Creating a mutually beneficial approach to CBD project.

Section 302 (b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) mandated a Medicare Part B clinical lab competitive bidding demonstration (CBD). The purpose of this project is to determine whether competitive bidding can be used to provide Part B clinical lab services at fees below current Medicare reimbursements rates while simultaneously maintaining access to quality laboratory care. The Centers for Medicare and Medicaid (CMS) have designated two demonstration projects, each of which will run for three years. The first test site is the San Diego-Carlsbad-San Marco Metropolitan Statistical Area (MSA) in California.

The CBD project requires all hospital outpatient and independent laboratories in this test MSA receiving Medicare Part B fee-for-service reimbursements greater than $100,000, to submit a fee schedule for some 303 test codes, representing 99% of the tests paid under Part B. Small physician office laboratories (POLs), with less than $100,000 in annual Medicare Part B payments, will not be required to bid in the demonstration. Required bidders were required to submit a final bid to CMS by Feb. 15, 2008.

Upon CMS' determination of a winning bid fee schedule, required bidders that win will be paid accordingly for all demonstration tests provided to beneficiaries residing in the competitive bid areas (CBAs). Non-winning required bidders would not be paid by Medicare for such tests for the duration of the three-year demonstration.

While the intent of the CBD project is to provide CMS with valuable information on the relative costs of laboratory tests, the project's overall design is not thought to be optimal to achieve this and the project's other goals. For example, many small- and medium-size labs, whose Medicare Part B reimbursements exceed $100,000, do not perform most of the tests paid under the Part B fee schedule. To continue to perform testing during the demonstration, these small labs that exceed the threshold will be required to team with a larger laboratory, which performs all of the 303 tests, in order to create a "composite" bid.

Because a large reference lab with multiple locations can more effectively spread its testing costs than a lab with only one location, the larger lab may likely underbid the small lab for the same tests--in effect forcing the small lab to accept less payment, even as part of a "winning" bid team. Meanwhile, CMS' goal to determine a true cost of these tests could possibly remain unanswered.

Because larger reference laboratories already dominate the outreach-testing market in California, many small- and medium-size required bidders are concerned that larger labs will essentially use the bidding process to underbid their competition in order to gain market share. The resulting economic impact on small-size required-bidder laboratories that lose in the bidding process could be significant. Laboratories unable to collect any Medicare payments during the three-year period might experience significant test-volume losses, perhaps forcing them to close their doors, while also limiting patient access to local testing facilities. Many laboratories have even questioned the selection of a demonstration in the San Diego area with such a large percentage of Medicare managed-care beneficiaries as opposed to a market with a more dominate fee-for-service patient population.

Depending on the results of the CBD study, even non-required, small-laboratory bidders could be impacted by the CBD project, in that they, too, will be paid according to the demonstration fee schedule, perhaps reimbursing less money than before, for example. This would limit their profit margins and, possibly, preclude them from covering their true costs.

Many of these implementation concerns were raised during a July 2007 hearing by the Small Business Committee of the U.S. House of Representatives, prompting the introduction in August of HR 3453, entitled the Community Clinical Laboratory Fairness in Competition Act of 2007. The purpose of the bill is to repeal the Medicare CBD for clinical-laboratory service and require CMS to report to Congress on the CBD's impact on small labs. A sister bill was introduced in the Senate in December 2007. Additional legislation is expected during the 2008 Congressional session.

All stakeholders in this process have the same goals: to create a fair fee schedule while at the same time ensuring patient access to quality laboratory-testing services. The CBD project represents an important step toward this goal. Further analysis of the project design is needed so that all parties concerned can be assured that the program advances and is beneficial to all.

Helena Duncan, BBA, MJ, is manager of Policy and External Affairs for COLA and is responsible for COLA's relations with federal and state governments as well as the laboratory professional community. She also represents COLA and COLA-accredited facilities in Clinical Laboratory Improvement Amendments (CLIA) and state-specific regulatory matters. For more information about COLA, visit www.cola.org.

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By Helena L. Duncan, BBA, MJ