Lab Contracting Fracas In British Columbia

Spectre of province-wide competitive bidding looms following attempted lab fee cuts of 20%

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CEO SUMMARY: Government healthcare officials in British Columbia are taking definitive steps to recast the existing status quo between private commercial laboratory companies and public (government) hospital laboratories in the province. Although the stated goals are to reduce the cost of laboratory testing, the proposed means to realize these savings may prove disruptive and counter-productive.

WHEN IT COMES TO SQUEEZING money from the laboratory industry, Florida’s Medicaid bureaucrats have nothing on healthcare officials in the western Canadian province of British Columbia.

Battle lines were first drawn on September 1, 2003, when, by bureaucratic fiat, a fee cut of 8% on laboratory tests became effective. This was to be followed by a further 12% fee cut for implementation on April 1, 2004. For now, these cuts have been reversed by British Columbia’s highest court as inconsistent with the Canadian Medicare system. But the attempt to cut lab test reimbursement by 20% represents just the opening skirmish in a battle with major implications for laboratories in both Canada and the United States.

Competitive Bidding

British Columbia’s (BC’s) Ministry of Health has proposed a competitive bidding plan for laboratory testing services in the province. In August 2003, it organized an agency called the Provincial Laboratory Coordinating Office (PLCO). It was given the mandate to identify and recommend reforms which would improve the organization and delivery of laboratory testing services in British Columbia.

“If this competitive bidding plan is followed, radical changes will take place to laboratory services in the province,” declared Douglas Buchanan, Managing Director and CEO of BC Biomedical Laboratories, Surrey, British Columbia. “What is unsettling is that these proposals have the potential to disrupt testing activities while reducing both patient access and the level of patient care we can offer in lab testing services. Moreover, what the government is actually achieving is a one-time beauty contest leading to a long-term monopoly situation, marked by even less competition.

“Existing funding for lab testing will now go through the six regional health authorities,” he continued. “Each health authority is to have a contract tender [RFP] process in place for outpatient laboratory services by October 2005. Inpatient laboratory services are another area under consideration for the competitive process, including surgical pathology, cytogenetics, and transfusion medicine.”

Opponents Organize

Opposition to these plans is substantial. “Laboratories and other interested parties came together under the aegis of the British Columbia Medical Association (BCMA),” noted Buchanan. “BCMA supports the government’s need to reduce healthcare costs. To achieve the province’s desired cost reductions in lab testing services, BCMA submitted a proposal to aid in achieving those goals without compromising patient care or services.

Some individuals within the province believe one motive behind the government’s fee reduction and tender plans is to squeeze out the private, for-profit labs in favor of publicly-owned laboratories.

“The proposal was developed with input from pathologists and lab service providers across the province. It was also supported by the BC Association of Laboratory Physicians. Their proposal was designed to realize the government’s stated goal of $180 million in savings over the next three years—without compromising quality, access to services, and without dismantling the highly effective lab system currently in place,” stated Buchanan.

To date, BCMA’s proposal has gone nowhere. On March 5, 2004, the provincial government rejected the proposal and continued its plans to have each of the six health authorities issue a lab services tender by year end.

British Columbia has a dynamic private laboratory sector. The two largest labs in the province are MDS Metro Laboratories and BC Biomedical Laboratories. Both are private and have central laboratories in the Vancouver metropolitan area. Some individuals within the province believe one motive behind the government’s fee reduction and tender plans is to squeeze out the private, for-profit labs in favor of publicly-owned laboratories.

“Government policy toward laboratory services has changed in fundamental ways,” explained Buchanan. “In the past year, it conducted a superficial study and, among other things, concluded it was paying too much for health services. That’s why laboratory services were separated from physician payments and will be competitively bid this fall.

“Along with the private laboratories, major competitors in this process are the health authorities themselves and the hospital-based laboratories under their jurisdiction,” he continued. “But commercial laboratories from the United States may also join in the bidding process. That opens the possibility that lab specimens from British Columbia could cross the border to be tested within U.S. laboratories.

Details Not Yet Public

“Another troubling aspect is that details about the bidding process have not yet been made public,” added Buchanan. “We are not sure how comparisons will be done; that has not been explained. However, we do know it is difficult to determine the true cost of performing tests in a hospital setting. One reason is that their capital funding comes from a separate health service budget. So how private laboratories will be compared against the health authority labs is a mystery at this time.”

Laboratories in British Columbia have alerted the public to the potential consequences of a poorly-implemented lab services tender program. “More than 200,000 British Columbia residents signed petitions of support for the present system, a system which has worked well for over 40 years,” observed Buchanan. “To date, the government has failed to respond to the expressed wishes of the community, physicians, and laboratories. Because laboratory services are a critical component of the BC healthcare system which is not broken, many ask ‘why disrupt a system that functions well?’”

THE DARK REPORT observes that the British Columbia situation mirrors a parallel trend in the United States. Laboratory testing is increasingly considered to be a commodity by private health insurers, government healthcare programs, and policymakers, both elected and appointed. When all lab testing is considered “equal”, competitive bidding, generally a tool used to achieve lowest price, becomes the desired approach.

Lowest Price As A Goal

This is certainly the motive in efforts by Medicare and the Florida Medicaid program to implement competitive bidding for laboratory testing services within the United States. In that regard, these agencies are following the same path already trod by HMOs and managed care companies during the past 15 years.

Buchanan and his colleagues are closely watching what happens in the US with competitive bidding and how it affects the winners and losers in this war on cost. Will a “one-laboratory system” trigger “price creep?” Or will selection of a single laboratory lead to real cost savings, improved service and better patient care? Alternatively, if that doesn’t happen, will the draconian restructuring of laboratory services around a lowest bidder actually cause the quality of lab testing services to deteriorate? Stay tuned, because answers may be forthcoming if BC implements its announced intentions.

The interesting twist to competitive bidding in British Columbia, compared to the Florida Medicaid situation, is that government laboratories (within government-owned hospitals) will be included in the bidding. Because a government agency is setting terms and making awards, conflict of interest claims may be inevitable.

PLCO’s Goals Include Lower Costs, Integration

PLCO IS THE GOVERNMENT AGENCY behind the British Columbia laboratory brouhaha. PLCO stands for Provincial Laboratory Coordinating Office. It was created last year.

It has broad objectives. PLCO is chartered “to develop a common foundation and framework for the delivery of high quality, accountable, sustainable, and affordable services.” These are to include “availability/proximity of lab services to other patient services; availability of technical expertise; quality and sophistication of testing methodology; medical supervision and consultation; and the need for an efficient information interface with the ordering physician.”

PLCO has obtained five years worth of outpatient laboratory data from public and private laboratories, which includes testing from physician offices and hospital outpatients. Test classification systems are being developed. To date, three are completed; chemistry, hematology and microbiology. Work is ongoing to finish the remaining test classifications. Test categorization is to be linked to the test volume database as a way to help in costing analysis and overall planning.

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