Peter Cramton has released a nice short video explaining the silliness of the current design of the Medicare procurement auctions. More pointers can be found on his blog.
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Turing's Invisible Hand 
Curiously, a well executed piece of writing.
I believe the CMS Bid program is flawed for more reasons than Dr. Cramton even does, but it won’t change anytime soon. The Medicare competitive bid for durable medical equipment has only been conducted in 9 major U.S. cities or Metropolitan Statistical Areas (MSA), but if you look at the data CMS has on tracking the results and risk factors the program has on patients in those areas it shows virtually no changes in hospitalizations or ER visits, which are the most costly concerns to Medicare right now. As a person who has DME industry experience and who has deconstructed every detail of this bid process and successfully positioned companies to win bids in the first round, I understand all the variables at play. After the first full year of implementation in round 1 there are a lot of invisible micro factors seemingly making this program a success from the Macro data view. These factors probably won’t sustain, and are helping currently crutch the program up. It won’t be until this bid process has fully cycled (3 years) and re-bidding for the first 9 cities comes to full circle can any of this be realized, and by then the market place will be flushed. The data shows nothing stopping this from rolling out into the next 100 Metropolitan Statistical Areas (MSA) and then to the next 300+ MSA’s. The smart money is shorting LinCare.