The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Nonbinding Bids Brian Merlob Charles R. Plott Yuanjun Zhang
Quarterly Journal of Economics Volume 127, Issue 2Pp. 793-827
Abstract We report on the experimental results of simple auctions with (i) a median-bid pricing rule and (ii) nonbinding bids (winning bids can be withdrawn)—the two central pillars of the competitive bidding program designed by the Centers for Medicare and Medicaid Services (CMS). Comparisons between the performance of the CMS auction and the performance of the excluded-bid auction reveal the problematic nature of the CMS auction. The CMS auction fails to generate competitive prices of goods and fails to satisfy demand. In all proposed efficiency measures, we find the excluded-bid auction significantly outperforms the CMS auction
Here's a brief news story about the article: Medicare auction will face severe difficulties, research shows
"Unlike standard auctions, however, the CMS auction was designed with two unorthodox rules. First, the eventual selling price is set at the median of all of the winning bids. Second, bids are nonbinding, so companies can change their mind once the prices are set.