Approaching zero hour for
  competitive lab bidding

January 2006
Feature Story

Anne Ford

At Lab Institute 2005’s "Medicare Policy and Lab Competitive Bidding" session, moderator Alan Mertz, president of the American Clinical Laboratory Association, drew on his experience as a former congressional senior staff member to illustrate the importance of laboratory professionals’ input to the Centers for Medicare and Medicaid Services on the issue of competitive laboratory bidding. Once, when giving a civics lecture to Boy Scouts, Mertz said, he asked them: "Can any of you young men in the room tell me the difference between this Boy Scout troop and the U.S. Congress?" One of the Scouts raised his hand and said: "We have adult supervision."

"So I think you all here today are the ’adult supervision,’" Mertz said to audience members, "and you can help the process."

It appeared to be his way of reminding the clinical laboratory and pathology community of its potential influence on the controversial Medicare clinical laboratory bidding demonstration project scheduled for launch this year. After all, a CMS open-door forum Aug. 24 revealed that the project draft design had been altered to include many suggestions from the community, such as a recommendation from the Clinical Laboratory Coalition (of which the CAP is a member) that the demonstration mandate bids on all Part B lab fee schedule tests, not just the top 100 or so. Other industry recommendations, such as that ESRD beneficiaries in the demonstration sites be excluded, have also been incorporated.

The purpose of the Lab Institute panel: to review and clarify the proposed design elements of the project as the CMS prepared to submit its initial report to Congress by Dec. 31, 2005. In 1997, the CMS contracted with Research Triangle International to create a plan for a laboratory competitive bidding demonstration, but the plan was subsequently shelved. Six years later, the 2003 Medicare Modernization Act mandated that the CMS create a competitive bidding demonstration for Medicare Part B independent lab services. The CMS has again awarded the contract to RTI. During his introductory remarks at the panel’s session in October, Dennis Weissman, founder and executive editor of Washington G-2 Reports, issued a warning to laboratories that may have grown complacent about the prospect: "I actually think for the first time that CMS is serious about going ahead with the lab competitive bidding demonstration."

Mertz began by reviewing the laboratory industry’s concerns about competitive bidding, which he called "the proverbial solution in search of a problem."

"Congress perceives ... that labs are paid too much by the government," he said. "That’s wrong." Laboratories, he pointed out, have the lowest average accumulation price updates compared with all other Medicare services, and laboratory services represent a mere 1.6 percent of Medicare spending.

"I don’t accept that there is a problem to be solved," Mertz continued. "However, even if there is a problem, is competitive bidding the right solution? I don’t think so." That’s because it focuses on cost, he said, to the potential detriment of quality and access. "Let’s say we save 50 cents on a glucose test but there’s no longer the lab to go to the nursing home to get the blood. How much do we lose because that patient remained undiagnosed for diabetes? Tens of thousands of dollars, lost limbs. All over 50 cents?" He stressed the importance of measuring the costs of the competitive bidding demonstration—not only the administrative costs, but also the capacity costs that he predicts will stem from labs shutting their doors once they no longer receive Medicare business.

In addition to his criticisms, however, Mertz praised the way the CMS has registered the laboratory industry’s concerns that the demonstration be conducted fairly. "They did listen to us," he said. "It appears that they are picking a [demonstration] area that’s large enough." And RTI, he said, appears to have taken seriously suggestions that all laboratory tests be included in the demonstration, and that laboratories’ quality and access track records be considered in the bidding process. "I don’t want to blame [CMS] for the very idea of competitive bidding," he said. "They’re really just kind of doing their job, and doing it pretty well."

The second panelist, Linda R. Lebovic, MPH, MT(ASCP)—CMS senior analyst in the Medicare Demonstration Program Group and lead project officer for the demonstration project—began by reviewing basic elements of the proposed demonstration design: It will exclude Pap smears and colorectal screening tests; it will provide for multiple bid winners (though no specific number of winners is required); all CLIA requirements will apply; and it will exclude most physician office laboratories (the exception: reference services performed by large group practice laboratories). In addition, the demonstration excludes what the Medicare Modernization Act, or MMA, terms "face-to-face encounters" with beneficiaries—a term that does not apply, CMS says, to phlebotomists sent by laboratories to community draw stations.

