Competitive Bidding: A Growing Threat to Labs

It’s popping up in more regions as government health programs look for ways to save money

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CEO SUMMARY: When it comes to competitive bidding for laboratory testing services, Medicare is no longer the only government health program looking to save money through this method. Florida’s Medicaid program and the British Columbia health system are both moving forward with plans to implement competitive bidding. Skyrocketing healthcare costs may make this an unstoppable trend.

HAS COMPETITIVE BIDDING’S TIME finally come? Is this an idea which can no longer be stopped?

For years, the laboratory industry has opposed Medicare’s plans to implement a demonstration project to competitively bid laboratory testing services. To date, lobbying efforts have kept such a demonstration project on the back burner.

But now, within a few months of each other, there are two additional examples of government health pro- grams moving determinedly to a large-scale competitive bidding process. In March, Florida’s Agency for Health Care Administration (AHCA) announced an RFP for all that the state’s non-hospital laboratory testing. The contract, estimated to be around $100 million, will award a single laboratory with all Medicaid lab testing business for three years. (See this article.)

It’s a similar story in British Columbia. Last year provincial health officials announced two lab test fee reductions totaling 20%. They also declared that testing for non-inpatients would be put out to bid. Private laboratory companies in the province will be competing against labs operated within government-owned hospitals. (See this article.)

California can be added to this list, but with a slightly different twist. Its Medicaid program wants to attack fraudulent claims from tiny labs which pop up and disappear with regularity. To improve its control over laboratory providers which submit claims, it is revamping its contractual relationship with laboratories.

Increased Demand & Costs

Collectively, these examples show that contract bidding for lab services provided to government health programs may be an inevitable consequence of two trends. Healthcare costs are rising and demand for healthcare services in government health programs like Medicare and Medicaid is outstripping existing funding capabilities. The incentive to cut costs is obvious.

Florida’s Medicaid program faces a severe budget constraint. Last year it spent more than $14 billion. It expects to pay an additional $1.4 billion this year. The budget crunch in British Columbia is equally severe. In recent years, Canada’s federal government has significantly reduced the funding it sends to the provinces to fund healthcare services. This has left provinces like British Columbia with an unanticipated shortfall in available funds for covering the cost of healthcare.

Justifiable Concerns

The laboratory industry is rightfully concerned about a government-designed, government-managed competitive bidding program. The contract awards process can be biased. One source of bias is the lack of expertise to design an effective, fair RFP. Another source of bias can be found in the design an RFP, which can be structured to favor one class of laboratories over another.

Of course, there is another aspect of competitive bidding that strikes laboratories in the United States as “unfair.” That is the fact that such bidding programs limit choice by physicians and patients. By nature, Americans are a people who like choice. They also do not like to be told that they must accept a single option. Because a government-run competitive bidding program, by definition, restricts or even eliminates choice, it is easily criticized by private enterprises.

Incentives To Continue

Despite the laboratory industry’s dis- like of competitive bidding, a number of market signs indicate that this concept is not likely to disappear. As noted in the examples above, government healthcare programs are caught in the double squeeze of growing expenses (from higher utilization and increased costs) and constrained revenues (because of the inability to raise tax rates). Competitive bidding is a logical device for government health program administrators to use to constrain price pressures.

As the Florida Medicaid example shows, the laboratory industry in the United States is unprepared to deal with the emergence of competitive bidding programs in state Medicaid programs. It has neither the experience in opposing these initiatives nor the collaborative lobbying resources to rapidly bring effective opposition to bear.

Of equal importance, the laboratory profession does not have close links to those establishing policy within the Medicaid programs of most states. Thus, a proactive capability to blunt competitive bidding programs before they are announced is lacking.

Despite the laboratory industry’s dislike of competitive bidding, a number of market signs indicate that this is one concept which will not disappear.

For these reasons, the lab industry seems about to enter a “trial and error” phase in regards to competitive bidding. What will make this process particularly trying is the difference between Medicare and Medicaid.

Every state’s Medicaid program will reflect local circumstances, needs, and healthcare practices. In contrast, the existing laboratory industry lobbying coalition has a fair idea of how the decision-making process happens within the Medicare program. It cannot be assumed that lobbying strategies that get the attention of Medicare officials will work equally well with state Medicaid administrators. That will make it more challenging for laboratories in different states to have their voices heard on this important issue.

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