College of American Pathologists

  Letter on Lab Bidding Demo


October 16, 2007

The Honorable John Dingell
United States House of Representatives
2328 Rayburn House Office Building
Washington, DC 20515

The Honorable Charles Rangel
United States House of Representatives
2354 Rayburn House Office Building
Washington, DC 20515

The Honorable Joe Barton
United States House of Representatives
2109 Rayburn House Office Building
Washington, DC 20515

The Honorable Jim McCrery
United States House of Representatives
242 Cannon House Office Building
Washington, DC 20515

Dear Chairmen and Ranking Members:

As members of the Clinical Laboratory Coalition (“CLC”)—a coalition of organizations committed to quality clinical laboratory testing and representing the many sectors of the laboratory industry and the professionals who serve the public in the health care field—we are writing to reaffirm our continued opposition to the Medicare competitive bidding demonstration project for clinical laboratory services and our support for its repeal. On October 16, 2006, the Centers for Medicare and Medicaid Services (“CMS”) announced that the San Diego area will be the first demonstration site. CMS also announced three changes to the project's draft design. Unfortunately, these changes do not alter the fundamental flaws associated with attempting to implement competitive bidding for laboratory services.

Over the past four years, our organizations have actively attempted to engage CMS in a back-and-forth dialogue about the serious concerns that we have with the demonstration's draft design. Despite our repeated and concerted efforts, there have been only two private meetings with CMS and three Open Door Forums where the clinical laboratory industry could raise issues and attempt to obtain answers to our questions. Moreover, the agency has consistently declined to answer the thoughtful questions that many individual members of our organizations—clinical laboratory professionals including owners, directors, medical technologists, microbiologists, clinical chemists, and pathologists, just to name a few—have submitted expressing their concern over the potential negative impact on the Medicare beneficiaries whom they serve and their ability to maintain access to lab services after the demonstration’s implementation.

It is difficult for us to understand how CMS can proceed with this demonstration without being able to answer the questions we have posed. However, based on the agency’s announcement on October 9, it is clear that it plans to move forward in short order. The agency also is attempting to show that it has been listening to our concerns by making several minor changes to the demonstration’s draft design. Nonetheless, these changes are small and fail to address the project's underlying problems.

In its announcement, the agency indicated, “Laboratories providing services exclusively to beneficiaries residing in nursing homes or receiving home health services in the competitive bidding area will not be required to bid, but will be paid at the demonstration fee schedule for demonstration tests otherwise paid under the Part B Clinical Laboratory Fee Schedule.” There are two major problems with this attempt by CMS to address the myriad problems with the demonstration. First, since hardly any laboratories provide services exclusively to nursing home residents, this change would not provide real relief from the arduous and expensive bidding process. Second, if a laboratory does provide services exclusively to nursing home residents, it still would be locked into accepting the new, lower prices for lab services as competitively bid by its competitors, whose patient populations are healthier, not as costly to serve, and require a much lower intensity of service.

In addition, CMS announced that laboratories must bid on 303 Health Care Procedure Coding System (“HCPCS”) codes, representing the top 99 percent of the tests paid under the Part B Clinical Laboratory Fee Schedule based on volume and payment in 2006. Previously, CMS had announced that the demonstration test menu would consist of 358 HCPCS codes, based on the top 99 percent of tests based on Medicare volume and payment in 2005. Neither of these demonstration test menus represents a fair or meaningful demonstration of whether competitive bidding for clinical laboratory services can simultaneously reduce costs while maintaining quality and access. The Medicare Clinical Laboratory Fee Schedule contains over 1,100 HCPCS codes, and many of the least utilized tests present significant issues that are not associated with more heavily utilized tests. In proposing to include less than one-third of the tests on the Medicare Clinical Laboratory Fee Schedule in its competitive bidding demonstration, CMS has rendered suspect any conclusions that might be drawn from the demonstration.

CMS also announced that a non-winning laboratory may serve as a reference laboratory to laboratories participating in the demonstration but would be prohibited from billing Medicare directly for demonstration tests. This change raises more issues than it resolves. For example, under the previous design of the demonstration project, a winning laboratory could only subcontract with winning laboratories (laboratories that bid and won, whether they were required to bid or not) or passive laboratories (laboratories that, because of their size, are not required to bid, and that did not bid and lose). If a subcontractor reference lab identified on the winning laboratory’s bid turned out to be a non-winning laboratory (a laboratory that was required to bid and failed to bid, or a laboratory that was required to bid, and submitted a bid, but lost), the winning bidder would have to contract with another winning laboratory or a passive laboratory to provide the reference services, because non-winning labs could not participate in the demonstration, even as subcontractors. While this design was problematic in that it would have denied beneficiaries access to tests performed only by non-winning laboratories, it did provide an incentive for required bidders to bid. If non-winning labs are now permitted to participate in the demonstration as reference labs, it creates a disincentive to bid at all. This example is just one of several problems created by the latest demonstration design change.

CMS is bending over backwards to try to create a “competitive” marketplace through artificial means that do not reflect real-world market conditions. The fact is, however, that the current clinical laboratory market already is very competitive, and a government-sanctioned oligopoly for lab services only will result in less competition to provide Medicare services, not more.

Given how the demonstration project has evolved and the unworkable nature of competitive bidding for clinical laboratory services, we urge you to repeal the initiative this year by attaching H.R. 3453 to health care-related legislation that will be sent to the President for his signature. Thank you very much for your attention to our concerns. If the CLC can be of any assistance to you in examining this important issue, please do not hesitate to contact Paul Seltman (202-230-5171 or or any of our individual organizations listed below.


American Association of Bioanalysts
American Association for Clinical Chemistry
American Clinical Laboratory Association
American Medical Technologists
American Society for Clinical Laboratory Science
American Society for Clinical Pathology
American Society for Microbiology
Billings Clinic
Cleveland Clinic
Clinical Laboratory Management Association
College of American Pathologists
Marshfield Clinic
National Independent Laboratory Association
Quest Diagnostics Incorporated
Roche Diagnostics

Chairman Frank Pallone
Ranking Member Nathan Deal
Chairman Pete Stark
Ranking Member Dave Camp
Chairwoman Nydia Velaquez
Representative Neil Abercrombie
Representative Jason Altmire
Representative Charles Boustany
Representative Bruce Braley
Representative Mike Conaway
Representative Diana DeGette
Representative Bart Gordon
Representative Jim Matheson
Representative Michael Michaud
Representative Jerry Moran
Representative Chris Smith