To receive Medicare reimbursement, Lebovic went on, laboratories that have $100,000 or more of annual Medicare Part B business within the demonstration site must bid. Smaller businesses do not have to bid and compete, but they will "end up being paid whatever the fee schedule is for that demonstration site that comes out of the competitive bid process.... This is CMS’ way to accommodate small businesses, which is a requirement in the MMA." Small laboratories can choose to bid, she said, "and all of the rules will apply to them. So in other words, if they decide to bid and they are not declared as winners, it’s not like they can say ’Okay, well, we’re excluded, we’re not required to bid.’ Once you play, you play."

Moving on to the bidding process itself: The CMS will ask for a bid price for each HCPCS code within the Part B clinical laboratory fee schedule. "This is the closest way that we could come to what we thought would be fair," Lebovic said, noting her agreement with Mertz that many of the current prices are outdated. However, the bid price will represent just one component of the bid. To ensure quality and access, the CMS will collect information about the laboratory, such as its capacity, and ensure that "the firms that are bidding are financially sound, so it’s not just going to be declaration of winner based on bid price." Additionally, RTI will hold bidders’ conferences in which laboratories will be walked through the bidding process: "All of the potential bidders will be invited, and you’ll have opportunity for Q and A." RTI will also establish a reservation bid, above which laboratories will not be allowed to bid.

Once the laboratories have bid, RTI will set a pivotal bid. Bids that exceed the pivotal bid will lose; bids lower than the pivotal bid will win. Laboratories that do not bid or do not win, Lebovic said, will not be paid for Part B clinical laboratory services—an aspect of the proposed demonstration design over which nearly half of the 117 participants in a pre-panel Washington G-2 Reports e-mail survey expressed concern. Lebovic called this requirement an incentive to participate in the demonstration.

Where will the demonstration sites be located? That’s not yet clear, though Lebovic said the CMS anticipates two demonstration sites—in different states—out of a possible 22 that qualify as having moderately large beneficiary populations and moderate Medicare managed care penetration. Each demonstration site will last three years, and the sites’ respective start dates will be staggered by about a year. Part of the reason for the CMS so carefully considering the criteria for the demonstration sites, Lebovic said, stems from laboratory feedback at several open-door forums: "We heard, ’Don’t pick an area where you know this will work.... Pick a realistic marketplace where you’re actually, truly testing whether or not competitive bidding would work.’"

Donna MacMillan, BSMT(ASCP), MBA, director of operations for the pathology department at Massachusetts General Hospital and chair of RTI’s technical expert panel for the project, then took the floor to address quality and access concerns. "A great deal of time has been spent by RTI and the CMS team to look at ways to incorporate quality and access indicators as part of this process from the very beginning," she said. For example, "both on the CMS side and the lab side, it would be expected that there be a person who’s uniquely identified to manage quality issues during this part of the program."

In addition, a hotline will allow laboratory officials who are managing the program, along with providers and patients, to call with questions and comments. And turnaround time will be part of laboratory bids, so "we’ll see fundamentally where the labs already are and be able to watch that closely." MacMillan also assured the audience that the selected demonstration sites will have a sufficient amount of laboratory capacity to avoid limiting access, and that the use of diagnoses key to the Medicare population (such as diabetes) will be monitored to make sure Medicare patients have adequate access to laboratory testing.

"What we’re striving for, very honestly, is to create a fair situation," Lebovic said at the panel’s end. "I don’t know what we’re going to find. I’m sure there’s some scenarios that we have not built in yet and can’t build in just yet." Her favorite saying, she says: "We’re going to jump off some bridges when we get to them."