Competitive Bidding for Lab Services is Not the Answer

The American Clinical Laboratory Association strongly opposes any effort to impose competitive bidding arrangements for diagnostic laboratory payments under Part B of Medicare or state Medicaid programs. Competitive bidding would threaten the quality of and access to laboratory services and create a substantial and cumbersome administrative bureaucracy. Moreover, it will not result in a meaningful, cost-effective reform of Medicare.

In the 2003 Medicare Modernization Act (MMA), Congress directed the Centers for Medicare and Medicaid Services (CMS) to proceed with a laboratory services competitive bidding demonstration project. ACLA opposes such a project for the reasons mentioned below.  ACLA led a three year, unprecedented advocacy campaign to stop, and ultimately repeal,  the Laboratory Competitive Bidding Demonstration project.    The culmination of the campaign was the enactment of legislation (HR 6331) in July 2008 repealing the project.  ACLA was also backed by a lawsuit filed by local laboratory plaintiffs in Federal District court in San Diego which resulted in a preliminary injunction stopping further implementation of the demonstration in April 2008.

Clinical laboratory testing is an essential part of quality health care. It provides physicians with objective data needed to help promptly diagnose, treat and monitor diseases and other medical conditions.  Laboratory services are a service, not a piece of equipment or a supply. The delivery of high quality laboratory services is far more complex than the production and delivery of health care equipment or supplies, which are usually standard and interchangeable.

For more than a decade the Department of Health and Human Services has tried and failed to develop a demonstration project to test competitive bidding for laboratory services. It has come face to face with the complexity of the task, the substantial start-up costs and the numerous questions that must be addressed. For example, should the system employ a winner-take-all approach or can anyone play at the winning bid amount? How should the design deal with smaller laboratory providers, hospital and physician office laboratories? Would all 1,100 laboratory test codes be covered or just the most frequently ordered? What will be the impact of competitive bidding on rural or underserved areas with few laboratory providers?

Significant savings to the Medicare program are not likely to be realized by moving to a competitive bidding system for laboratory services, services that are less than 2% of the Medicare budget. Clinical laboratories have been paid by Medicare based on national limitation amounts – the maximum amount Medicare will pay for a given test -- established in 1984. That national cap has been systematically reduced by more than 35% over the past eighteen years. Furthermore, laboratories have seen their annual CPI update reduced or eliminated in eleven of those 18 years, most recently eliminated for five years by the Medicare Modernization Act of 2003.  Consequently, laboratory testing is reimbursed at a lower level today than it was when the national limitation amounts were first established.

ACLA has also taken the lead in opposing an ill-conceived competitive bidding proposal by the Florida Medicaid program.  Florida Medicaid initially proposed competitive bidding for Medicaid laboratory services in March 2004.  The scheme would have mandated a single, state-wide winner-take-all scenario.  Ultimately, the state of Florida withdrew the proposal.