Medicare reform is a critical issue for the public agenda. The most promising option for addressing Medicare reform is competitive bidding -- using health plans' bids to determine the government's contribution to a basic set of benefits in every market area. This paper begins with a review of the history of competitive bidding in Medicare. It then moves to a definition of terms, which is crucial in any discussion of competitive pricing because the often-heated public debate around these issues frequently distorts positions and confuses issues by conflating different terms and making some arguments appear other than they are. Following this terminological exercise, the report includes a series of sections discussing competitive bidding in Medicare, with special focus on the challenges to introducing it.