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TRENDS & PERSPECTIVES

The Centers for Medicare and Medicaid Services (CMS; Baltimore) are moving forward with their plans to conduct a competitive bidding project for diagnostic laboratory services, making the IVD industry none too happy. In October, CMS announced that it had selected the Southern California areas of San Diego–Carlsbad–San Marcos as the first of two demonstration sites for the project.

While a bidders’ conference scheduled for October 31 was postponed because of the wildfires in California, CMS is diligently proceeding with the demonstration to meet the mandates of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, says CMS spokeswoman Ellen Griffith.

The IVD industry is concerned that competitive bidding places too much emphasis on purely the dollar cost of IVDs rather than their benefits and comparative efficiencies. By doing so, the industry believes that the government could make it more difficult to develop new and better tests.

Vince Stine, director of government affairs at AACC (Washington, DC), says the goal of the project obviously is to reduce costs. “So at a minimum, we know that whatever ‘winning’ price is selected, it will be less than the current fee schedule amount.” Consequently, he says, labs will have less money to buy newer technologies, including advances in automation.

More importantly, Stine adds, limiting the number of laboratories that can provide services for Medicare patients under Part B will force smaller labs out of business and bar others from entering the market. Fewer labs will mean fewer potential customers for IVD manufacturers, and thus lower sales will mean less money to invest in new technologies, he says.

Glen Freiberg, president of RCQ Consulting (San Diego), says that by focusing on payments, as a competitive bidding system does, quality and timing of results could get lost. For example, he says, “If bidding is for bacterial identification, will a one- to two-week wait for a very inexpensive culture plate negate the cost of a more sensitive and rapid nucleic acid test? What if while waiting for results, the patient’s condition worsens and then more-aggressive and costly treatment is required? How will the demonstration project evaluate this issue?”

Freiberg is also wary that a competitive bidding process could lead to a “good enough” philosophy that could stifle innovation and shrink venture funding, which is what happened in France. The French government decided to withhold reimbursement for the newest types of glucose monitors because they showed little improvement in sensitivity and specificity. However, he says, the newer models offer smaller strips, faster results, better lancet devices which mean less pain, and a reduction in the amount of blood needed to conduct the tests.

Freiberg adds that due to competitive bidding, IVD start-up companies would have no incentive to develop and market better, faster tests. Competitive bidding may mean the government spends less for testing. But if it sacrifices innovation, speed, and quality, it could be a costly mistake in the long run, he says.

The government has said that new lab tests will be exempt from the competitive bidding demonstration. However, Teresa Lee, vice president of payment and healthcare delivery policy at AdvaMed (Washington, DC) is concerned about CMS’ approach to new tests.

“While CMS appears to be excluding any new CPT codes that get created, it’s not excluding the methodology codes that are going to be used to code many new tests that come along during the demonstration,” Lee says. “CMS won’t be able to determine whether a newer or more complex test is being substituted for a less sophisticated, inappropriate test, and that could potentially have a detrimental impact on innovation.”

Ann-Marie Lynch, AdvaMed’s executive vice president of payment and healthcare delivery policy, believes CMS’ focus on laboratory tests is misplaced. Not only have reimbursements for laboratory tests been frozen for 11 of the past 16 years, she says, but they account for less than 2% of Medicare spending.

Also, Lynch says, the timing could not be worse. The science is on the verge of personalized medicine, developing more IVD tests that will inform physicians whether a particular treatment will be effective for a patient. Such tests could save the healthcare system millions of dollars by eliminating the trial-and-error approach to treatment for cancer and other diseases, she says. “The demonstration does not consider the importance of IVD tests on the entire episode of patient care.”

CMS’ Griffith says the second demonstration site has yet to be announced, but it will begin about one year after San Diego. After the results of the three-year demonstrations are in, she says, the decision to institute competitive bidding for clinical laboratory services nationally would have to come from Congress.