Laboratory News

San Diego Selected as First Medicare Lab Competitive Bidding Demo Site

Laboratories serving the San Diego metropolitan market must wonder what luck of the draw made their community the first site of the Medicare Competitive Bidding Demonstration Project for Laboratory Testing Services. Earlier today, officials from the Centers for Medicare and Medicaid Services (CMS) notified Congress that it had selected California's San Diego-Carlsbad-San Marcos MSA (Metropolitan Statistical Area) to be one of two demonstration sites required by the Medicare Modernization Act of 2003.

In its alert to Congress, CMS stated "A notice describing the demonstration, the first selected site, and a Bidder's Conference (scheduled for October 31, 2007) is on display today at the Federal Register. It will be published tomorrow (October 17)." Dark Daily clients and readers can access the Federal Register tomorrow to see more details about how CMS intends to implement the lab competitive bidding demonstration project.

CMS disclosed that it has identified 22 MSAs in the United States that it believes fit the criteria required for the demonstration project. Among these were to "(1) have enough laboratories to allow for effective bidding and multiple winners, (2) be representative of the laboratory market nationally, and (3) allow for potential Medicare program savings. We also looked for areas that will not have concurrent competitive bidding for durable medical equipment (DME) and were not among the earlier DME competitive bidding demonstration sites. For each of 22 MSAs that met these criteria, we conducted a detailed analysis of their clinical laboratory market structure, which led to the site selection announced today. The second demonstration site (to be announced later) will begin about one year after the first site begins. The demonstration will last three years in each demonstration area."

As most pathologists and lab directors following this situation know, every clinical laboratory that supplies at least $100,000 in testing annually to fee-for-service Medicare beneficiaries in the demonstration project area will be required to bid. The bids must include 303 test codes, selected because these tests represent 99% of the lab tests reimbursed under Medicare Part B.

The selection of San Diego as the first demonstration site is interesting, since California has been one of the nation's most closely-watched healthcare markets. During the early 1990s, payers in the state aggressively introduced closed panel, gatekeeper HMOs, accompanied by capitated contracts. Because of this fact, hospitals and physicians consolidated into different contracting groups as a response to these trends. Maybe the relative abundance of IPAs (independent physician associations) in California was a factor in CMS's decision to select this region. IPAs continue to contract directly with labs for testing services and have been a mechanism that has kept the prices paid for laboratory testing lower in California than in other regions of the country.