Competitive bidding for indigent patients: what are the lessons of the Arizona experiment?

The experience with competitive bidding for indigent health care is evaluated with respect to the Arizona experiment. Implementation of the bidding system is described and four key issues are identified: likelihood of provider participation; effect of negotiation on bidding; contract compliance by providers; and the cost containment potential of competitive bidding. Two rounds of bidding have shown that providers are willing to participate. While attractive for political reasons, the use of negotiation may have increased costs by creating incentives for providers to inflate their bids. Contract compliance, particularly reporting requirements, have not been enforced systematically, resulting in uncertainty over whether the state has received the 'product' it purchased. While there is evidence that policy decisions made by the state have both weakened and strengthened the cost-containment incentives in the bidding process, the net effect of competitive bidding on indigent health care costs in Arizona cannot be measured directly.