New Blood and Old Issues

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IT’S YET TO MAKE A FLOURISH, but American Esoteric Laboratories, Inc. is now funded, open for business, and has $70 million to use in pursuing its business goals. Even as this new laboratory company makes its debut, an old issue continues to gnaw at the laboratory industry: competitive bidding.

Medicare continues to move towards its latest attempt to launch a competitive bidding project for Part B laboratory testing services. Meanwhile, Florida’s Medicaid program has issued an RFP intended to award a single laboratory exclusive rights to perform all non-hospital lab testing done statewide for Medicaid patients for three years. (See this article.)

Add to the Medicare and Florida Medicaid examples another instance of competitive bidding. This time it’s the British Columbia healthcare agency. It turned to competitive bidding for laboratory testing as a way to reduce expenses. (See this article.) Taken together, the Medicare, Florida Medicaid, and British Columbia examples provide strong evidence that the laboratory industry has a big fight on its hands if it wants to oppose competitive bidding.

I predict this concept will continue to pop up. With demand for healthcare services and costs increasing at double-digit rates, competitive bidding will become an even more attractive option for the administrators of government health programs. One could say that momentum and inertia are on their side. Momentum comes from ever-increasing pressures to control costs and make limited budgets cover more beneficiaries. Inertia comes from the lack of creativity and the institutional barriers to innovation. From the government’s perspective, competitive bidding is the path of least resistance.

The creation of a new laboratory company even as the spectre of competitive bidding comes closer to reality makes an undeniable contrast—and provides an opportunity to make a point. American Esoteric Laboratories represents new blood coming into our industry. It has ideas, energy, and capital. Whether it succeeds or fails, it will stimulate competing laboratories to improve their services and their capabilities. Everyone will benefit. In contrast, bureaucrats at these government health programs lack that same type of competitive pressure that encourages innovation and improvement. The result is more of the same, whether it really works or not. Unfortunately, competitive bidding falls in that category—and won’t disappear.

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