Competition and Fraud in Health Care

with Renuka Diwan, Paul Eliason, Jetson Leder-Luis, Ryan McDevitt, and Jimmy Roberts
Work in Progress
BibTeX citation available here. Contact me for a recent draft.

Abstract: Governments rely on private firms to provide public goods and services. Competition among these firms theoretically reduces costs for the government but has an ambiguous effect on fraud: competition can both dissipate the rents that attracted fraudulent firms to the market while at the same time reducing margins to the point where legitimate firms no longer remain viable. We study this tradeoff in Medicare’s procurement of durable medical equipment (DME), where the staggered rollout of competitive bidding allows us to identify the relationship between competition and fraud. Fraudulent firms increased their market share after competitive bidding, with the gains coming from legitimate firms exiting the market rather than fraudulent firms manipulating their bids or committing more fraud.