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CQ HEALTHBEAT NEWS
July 26, 2007 – 3:48 p.m.

Small Labs Warn Against Medicare Demo
By John Reichard, CQ HealthBeat Editor

Many small clinical laboratories would be forced to shut down under a competitive bidding system contemplated by the Centers for Medicare and Medicaid Services, said industry witnesses at a House Small Business Committee hearing Wednesday. Only big lab chains would remain, depriving nursing home patients in smaller facilities of the special services needed to keep them medically stable or saddling those facilities with costs they can’t pay, witnesses said. The panel’s chairwoman, Nydia M. Velazquez, D-N.Y., said after the hearing that she plans to write to the chairmen of the House Ways and Means and Energy and Commerce committees to warn them about the impact of the demo.

The agency is required by the Medicare overhaul law to test competitive bidding for clinical lab services. A CMS official said, however, that the demo would take a number of precautions to protect small labs. But lobbyists said that bidding instructions issued by CMS show the agency has failed to heed the concerns of small labs about how the pilot program is designed.

“It seems that CMS has ignored congressional intent and moved forward with a project that creates a cumbersome bureaucracy,” Velazquez said in her opening statement. “As proposed, it could make it impossible for small labs to survive.” She added that “instead of competition deciding market share, CMS will determine market share winners and losers, and the losers are small local businesses.”

Under the three-year demo, CMS will announce two sites later this summer to test competitive bidding, testified Timothy P. Love, director of the CMS Office of Research. The pilot program applies to services that would otherwise be paid under the clinical laboratory fee schedule for Part B of the Medicare program, which covers services and certain medical products provided outside the hospital. Exempt from the demo are pap smears and colorectal screening tests, along with entities that have “face to face” encounters with patients, such as a doctor’s office that has a laboratory or a laboratory in a hospital outpatient department.

“CMS will choose multiple winners, thus even small businesses will be allowed to participate in the demonstration, as opposed to ‘winner take all’ selection in which only a large laboratory could be selected,” said Love. He added that labs with less than $100,000 in annual business will be allowed to continue serving Medicare patients without taking part in the demo. Bidders won’t have to serve the entire metro area involved in the demo, and those with less capacity will be allowed to specify smaller areas of service that they propose to cover. Bidders not picked for the test will be able to continue providing services outside the competitive bidding area, he added.

Advocates for small labs said they make up 90 percent of the lab industry that serves hospitals, nursing homes and other health care facilities, and have many contracts with large firms to deliver lab services. These large and small players rely on each other to deliver the full set of services needed by Medicare patients, advocates said. In addition, labs rely on “reference labs” located far away to perform diagnostic tests that aren’t routine. “It is not clear that these labs will even know that they are required to bid and win in order to continue to be reimbursed by Medicare for services provided in the demonstration area,” said Ronald Weiss, the president of Utah-based ARUP Laboratories, a reference lab.

CMS conducted a July 16 “Open Door Forum” to walk labs through the bidding process and answer their concerns and questions about the demo. But industry witnesses said the forum heightened, rather than lessened, their concerns. “We concluded the session with more questions than answers and a firm conviction by all labs — large, small, national, regional, urban and rural — that this project has to be stopped before great harm is done both to Medicare beneficiaries and to the clinical lab industry,” testified Mary Jo Bonifas, manager of lab services at United Clinical Laboratories based in Dubuque, Iowa.

Competitive bidding would have “drastic consequences” for her lab, whether it was a winning or losing bidder, Bonifas said. As a winner, “I am guaranteed less reimbursement than I currently receive for the same testing as a result of the design of the demonstration,” she said. “With already extremely small profit margins, what will this do to my bottom line?” She added that “if I am not a bid winner and local physicians and clinics can’t use my laboratory for Medicare testing, I will also lose their non-Medicare testing.” One-stop shopping “is the name of the game,” she said.

Industry witnesses added that few labs would qualify for the exemption would be given for those labs with less than $100,000 in annual revenues. And if they did, they would be required to accept the lower rates offered by winning bidders, they said. “Under the demonstration, there will be only a handful of winners,” said Tod Schild, senior vice president of Brooklyn-based Shiel Medical Laboratory, which serves the New York metro area. “Non-winners will be out of the program for three years before they get a chance to bid again. Very few non-winners will survive.”

Schild said large national labs will be able to survive by offsetting discounts in demo areas with their work outside those areas. But “only local and regional labs service nursing homes,” he said. “The high cost of sending in personnel to draw blood and deliver results within several hours, and the limited Medicare reimbursement for on-site services and travel, have driven many labs to seek higher profit margins elsewhere.”

Many drugs used in nursing homes, such as blood thinners for stroke patients, require blood testing with quick turn-around times to assure proper dosage levels, said Tom Bejgrowicz, a New Jersey-based nursing home administrator who testified on behalf of the American Health Care Association, which represents nursing home operators. Smaller independent labs, in some cases, have a mobile staff that go to facilities each day to draw blood, providing fast results and often times developing relationships with otherwise demoralized patients that foster their well-being, he said.

Larger lab firms likely to prosper in competitive bidding won’t offer these services and generally focus their attention on more lucrative markets, such as doctor’s offices, he said. Nursing homes don’t have the staff or profits that will allow them to pick up the slack, he said. “It is not realistic to expect nurses who are already overworked and burdened with regulatory mandates” to also draw blood, he said.

CMS’s Love, who remained at the hearing after testifying, was invited by Velazquez to return to the witness table after hearing the industry’s complaints. Asked whether there would be time before the demo starts to fully consider the concerns of small labs, Love he was still reviewing the many complaints expressed by industry. “We are not at the point where we are actually announcing a site,” he said.

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