TRENDS & PERSPECTIVES
How much power should the Centers for Medicare and Medicaid Services (CMS) have when it comes to setting prices for laboratory services? That is one question on the minds of everyone watching the debate—and now litigation—over CMS plans to conduct a competitive bidding project for diagnostic laboratory services in San Diego.
With the project, CMS hoped to determine whether forcing laboratories to bid competitively against one another for a Medicare contract would lower Medicare costs as part of a greater mandate of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
However, many in the IVD industry have concerns that competitive bidding will stifle innovation, diminish the tools available for clinical evaluation, and reduce investment in newer technologies. They also worry that the project will force smaller laboratories out of business and prevent new ones from entering the market.
The project is now on hold, however. Federal Judge Thomas Whelan imposed an injunction in April, stating that CMS did not follow formal rule-making procedures.
The three plaintiff companies—Sharp HealthCare, Scripps Health, and Internist Laboratory of
Oceanside, represented by attorney Patric Hooper of Hooper, Lundy & Bookman in Los Angeles—applauded Whelan, who also stated that the companies could suffer irreparable harm in the event that CMS does not select their bids.
Hooper says, “Anytime CMS is going to make policy or change existing policy, they go through rule making, but they thought they could get around that by calling this a demonstration project, but we don’t think there is any basis for that.” CMS currently pays standard fees to laboratories across the country.
CMS only issued a brief statement that it “has communicated with and sought input from the laboratory industry and other stakeholders to address the issues outlined in the suit.”
Hooper says CMS hasn’t done that. “If they have a basis for reducing or decreasing any payments they accept, they have a right to go through rule making and do that.” He added: “If they want to [change payments] on a rational basis, then that is what they can do.”
According to the CMS statement, the agency finds the injunction disappointing: “We believe we followed Congress’ direction in implementing the laboratory competitive bidding demonstration that was created to determine whether competitive bidding can be used to provide laboratory services while maintaining value, quality, and access to care.”
Vince Stine, director of government affairs at the American Association for Clinical Chemistry (AACC; Washington, DC), says AACC is very pleased with the ruling. “It supports a number of points that the laboratory community has been making all along—namely that the administration was not following its own rules in developing the project and that the project would cause irreparable harm to small laboratories and their patients.”
Glen Freiberg, president of RCQ Consulting (San Diego) agrees. “The competitive bidding initiative targets a tiny percentage of the healthcare budget and has a high potential to damage efficient service while the administrative burden, as a target, could yield greater savings that, in turn, could be applied to primary care,” he said. For example, a standard for electronic medical record software with interoperability and ease of record transfer between institutions would be one way to reduce administrative costs, according to Freiberg.
Stine says that the laboratory community is working to repeal the demonstration project. “There have been bills introduced in the House and Senate, HR 3453 and S 2099, which would do just that,” he says. “We are hoping that legislators will include this measure in the Medicare package they are planning to pass this summer to address the problems with physician reimbursement.”
Shrouded behind the veil of healthy economic competition, some critics believe the project is merely a misdirected attempt to cut costs by targeting businesses when the agency should in fact target its own bureaucratic inefficiency. In fact, reimbursements for laboratory tests account for less than 2% of Medicare spending, according to Ann-Marie Lynch, executive vice president of payment and healthcare delivery policy at AdvaMed (Washington, DC).
Freiberg says that pricing pressures coupled with reductions in choice reduce the diversity of business. “In innovative fields, I do not believe this is a good thing.”
Stine agrees. “One of the side effects of driving so many laboratories out of business is that it reduces the market for IVD manufacturers to sell their new devices. For example, if there were 100 laboratories in a bidding region, and now there are only six laboratories, there are fewer potential customers to purchase devices and less incentive for manufacturers to invest significant resources to develop new ones.”
The highest percentage of the healthcare budget that is not going directly to care is in administrative costs, says Freiberg. “Rather than targeting competition and innovation, the government should focus on overhead reduction.”
AACC is encouraging IVD manufacturers to contact their legislators and urge them to cosponsor the bills, so that it can demonstrate support for repealing this project. One way to do so is via AACC’s Web site at www.aacc.org.
