CMS Refuses to Return Competitive Bid Docs

Labs and trade groups are concerned that CMS will use the proprietary information in other ways

CEO SUMMARY: The Acting Secretary of Health and Human Services (HHS) has refused the request of three San Diego-area labs for the return of their bid documents—even though the competitive bidding demonstration project was repealed by Congress last July. The HHS Acting Secretary says he has no obligation to return the documents and he intends to use the information in the bid applications for “analysis purposes,” according to court papers filed last month.

WHY WOULD THE FEDERAL Centers for Medicare & Medicaid Services (CMS) retain the bid documents from the San Diego competitive demonstration bidding project more than a year later?

An unknown number of laboratories submitted bid documents in February 2008 to participate in the Medicare Clinical Laboratory Services Competitive Bidding Demonstration project that CMS intended to implement later that year in the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area). But CMS was blocked from implementation on two fronts.

First was the court victory on April 8, 2008, when three plaintiff labs were granted a preliminary injunction by a U.S. District Court Judge in San Diego. This injunction prevented CMS from proceeding with the laboratory competitive bidding demonstration. (See TDR, April 14, 2008.) Then, just months later, in July 2008, Congress voted to rescind the law that authorized the demonstration project.

Following the favorable federal court decision in April 2008, the three plaintiff laboratories next requested the court to direct CMS to return the bidding documents, destroy all copies in their possession, and agree not to use the information in the bidding documents for other purposes.

To date, the Secretary of Health and Human Services (HSS) has refused to return the bid documents, saying in court filings that he was under no obligation to do so— and perhaps more worrisome for lab directors, he stated that he intends to use the information in the bid applications for “analysis purposes.”

Return Of Documents

That is why the three plaintiff laboratories returned to federal court on April 27 to state their belief that allowing CMS to keep the documents and use the bidding information in those documents would cause them irreparable harm. In a complaint for injunctive relief, the plaintiff labs argued that CMS should return the documents and never use the information from the bidding documents.

In the strongly-worded complaint, the plaintiff labs asked the U.S. District Court for the Southern District of California to prevent acting HHS Secretary Charles Johnson and HHS staff from ever using any of the information from any bid application submitted under the laboratory testing demonstration project.

The plaintiffs further asked the court to order CMS to return all bid applications the bidders submitted, to destroy any paper or electronic copies of the bid applications, and to declare that the secretary has no legal authority to retain the bid applications submitted under the demonstration project or to use any information in the bid applications. The labs also seek to have CMS pay for the costs of the suit and reasonable attorneys’ fees.

Intransigent In Dealings

The plaintiffs are Sharp HealthCare, Internist Laboratory, Scripps Health, along with the American Association of Bioanalysts (AAB), and the American Clinical Laboratory Association (ACLA). The plaintiffs charge that Secretary Johnson has been intransigent in his dealings with the plaintiffs, saying in court papers, “… due to the secretary’s intransigence and disregard for the strictures of federal law, the flawed demonstration project still is causing harm to clinical laboratories, including the plaintiffs herein or their members.” The complaint was filed by the plaintiffs’ attorneys, Patric Hooper, Jordan Keville, and Abigail Wong of Hooper, Lundy & Bookman, Inc., in Los Angeles.

At one point during negotiations between the plaintiff labs and the secretary of HHS over the past year—and before the demonstration project statute was repealed—the plaintiffs said they would voluntarily dismiss the case if the secretary would stipulate not to use the information contained in the bid applications submitted in connection with the demonstration project for any purpose, including setting Medicare reimbursement rates for laboratory services.

The HHS secretary refused. Instead, his only offer was to not disclose proprietary information that identifies individual bidders.

Court records show: “Those applications contained extensive information about the laboratories submitting them, including information of a confidential and proprietary nature and even personal information about the laboratories’ owners and directors. The secretary represented at all times prior to when the bid applications were submitted that the information contained therein would be used for the purposes of declaring winners under the demonstration project and setting the demonstration project payment rates. However, with the demonstration project statute now repealed, the secretary nevertheless refuses to return the bid applications to the laboratories that submitted them and, even more troubling, has represented that he intends to use the information set forth in those applications for some yet undisclosed purpose.”

The three plaintiff labs are raising important issues on behalf of the entire laboratory industry. After Congress rescinded the law, the Medicare Clinical Laboratory Services Competitive Bidding Demonstration was ended. So what is the motive of CMS in refusing to return bidding documents?

Important Issues For Labs

After all, from the very start, the serious flaws and problems with the competitive bidding demo’s design and implementation were obvious to any informed observer. Thus, for CMS to indicate that it would like to retain access and use of these documents and information for other purposes raises the spectre that confidential financial information provided by certain labs for one bureaucratic fiasco will be put to use in inappropriate—even illegal ways—to the detriment of clinical laboratories and the long term disadvantage of Medicare beneficiaries.

Thus, intervention by a federal court may be the only way these plaintiff laboratories and lab associations might stop CMS from using these bid documents for other purposes.


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