Using a 1997 Bid Model In a 2007 Health Market

San Diego Demo Plan was created in 1997; Doesn’t reflect current lab marketplace realities

CEO SUMMARY: It’s been a long path from concept to implementation for a competitive bidding demonstration involving clinical lab services. It was in the mid-1980s when CMS commenced work on designing such a demonstration. In the 1990s, RTI International continued development of the concept and, in 1998, it published a paper on the plan it had developed for the laboratory competitive bidding demonstration project. This 1998 plan forms the basis for the upcoming 2008 demo pilot in the San Diego MSA.

IS MEDICARE PREPARING TO DUMP A VINTAGE-1987 CONCEPT onto San Diego’s state-of-the-art 2007 healthcare system? Is the soon-to-be implemented Medicare Clinical Laboratory Services Competitive Demonstration Project based on a design that, given healthcare’s evolution over the past 10 years, has the potential to trigger disruptions to beneficiary access and to the continuity of lab testing services for physicians?

THE DARK REPORT asks these two questions because the Medicare Clinical Laboratory Services Competitive Demonstration Project that was announced and described at the bidders’ conference in San Diego, California on December 5, 2007, is essentially the same as the laboratory competitive bidding demonstration project that Medicare and its contractors first made public in 1997.

Thus, federal healthcare bureaucrats may be implementing a laboratory pricing concept that time and progress in the American healthcare system has rendered outmoded, even obsolete. The reluctance of the Centers for Medicare & Medicaid Services (CMS) and its contractor, RTI International (RTI), to engage the laboratory medicine profession and other healthcare stakeholders to rigorously rethink and update a bidding demonstration plan originated in 1997 is another serious objection to the impending implementation of the laboratory competitive bidding demonstration pilot for the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area).

Bid Idea Surfaced in 1987

In all the commentary and criticism directed at the pending Medicare Clinical Laboratory Services Competitive Demonstration Project, few have observed that the original design work for laboratory competitive bidding was launched in
1987! At that time, the Health Care Financing Administration (HCFA—now CMS) engaged outside contractors to develop a program of laboratory competitive bidding.

This work resulted in studies completed in 1987 and 1989 by Abt & Associates of Cambridge, Massachusetts, addressing the framework for a demonstration and evaluation of competitive bidding as a method for purchasing clinical laboratory testing services.

HCFA continued this development work for another 10 years. During 1996-97, Research Triangle Institute (RTI) completed a contract with HCFA to produce a detailed plan for a laboratory competitive bidding demonstration project. RTI published the results of this work in the form of a paper titled “Medicare’s Demonstration of Competitive Bidding for Clinical Laboratory Services: What It Means for Clinical Laboratories.” This paper appeared in Clinical Chemistry(44:8, 1728-1734 [1998]). For laboratories involved in preparing bids, this would be a helpful document to review. It can be accessed at the Web site of the American Association of Clinical Chemistry (AACC). (See sidebar at right.)

During the 1990s, CMS (then HCFA) publicly declared its objective of conducting a demonstration project for the competitive bidding of clinical laboratory services. It had similar plans for other healthcare services, such as durable medical equipment (DME). However, for various reasons, prior to 2003, the laboratory bidding demonstration was never implemented.

Congress Acts On Lab Demo

 In the legislative logrolling that produced the Medicare Modernization Act (MMA) of 2003, the statutory requirement for CMS to conduct a lab competitive bidding demonstration made it into the final law. This gave CMS the authorization to conduct its long-desired experiment with laboratory bidding.

In September 2004, CMS contracted with RTI (and its subcontractor Palmetto GBA, LLC) to assist CMS in the “design (Phase I: demonstration design, develop solicitation and bid process, claims processing plan, management), and operation (Phase II: operate bid sites of the demonstration).” John Kautter, Ph.D., of RTI was made director of the project and continues in that role today.

At this time, the 1997 plan for competitive bidding of clinical laboratory services was taken down from the shelf and dusted off. In the summer of 2005, RTI gave a public presentation describing the proposed form and implementation of the laboratory competitive bidding demonstration. It was substantially the same design as described in the paper published in 1998. Further, the bidders’ package and application distributed at the bidders’ conference in San Diego contains requirements and structure that are relatively unchanged from both the
1998 paper and the 2005 presentation.

