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Medicare takes the wraps off its competitive bidding project.

After months of speculation about it, the issue of competitive bidding for Medicare laboratory services is finally out on the table.

But not quite in full view. After reviewing bid proposals since July 1, the Health Care Financing Administration won't actually announce the winning sponsors of demonstration projects until Oct. 1--if then. Health and Human Services Secretary Margaret Heckler has already had a letter from several medical and laboratory associations demanding that the whole project be scrapped.

Yet the absence of signatures from a few key players indicates that lab leaders aren't marching in lockstep and may stray even further from a common course in coming months. HCFA, in short, seems destined to have its demonstration project for now, but a long-term replacement for Medicare's current lab fee schedule may be five years and many political skirmishes away.

Meanwhile, most folks at the working lab level are awash in confusion as to the scope of the HCFA demonstration project and what types of services it would affect. Much overlooked, for example, is the fact that neither hospital inpatients nor outpatients would be involved.

Perhaps the biggest misconception is that HCFA will start publishing Medicare bid prices next month. Not so: The scheduled contract award referred to above will go to a single organization--probably an insurance carrier or consulting group. The prime contractor will be charged with designing and supervising competitive bid demonstrations in up to six geographic areas.

Here's a brief sketch of the project parameters as gleaned from the 300-page bid invitation prepared by HCFA (RFP-HCFA-85-047/CP):

* Why the study? HCFA cites several investigative reports indicating that the Medicare reimbursement system has produced "excessive physician markups of independent laboratory bills. . . and higher laboratory charges billed to Medicare than to physicians."

* Project goals. HCFA says the demonstration will: 1) allow it to determine "whether the current Medicare fee schedule for clinical laboratory tests is set at a proper level"; 2) provide data on "the utility of a relative value scale"; 3) "evaluate the overall feasibility of utilizing competitive bidding as a preferred method in certain areas (e.g., metropolitan areas) for establishing laboratory test prices in order to promote more efficient use of health resources."

* The master contractor's task. Design the bidding process, payment variations, number and location of demonstration sites, and relative value scale. The contractor would also administer and evaluate the demonstrations.

HCFA asks that much of this work be based on guidelines already developed by the Center for Health Policy Studies under a prior study contract.

* Types of bidding. HCFA wants the contractor to try at least two "models": the multiple winning bidder (MWB) system and the contractual fee schedule (CFS) system. Under MWB, several labs would be selected as winners in a demonstration area, thus giving physicians a choice and assuring adequate capacity to handle all Medicare work. This differs from today's system because "the current fee schedule was set at a level that. . .nearly all laboratories would find acceptable," says HCFA. "In the MWB model, that does not have to be the case."

Under the CFS system, all Medicare-certified labs would be subject to a set price (such as 55 per cent of prevailing charges) and would agree to a fee schedule. Although HCFA suggests up to six variations on the two basic methods, participating labs would have to accept all Medicare tests on an assigned basis.

* Bidding conditions. Once the master contractor selects demonstration sites, bidding laboratories will be required to: 1) be located in the demonstration service area; 2) submit prices for each individual test listed under the system; 3) service the entire demo area; 4) prove they can provide services "on the full range of designated laboratory tests at the winning bid price; 5) be prepared for an on-site inspection to verify the above. However, HCFA says, "The primary selection criterion for winning bidders is price."

* Picking a demonstration market. HCFA suggest no more than six sites, to include a mix of conditions so as to test several theories. Example: testing a site with several laboratories (and presumably intense competition) against another with few. Similarly, at least one site would include a large national or regional lab on the theory that they will "aggressively pursue competitive bidding." The agency also wants to see how bidding will affect prices of hospital labs that now do lab work for local physicians' offices.

* Timetable. The project will take four years, will all demonstration sites operational within 1-1/2 years.

Although it could be 1990 before HCFA and Congress have a final report to chew on, industry associations are already chewing up the proposal. On July 11, the American Medical Association, American Hospital Association, and allthe laboratory professional associations met for a strategy session in the offices of O'Connor & Hannan, the American Clinical Laboratory Association's Washington counsel. Two weeks later, most of the attendees signed a letter to HHS Secretary Heckler urging that the project be halted, largely on grounds that the competitive bidding scheme came too soon on the heels of the still unproved laboratory fee schedule.

Although the association officials exchanged pledges not to discuss their meeting in public, it's evident that not all participants were in accord and that a few didn't sign the letter to Heckler. Most conspicuous among the abstainers was the American Hospital Association--and for obvious reasons when viewed solely in terms of self-interest. The competitive bidding projects would appear to exclude all hospital lab work except for nonhospital patients who are referred by a private doctor's office. Moreover, hospital lab work for outpatients would revert back to cost-based reimbursement. Since the old Medicare dormula made hospitals much more money than the present system, they could be headed for a windfall--so much so that some of the large hospital chains might take a headlong plunge into the independent lab business.

Meanwhile, some association leaders question what HCFA will gain through the competitive bidding concept, at least as now conceived. For example, the American Association of Bioanalysts' Mark Birenbaum wonders why the current HCFA proposal doesn't require physicians' offices to take mandatory assignment on tests by their own labs. "If one can assume that the winning bid in an area would be very low," he says, "it would seem to increase the incentive for doctors to do their own tests in the office and charge patients what they want."

Like many laboratory leaders, Birenbaum also wonders aloud if the HCFA project may be foremost a public relations exercise. "The end result may be that Medicare itself will be able to say it's saving money," he says, "but that's because patients will be paying more out of their own pockets."
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Publication:Medical Laboratory Observer
Date:Sep 1, 1985
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