder gets a 25% bonus the first year, which is equal to a 12.5% bonus for two years.  What if just one physician (or physician group) decides to bid at 12.5% below overhead costs on all CPT codes.  The winning bidder would then be able to able to drive the other groups in the region into the hole by 12.5% per year.  One of the following results would likely occur:

• the losing group(s) are forced to move out of the region or face bankruptcy
• the losing group(s) are forced to stop providing needed services/procedures resulting in an even more severe shortage of healthcare services in a region
• the winning group is able to force a merger with one or more losing group in a ”hostile takeover” of sorts
• the losing group opts out of medicare/medicaid, sets higher prices and becomes the provider of choice for the white-collar and private-insurance patients and ends up making more money than the winning group.  If this happens, we’ll find physicians/groups in many areas actually wanting to be the losing bidder in the medicare lottery.

I think the need for competition between physicians is real, but that competition has to be fair.  Giving one group the chance to cannabalize the other groups is not fair.