No Lab Input In Demo Design

 During the three years since CMS executed the design and implementation contract with RTI, neither group has engaged the laboratory industry in a meaningful way for advice, input, and help in creating a form and structure for the laboratory competitive bidding demonstration project that will meet the two
goals defined in the mission statement (lowering Part B pricing for lab testing and maintaining access and quality for Medicare beneficiaries). Yes, a Technical Expert Panel was named, but members of the panel note that they only had one meeting as a group, several years ago. 

Turn back the clock to the mid-1990s, when the primary design work was done for the laboratory demonstration project that is now unfolding in the San Diego MSA. At that time, closed panel, gatekeeper-model HMOs held the largest enrollment of insured lives. There were three billion-dollar laboratory companies and many cities had a regional independent laboratory company.

Lots Of Changes In 10 Years

Fast forward to today’s healthcare market. Restrictive HMO plans have almost disappeared in favor of PPO and POS plans, often in HDHP (high-deductible health plan) form. Other health insurance concepts, such as HSA (health savings accounts) are growing in enrollment.

There have been equally radical changes in the laboratory testing marketplace. Now two super-huge laboratory companies dominate nationally, having spent the past 10 years buying most of the regional independent lab companies that came to market. Another new phenomenon is the large and growing numbers of hospital laboratory outreach programs.

By proceeding with a competitive bidding demonstration plan developed for a
mid-1990s healthcare market—and by not engaging the laboratory profession in
updating this bidding model, CMS is less likely to be successful with the San Diego MSA pilot demonstration.

Not Much Has Changed To the Demo Plan in 10 Years

WILL MEDICARE PATIENTS, THEIR PHYSICIANS AND LABORATORIES in the San Diego-Carlsbad-San Marcos MSA (metropolitan statistical area) be subjected to a laboratory competitive bidding demonstration plan that has changed little since its creation in 1997?

To judge for yourself, three primary documents dating from 1998, 2005 and 2007 are readily accessible. PDFs of the original documents can be accessed via the Internet. These documents make it possible to compare how the design of the project has evolved from its 1997 form.

1997–RTI International (then Research Triangle Institute), under contract with the Healthcare Financing Administration (HCFA) produces a detailed plan for competitive bidding to set fees for Medicare Part B clinical laboratory services. It publishes a description of the project in Clinical Chemistry 44:8, 1728-1734 (1998). Access the document at:

2005–RTI presents its plans for the competitive bidding demonstration project mandated by the 2003 MMA legislation. The August 2005 presentation is titled: “Summary of the Medicare Clinical Laboratory Competitive Bidding Demonstration Draft Design. Access the PowerPoint presentation at: ts/downloads/MMA302b_Handout.pdf.

2007CMS and RTI officials distribute the full bidder’s package for the San Diego MSA. Access these documents at:

Technical Expert Panel Was to Advise CMS/RTI

AS ANNOUNCED SEVERAL YEARS AGO, the Technical Expert Panel (TEP) was “to operate during the design and startup of the operational phase” of the laboratory bidding demonstration project. Members tell THE DARK REPORT that they have only met once as a group and the last conference call as a group was almost two years ago. Here are the members named by CMS/RTI for the Technical Expert Panel:

 ALFRED CHIPLIN, J.D.—Managing Attorney for the Center for Medicare Advocacy, Inc., in Washington, DC.

 CARLYN COLLINS, M.D., MPH—Senior Laboratory Advisor for the Public Health Practice Office (PHPO) at the Centers for Disease Control and Prevention (CDC).

 MARC GRODMAN, M.D.—Chairman, President, & CEO, Bio-Reference Laboratories, Inc., Elmwood Park, NJ.

 LEE HILBORNE, M.D., MPH—Director of the Center for Patient Safety and Quality, University of California Los Angeles (UCLA) Healthcare.

 DONNA MACMILLAN, MT (ASCP), MBA—Director of Operations for the Department of Pathology at Massachusetts General Hospital (MGH).

 JAMES ROBB, M.D.—Medical Director at Integrated Regional Laboratories of Fort Lauderdale, FL.

 BONITA WARNER—National Vice President, Network Services for AmeriChoice Corporation.

 RONALD WEISS, M.D., MBA—Professor of Pathology, University of Utah School of Medicine, Salt Lake City, UT.

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