December 2007
While most of the clinical lab industry have denounced CMS’s competitive bidding demonstration project as a misguided attempt to lower reimbursement prices for testing services, some are supporting the initiative, stating that it’s an appropriate approach to reign in healthcare spending and put Medicare prices in line with those of private payors.
"The Medicare program is headed for a world of hurt with a lot of older people coming in to the program over the next 10 to 20 years," explained Joseph Plan-dowski, a former laboratory executive and current president of Lakewood Consulting Group (Lake Forest, Ill.). "Medicare is the largest purchaser of clinical laboratory services, and they don’t get the right prices. Medicare is paying twice what United HealthCare is paying [under their national contract with LabCorp], and that is not right."
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Joseph Plandowski
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This pricing problem reaches back to the 1980s when CMS released the first laboratory fee schedule, said Plandowski, who was directing a SmithKline Beecham laboratory in Florida at the time. The fee schedule was initially based on how much labs billed CMS for tests. "For example, there was an automated chemistry profile . . . the fee Medicare was going to pay us was $16 or $17, even though the list price for that test in our catalog was $7.50," he explained. "How did that happen? We would sell tests to a physician for $5 a test, and then the physician would mark it up from $40 to $60, and that price went into the calculations for the fee schedule."
Realigning Prices
One of the most repeated concerns by critics is that even if CMS doesn’t move competitive bidding out of the demonstration phase, the agency might use the bid prices to lower the reimbursement levels in the future.
But according to an Institute of Medicine study released in 2000, the current Medicare fee schedule for labs has no substantial relationship to actual costs, explained Stephen T. Mennemeyer, Ph.D., a professor with the University of Alabama at Birmingham’s School of Public Health. Mennemeyer is one of the initial architects of the competitive bidding demonstration project for laboratory services. From 1979 to 1989, he worked at Abt Associates, Inc., where he served as the project director on a contract funded by the Health Care Financing Administration—now CMS—to design a demonstration project that he said is similar to the program about to move forward.
The Medicare price list needs to be more realistic about identifying which tests are relatively expensive to produce and which are relatively inexpensive, according to Mennemeyer. "Although the information from competitive bidding may help to realign some of the prices of particular tests, I doubt that Medicare competitive bidding will make HMOs and insurance companies any more aggressive than they already are about seeking low prices," he added. "Medicare may save some money due to competitive bidding but, if it does, it will only be catching up with what has already happened in the rest of the healthcare industry."
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