CEO SUMMARY: If competitive bidding for Medicare business is something universally viewed as bad by the laboratory industry, then the lab services RFP issued by Florida’s Medicaid program must be considered a serious threat to the status quo. Further, the fact that Medicaid officials in Florida designed a 28-day RFP process to award a single lab with an exclusive, 3-year, $100 million contract earned criticism from both labs and employers.
IF FLORIDA IS A BELLWETHER STATE for healthcare developments which are adopted in other states, then Florida’s Medicaid RFP for lab testing services should be closely scrutinized by lab managers and pathologists throughout the country.
“Without prior notice and without notification to all but a few laboratories in Florida, on March 2nd the state’s Medicaid agency commenced a 28-day process to award one laboratory with a three-year contract to perform 100% of laboratory testing on Medicaid patients statewide,” stated Philip Chen, M.D., Ph.D., CEO of Cognoscenti Health Institute, based in Orlando, Florida.
The contract, estimated to be worth $100 million, will cover all laboratory testing done on Florida’s 1 million Medicaid beneficiaries, except for inpatient testing. The Agency for Health Care Administration (AHCA), which administers the Medicaid program in Florida, originated the Medicare laboratory services RFP in response to legislation passed in Florida during the past 24 months. The Legislature mandated that AHCA implement cost-saving initiatives in the Florida Medicaid program.
“We estimate that 160 laboratories currently provide testing to Medicaid patients in Florida,” noted Chen. “Should Florida Medicaid actually award all lab testing to a single laboratory, the financial effect on these small labs will be devastating.”
Laboratories Have Allies
Labs in Florida have allies concerned about the negative potential of a single, statewide contract for Medicaid laboratory testing. “We adamantly oppose the idea of one laboratory vendor to provide lab tests for all Florida Medicaid beneficiaries,” declared Becky Cherney, President and CEO of the Florida Health Care Coalition (FHCC). This coalition is made up of large employers, like Disney Corporation, Lockheed Martin, Siemens Westinghouse, and the City of Orlando.
“The motto of our coalition is ‘Quality First—Always!’ The Medicaid laboratory services RFP fails to deliver quality in several ways,” noted Cherney. “This RFP fails to include quality requirements for the winning laboratory. There are no minimum standards for clinical quality. Nor are there any standards for laboratory testing services, such as an adequate number of well- placed patient service centers or timely courier pick-up of specimens.
Oppose Lab Monopoly
“Medicaid should provide services above some level of minimal quality,” she added. “There is no need for any- thing as poor as this Medicaid laboratory testing RFP to go forward. This proposal, and its award process, make me feel like my state is about to go from ‘hanging chads’ to ‘hanging labs.’ Our residents should not be forced to accept a monopoly. They deserve better!”
Laboratories in opposition to the Medicaid lab testing RFP are fortunate to have the Florida Health Care Coalition in their corner. FHCC represents employers with more than 2 million employees. Lawmakers and state officials do listen to its views on a variety of issues.
Florida’s independent laboratories are obviously concerned about the negative impact of awarding a single laboratory the right to do all laboratory testing for the state’s 1 million Medicaid beneficiaries. That’s one reason why there are numerous criticisms about the fairness of the RFP process and AHCA’s motives in designing the Medicaid RFP and awards process.
28-Day Bidding Process
“AHCA issued the RFP on March 2. The deadline for labs to file a letter of intent was March 16,” said Chen. “The RFPs themselves were due on March 30. It is remarkable that AHCA is willing to award this contract with just a 28-day bidding process. Such a compressed RFP cycle makes it difficult for smaller labs, with limited staff resources, to respond quickly to such a comprehensive RFP.”
“Further, the first inkling any laboratory had about this RFP was on March 9,” noted Chen. “We can identify five laboratories which got letters from AHCA notifying them about the Medicaid laboratory service RFP. Most interesting, four of those laboratories received addressed envelopes with no contents! It was not until they called AHCA that they learned about the RFP.”
The concept of a single laboratory winning the right to do all the state’s Medicaid lab testing for three years is generating lots of criticism.
The concept of a single laboratory winning the right to do all the state’s Medicaid lab testing for three years is generating lots of criticism. But there are additional flaws in the RFP. “This RFP emphasizes lowest cost over all other variables,” Chen observed. “There are absolutely no requirements for a minimum level of quality in the clinical results. As well, there are no requirements for service levels. Physicians in Florida would be forced to accept whatever the winning laboratory offers. Under the RFP, there are no penalties for lapses in quality.”
“Another area of concern involves pricing,” stated Gary Onofry, Administrator at Palm Beach Pathology in West Palm Beach, Florida. “Florida Medicaid has its own fee schedule. It pays for both clinical laboratory testing and anatomic pathology services on a schedule of fixed rates. This is different than Medicare’s use of RVUs.
“This Medicaid RFP specifies that prices are to be discounted based on the existing, flat-rate Medicaid price schedule,” he continued. “Not only does this fail to take into account the specific and unique needs that accompany testing provided to specialized providers, such as long term care facilities and dialysis testing centers, but it maintains and increases existing distortions in Florida Medicaid’s already complex pricing scheme.”
$20 Million Bond
Bond requirements are another source of criticism. “As spelled out in the RFP, any laboratory bidding for this contract must post a $20 million performance bond,” said Chen. “That’s not all. Any laboratory seeking to file a formal protest to any aspect of this RFP must post a $1 million bond. These are onerous requirements that automatically prevent all but a handful of laboratories in Florida from even entertaining the idea of submitting a bid, individually or as part of a consortium.”
THE DARK REPORT observes that the Medicaid laboratory testing RFP in Florida represents a real-world example of two important concerns repeatedly voiced by the laboratory industry over the concept of competitive bidding in the Medicare and Medicaid programs. The first concern is whether the bidding model used to evaluate and select a winning laboratory is properly designed and supports the concept of “any willing provider.” Can and will the bidding model establish fair pricing for the government health program, while allowing an adequate number of laboratories to opt in and provide services at that price?
The second issue is one which gets less attention, but which is no less important. Is the process of selecting a winning laboratory free of bias? Is it free from manipulation, either by bureaucrats inside the program or by laboratories or other vendors seeking favorable advantage in the awards process?
The laboratory industry now has a front row seat to watch whether Florida’s Medicaid program runs afoul of either or both of these concerns. The outcomes have real consequences. If Florida gets this first attempt at a single lab, three-year, exclusive contract wrong, many people within the healthcare system will be disadvantaged.
Further, a statewide-contract for Medicaid lab testing services in Florida, regardless of the impact it has on the quality of lab testing services, can be expected to encourage other state Medicaid programs to adopt a similar, single-lab contracting model. It can also be expected to encourage Medicare to finally implement a demonstration project involving the competitive bidding for laboratory testing services.
THE DARK REPORT reminds readers that it was Arizona’s Medicaid program which launched capitated, shared-risk contracts. This happened in the early 1980s. As this contracting technique was adopted by other states and private payers, the financial impact on the laboratory industry proved devastating during the following decade. So there is a precedent for a state Medicaid program to innovate and have its innovation copied by both government and private health plans.
As this issue of THE DARK REPORT went to press, AHCA had extended the date for submission of proposals by an additional 30 days, from March 28 to April 28. Forces in opposition to this single-lab RFP are beginning to emerge and it appears that groups outside the lab industry will join the fight.