A demonstration project to competitively bid Medicare clinical lab tests will get off the ground April 2007 and go into effect in multiple phases, says CMS.

The project, mandated by the Medicare Modernization Act, will help CMS develop more market-based payments for clinical diagnostic tests paid under Part B (¹ Also see "Lab Competitive Bidding Project Will Need To Address New Tests – Attorney" - Medtech Insight, 5 December, 2005., p. 13).

CMS published the information July 28 in a Change Request to the CMS Manual System. Stakeholders have long anticipated the move, which was held up by the agency's preoccupation with the Part D prescription drug program (² 'The Gray Sheet' July 3, 2006, In Brief).

"[The change request] does provide us with [much] more information...about how the competitive bidding project is going to run," said Alan Mertz, president of the American Clinical Laboratory Association (ACLA), in an Aug. 2 interview.

Physician Office Labs, Inpatient Tests Exempt

Inpatient testing covered by Medicare Part A, such as Pap smears and colorectal screening, and physician office labs are exempt from the project.

The project will be conducted in two undisclosed competitive bidding areas (CBA), beginning one year apart and running for three years each. The first CBA starts competitive bidding April 1, 2007. Affected beneficiaries will be determined based on residential ZIP codes.

Laboratory firms that now receive more than $100,000 in annual Medicare Part B payments are mandatory participants, dubbed "required bidders."

Both required bidders and nonrequired labs that bid and win contracts will be paid the demonstration fee schedule for beneficiaries residing in the target ZIP codes.

Labs that bid and lose, whether they were required to bid or not, will not be paid for demonstration tests, cannot collect payment from beneficiaries and have no appeal rights.

"Passive" labs - those nonrequired labs that do not bid - will be paid the demonstration fee schedule up to an annual ceiling of $100,000.

Although not surprised by the course of the demo project, ACLA Senior VP Joanne Glisson has several concerns.

"The change request talks about provider education of people that do Part B laboratory services, but the real issue here is going to be how physicians are going to know where to send their specimens for covered laboratory tests," Glisson explained.

Further, she is apprehensive that smaller firms that fall within the demonstration project's "passive" category but have reimbursement requests that exceed the $100,000 ceiling by $25,000 or more will be unduly punished.

"You can hypothesize [about] labs that are just starting up and building their Medicare business and all of a sudden...they're probably out of business," Glisson noted.

CMS specifies that passive firms exceeding the ceiling will be removed from the demo. For the duration of the project, they would not be paid for lab tests of beneficiaries residing in CBAs.

By January 2007, CMS will provide a list of labs within the first CBA indicating each lab's payment status, as well as a test file including "demonstration fee amounts and national ZIP code pricing."

Fundamentally, Mertz is concerned with the long-term direction of the project.

"If the demo does a fair test, it will show that lab testing is a service and it's too complex and the potential cost in terms of hurting quality and access to beneficiaries will outweigh significantly any potential cost savings," he explained.

Congress froze Part B lab payments in 1997 for four years and froze them again in 2003. The federal budget request for FY 2007 includes a provision for nationwide implementation of lab competitive bidding, which ACLA thinks is premature (³ Also see "Lab Co-Pay Provision Dropped From Medicare Package In Favor Of Freeze" - Medtech Insight, 3 November, 2003., p. 16).

"We've done a lot of work in talking with members on the Hill...and they seem to understand that it would be very, very premature to go nationwide before they've even done the demonstration project," Mertz noted.

Meanwhile, CMS is moving forward with a full-fledged competitive bidding program for durable medical equipment (see ⁴ Also see "CMS Details Competitive Bidding Supplier Accreditation Program" - Medtech Insight, 7 August, 2006. ).

- Morgan Weiland

Medicare Lab Test Competitive Bidding Demo To Begin April 2007

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