San Diego Bid Demo Pilot Is Industry Turning Point

Forget the San Diego MSA demonstration pilot, these lab bids may be used to set national prices

CEO SUMMARY: In just six weeks, laboratories serving Medicare patients in the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area) will submit their bids to the Centers for Medicare & Medicaid Services (CMS). They may think they are bidding for access to patients in the San Diego MSA for the three-year duration of the demonstration pilot. But comments by a CMS official at the December bidders’ meeting indicates that CMS may want to use these bids as the prototype for new national Part B pricing.

EARLIER THIS MONTH, OFFICIALS FROM the Centers for Medicare & Medicaid Services (CMS) took the wraps off their plan to conduct the Lab Competitive Bidding Demonstration Project, scheduled to take place in the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area) in 2008.

On December 5, over 100 laboratory directors and managers crowded into the bidders’ conference conducted in San Diego by CMS and its contractor, RTI International (RTI), to learn the details of the impending demonstration project.

However, few attendees recognized the greater significance of that bidders’ conference. They were present at an event that represents a turning point for the entire profession of laboratory medicine. That bidders’ conference has set in motion a series of events that can be expected to change the laboratory industry in fundamental ways, both in San Diego and nationally.

This issue of THE DARK REPORT is devoted entirely to the Lab Competitive Bidding Demonstration Project for that reason. Laboratory administrators and pathologists in other regions of the United States need to understand why this bidding demonstration is a transformational event for the entire profession of laboratory medicine.

In the pages that follow are a series of intelligence briefings on different aspects of the San Diego MSA bidding demonstration, particularly from the perspectives of stakeholders that include Medicare patients, their physicians, and laboratory professionals. As you will learn, CMS and RTI developed this competitive bidding demonstration program with little informed input from the patient community, the physician community, and even the laboratory community itself.

Byzantine Bidding Scheme

By way of explanation, CMS and RTI have delivered a byzantine scheme for: 1) bid applications; 2) for the bidding selection process; and 3) for implementation of the bidding demonstration pilot. Overall, the requirements lack transparency, give CMS/RTI great subjective power and control over the outcome, and require a laboratory to enter the bidding process without a clear, objective understanding of the terms and conditions of the provider contract it will be asked to sign.

For laboratories serving the San Diego MSA, this alone poses a daunting challenge. They are being asked to prepare and submit bids as a pure act of faith, since there is no objective benchmark by which they can judge the final awards against their bidding strategy. By the way, that violates a fundamental principle of auctions and public bidding. Transparency and objectivity in bids submitted and bids awarded is essential. The lack of these attributes may be a sign that CMS doesn’t believe it will be doing too many more regional competitive bidding demonstrations.

New Fee Schedule Prototype 

Further evidence of that is the admission, by a CMS official during the December 5 bidders’ meeting, that, even if the July 1, 2008 implementation of the San Diego
MSA pilot demonstration is delayed or cancelled, the bids received on February
15 will give CMS the prototype for a new fee schedule it can submit to Congress.
THE DARK REPORT is first to report this statement publicly and comment on what it is likely to mean.

That statement is the nuclear bomb that was dropped on the laboratory medicine profession while few were paying attention. It is an admittance by CMS that the value of the laboratory bidding demonstration project goes beyond experimenting with orderly ways to allow the market to price Part B laboratory testing services, as directed in the 2003 MMA legislation.

Rather, CMS bureaucrats are using the competitive bidding demo to give it a look at how the nation’s two lab testing behemoths (along with smaller competitors) are willing to discount a menu of 303 routine tests. CMS will then turn around and use this information to propose a new national fee schedule to Congress, as early as 2009.

Lab Industry Turning Point

That is why THE DARK REPORT believes that the December 5 bidders’ conference represents a turning point for the entire profession of laboratory medicine. Evidence is accumulating to indicate that a group within CMS has always intended that the laboratory competitive demonstration project be a Trojan Horse for collecting laboratory bids that it can use to overhaul the national Part B laboratory reimbursement system.

The laboratory medicine profession has a limited amount of time to respond to this new threat. Once bids are submitted on February 15, CMS/RTI will have achieved its goal of getting access to what the two national labs, and a handful of competitors, are willing to bid to retain access to Medicare patients. What follows in the San Diego MSA bidding demonstration may be moot if, by the end of
2008, CMS has used these bids to revamp the Part B laboratory reimbursement schedules for the 2009 federal fiscal year.

In the balance of this issue of THE DARK REPORT, there is coverage on many of the issues triggered by the current design and requirements for the competitive bidding demonstration project for the San Diego MSA. Labs have little time to act between now and the February 15 date for submitting bids

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