Local San Diego Lab Fights Bias In CMS Bid Demo

San Diego’s only local lab illustrates why CMS/RTI’s scheme intentionally excludes small labs

CEO SUMMARY: Meet Internist Laboratory of Oceanside, California. For 18 years, its owners, Gary and Christine Stevens, have provided a high level of laboratory testing services to office-based physicians in Northern San Diego County. Now Internist Laboratory is the perfect poster child for all the flaws and bias built into the Medicare Laboratory Competitive Bidding Demo. If denied access to serving Medicare beneficiaries for three years, it will face a financial crisis with no solution.

ITS TIME FOR THE LABORATORY PROFESSION AND CMS POLICY MAKERS to meet the perfect poster child to illustrate the shortcomings in the Medicare Clinical Laboratory Services Competitive Demonstration Project. It is Internist Laboratory of Oceanside, California, in northern San
Diego County.

Owned by the husband and wife team of Gary and Christine Stevens, Internist Laboratory is a perfect example of the local laboratory organized to provide high levels of personalized service to patients physicians, and providers in its community. This focus on service and emphasis on meeting the unique needs of its local healthcare community allows it to compete and survive against the largest regional and national lab companies.

Wants To Serve Medicare

Yet, despite the assurances of officials from the federal Centers for Medicare & Medicaid Services (CMS) that the San Diego-Carlsbad-San Marcos demonstration pilot will be local-lab friendly, the Internist Laboratory example provides compelling evidence that the bidding requirements will effectively exclude them as providers of laboratory testing in the Medicare demonstration pilot.

“We have only 10 employees and a consulting pathologist,” said Gary Stevens. “Internist Laboratory performs more than 1 million tests each year and has been in business here for 18 years. We serve office-based physicians in the Tri-City area of Vista, Carlsbad, and Oceanside, California, and continually get referrals from physicians in these communities.”

“We service many patients with special needs, in that the caretakers bring them to our lab’s service centers,” stated Christine Stevens. “However, we do not contract with nursing homes or long-term care facilities.

“We are also significantly less expensive for cash-paying patients who may not have insurance than the two large national labs,” she explained. “For example: we charge $20 for a lipid panel and other labs charge $89. Our price for a CBC is $12; other labs charge $44. Our draw fee is $6, and other labs charge $39. In this area, we are known for outstanding service, yet we are not more expensive for cash-paying patients than the large labs. We are actually much less!”

Gary Stevens added, “We compete on service. Doctors and patients come to us because they like our personal service. Our presence in the local community makes a difference. For example, we often collect specimens and provide test results on the same day. This is particularly important for oncology patients who must have their results before they can get chemotherapy.”

However, none of these service attributes will help, based on Gary Stevens’ study of the competitive bidding demonstration requirements. “Basically, if lowest price is the major criteria, then we can’t compete against Laboratory Corporation of America or Quest Diagnostics Incorporated in this Medicare lab demonstration,” he said.

A Question Of Survival

Christine Stevens agreed, saying, “Fewer labs in the market will not necessarily mean less expensive costs and will probably mean lower quality service. In regards to Medicare, we accept assignment and receive the same amount as any other lab, large or small. We would be happy to continue on this basis. Yet, if we are not a winning lab, and Medicare prohibits us from serving Medicare patients, we cannot continue to operate since the majority of our patients are Medicare beneficiaries.”

“The lowest price is not the best way to evaluate how we contribute to quality care for Medicare beneficiaries in our community,” added Gary Stevens. “Until now, we have been competitive because our service is so much better. Plus, we’re the only lab serving this community that can actually perform lab tests in this area. The next closest lab is 45 minutes away, and that’s a LabCorp facility. Our location is convenient, dead center in the heart of the Tri- City’s medical area. That location allows us to provide the quickest and most affordable laboratory testing in North County San Diego.

“Depending on the day and the traffic, it often takes longer than 45 minutes to get to the next nearest lab,” Steven explained. “During the wild fires this fall, labs at both LabCorp and Quest were closed for a time. We were the only lab here in north county that could do testing. In so many ways, our service is much better, in part because we baby the patients and the doctors. Frankly, we survive on service and quality.

