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By Joseph W. Plandowski
10/09/07
Competitive Bidding by CMS for Clinical Laboratory Testing
Joseph W. Plandowski
I just finished listening to more than two hours of naysaying
by a litany of speakers regarding the plan by Centers for Medicare and Medicaid
Services (CMS) to initiate a competitive bidding program for clinical laboratory
tests. The meeting and conference call were held by CMS on July 16, 2007. Interest
from the clinical laboratory industry was high with about 100 members of the
industry attending in person at CMS in Baltimore and another 400 or so on telephones
across the country.
Industry speakers pleaded their cases for the demonstration
program to be dropped because it is a bad idea from their perspective. Reasons
for dropping the demonstration program covered the full range of problems,
including forms that are too complex to complete, laboratories that may actually
be forced out of business, quality of care that may suffer, and innovation
that may be stifled, among others.
Unfortunately, no one raised the issue of
marketplace reality. It should be clear to everyone who works in this industry
that CMS is paying far more than the market price for the same tests that are
being sold by the industry to others. No one stood up to say, “I’m
am American taxpayer and I’m
tired of my tax dollars being squandered.” No one stood up to say CMS
is headed directly into near-term funding shortages with the growing numbers
of elderly entering the 65-and-older age category and that perhaps fiscal responsibility
ought to be the order of the day.
What I find amazing is that members of the
industry rally against CMS’ efforts
to operate in a business-like manner by bidding for testing services, yet no
one raises even their voice when United Healthcare bids out their business,
gains fees that are substantially below CMS, and moves their testing business
from many laboratory providers to one prime laboratory service provider. What
is the disconnect?
Frankly, I don’t know although I’ve spent my
career in this industry and have pondered that question many times since CMS
raised the competitive bidding issue several years ago. Maybe it’s as
simple as fearing change. Maybe it’s fear of the unknown. Maybe it’s
realization that the party will be over. One thought that should not be lost
to the naysayers and others is that this is a demonstration program. Only one
metropolitan area of the country will initially be selected for a competitive
bidding program lasting three years. CMS is not flipping its entire acquisition
of clinical laboratory services onto competitive bidding. If the initial program
goes well, CMS will select another metropolitan area one year later that will
also cover three years. An evaluation will be done by CMS at the end of the
program, four years after beginning, to see if it should be expanded to the
acquisition of all of CMS’ clinical testing services.
What is the worst
that can happen in the demonstration program? I suspect it is a smaller laboratory
that is designated a “nonwinner” and eventually
goes out of business. Unless you are an employee or the owner of that laboratory,
what is so bad about that? The efficient survive, the others don’t. That
is the way a free-market economy works. Or, in the laboratory industry, are
we about to undertake a program of federal government subsidizing inefficient
laboratories? I can’t imagine anyone raising their hand in support of
that idea. So perhaps a few laboratories disappearing from the landscape is
not such a terrible thought after all, especially if they are high-cost laboratories.
Possibly
the next worst thing in the demonstration area, after some laboratories go
out of business, is the turmoil that will result as the “winning” laboratories
rebalance their pricing portfolios with their existing clients. Laboratory
owners and managers know this drill well. CMS’ high fees support some
low-priced business in most laboratories. In the demonstration area, laboratory
owners and managers will be scrambling to raise their low-ball prices to counteract
CMS’ much lower fees. They will be doing that so as a “winner” they
do not suddenly become a “loser” and join the ranks of those heading
out of business.
Clients currently enjoying the low-priced ride will not be
welcoming large fee increases, and they will be looking for alternate laboratory
providers with what might be described as “a herd mentality.” Not
only will nonwinners in the demonstration area be looking for those particular
accounts, but laboratories outside the demonstration area will have hordes
of sales representatives poised to pounce at the word “go.” This
may be one of the most exciting circus sideshows to ever hit the laboratory
industry as the participants wonder, “Who’s on first?”
What
is the best outcome from competitive bidding? I would offer that it is an orderly
market in which the biggest purchaser of clinical laboratory services, CMS,
gets the best pricing. Intuitively, it is difficult to argue that point. Most
of us suspect that the megasize laboratories get the best pricing. Does any
laboratory owner or manager believe they buy Cytyc’s ThinPrep product
for less than Quest or LabCorp? So what is wrong with CMS obtaining the best
prices? Not only is CMS the biggest purchaser of clinical laboratory testing,
but those purchases are coming out of the taxes you and I pay each year to
our federal government. I don’t want to pay more taxes, nor do you. CMS
should have the best prices.
CMS’ staff deserve a pat on the back. They
have worked hard over the past few years to respond to an incredible number
of legitimate concerns raised and roadblocks set by the laboratory industry.
For the most part, CMS’ staff
has kept the industry informed through written and verbal communications, such
as the July 16th meeting. But regardless of what they do, some laboratories
will be nonwinners, and some will go out of business. And, most importantly,
it is almost a certainty that the bidding process will reward CMS with fees
that are substantially lower than they are now paying.
Let’s watch the
first demonstration area unfold. It’s only one
metropolitan area. It’s only for three years. It’s in the open
for all to see. It can be stopped if it is a disaster. Why let bidding proceed?
Well, if it is not bidding, what’s the alternative? How much more bleeding
can the clinical laboratory industry take with five-year fee freezes and fee
cuts in the unfrozen years. CMS will lower their fees, but the way they have
done it in the past has been painful for all. Perhaps the laboratory industry
would prefer CMS to implement a most-favored-nations clause whereby CMS will
not pay more than the lowest fee for each test offered by a laboratory to any
of its clients. The paperwork in that exercise would be overwhelming for both
the laboratories and CMS. Or perhaps CMS should issue a two-year advance notice
that their current fee schedule will be whacked by 35 percent. No one would
be pleased with either of those scenarios.
Accept the fact that as long as CMS
is not receiving the best fees for clinical laboratory testing, they are going
to find ways to get there. Let’s get
on-board that train. It’s time to move forward.
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