65% of Volume Is Medicare

 “That’s why we are so concerned about our ability to participate in the Medicare laboratory competitive bidding demonstration,” he noted. “Currently 65% of our
volume comes from serving Medicare patients. If we are not selected as a winning bidder, it will go badly for us. Not knowing where the price cuts are going to
come or what percentage they’re looking for, we just don’t know what effect it would have right now. And since we’re bidding against LabCorp and Quest, there’s no way to know how we’ll come out of this because this competitive bidding program removes service and quality out of the mix. We’d be living on 35% of our volume. That won’t pay the bills.”

Another requirement of the bidding process creates additional challenges. “Despite the fact that we perform about half of the 303 tests here in our own laboratory, I must submit a bid price on all 303 tests,” explained Stevens. “It means my reference labs must provide me with prices on those tests for Medicare patients.

Depending On A Competitor 

“I’ve talked with LabCorp, and they say we’ll be getting prices, but right now we have less than 45 days until the bid is due,” he worried. “If they drag their feet too
long, we’re at their mercy. There are not that many labs down here, so I’m not sure why they wouldn’t call back.

“We’ve also contacted Quest Diagnostics to get prices we can use to plan our bid,” Stevens said. “I’ve put in two or three calls to them, but no one at Quest has yet returned my calls. We are required to bid on 303 tests but we do only about half of those here in our lab. If reference labs won’t call me back, I don’t know what to charge.

“The bidding demonstration project is set up in a way that makes local labs dependent on Quest and LabCorp— because they do the reference and esoteric tests,” Stevens commented. “They are in a control position because our bid depends on what prices and volume they give us. And, it was established at the CMS bidders’ conference that they don’t have to give us the same price that they bid. They can give us a straight bid, for example, and then take 5% or 10% off their bid and we could be eliminated just on that.

“So, at the bidder’s conference, I asked the CMS and RTI people: Why is this bidding program set up to eliminate competition? They had no answer,” he said. “Their response was only that I should send them an e-mail with any questions that I had. It is frustrating that the Medicare program has designed the demonstration pilot to make it impossible for small labs to participate as a provider.”

Poster Child For Problems

The comments of Gary and Christine Stevens show why Internist Laboratory is the perfect poster child for exposing the built-in bias against small labs participating in the laboratory competitive bidding demonstration project about to occur in the San Diego MSA.

One, CMS and RTI have established bidding requirements that make it virtually impossible for Internist Laboratory to submit a bid with discounted prices that would qualify it as a winning bidder under the announced formula. Instead of being asked to price aggressively the 150 or so tests it does perform internally, it must submit prices for 303 tests—and for 150 of these tests, it must rely on prices provided to it by either or both the national labs.

As of press time, neither of these lab companies, in their role as reference labs,
had provided a price list for bidding purposes to Internist Laborator y. Why would a government agency design a bidding process that makes small independent laboratories dependent on getting discounted bid prices from their largest competitors?

Two, the CMS/RTI bidding requirements fail to recognize the continuity of care Internist Laboratory provides to Medicare patients in the north county area. If Internist Lab is not selected as a winning bidder, both Medicare beneficiaries and their referring physicians lose this continuity of care in lab testing.

Asking Tough Questions

Third, by establishing bidding barriers for such local labs, CMS/RTI has increased the odds that this independent laboratory will face financial failure. The likelihood of that outcome increases because 65% of the patients served by Internist Laboratory—the only laboratory based in the Vista, Carlsbad, and Oceanside area— are Medicare beneficiaries.

As a poster child for the bias against smaller local labs in the Medicare demonstration project, Internist Laboratory graphically demonstrates how the bidding process will put Medicare patients at a disadvantage. More to the point, Gary and Christine Stevens have worked 18 years to build a modest business focused on serving the needs of patients and physicians in Vista, Carlsbad, and Oceanside. Why should a government agency now push them to the point of bankruptcy?

Stevens certainly deserves answers to the questions he’s asking. And here’s another one that should also be answered: Why does any large purchaser, including Medicare, want to exclude two small businesspeople who have survived in America’s toughest managed care market for 18 years by offering Medicare patients local, personalized, high quality services? 

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