The implementation of Medicare pilot demonstration bidding projects under the Medicare Prescription Drug Improvement and Modernization Act of 2003 holds the prospect of severe economic impact to the healthcare facilities within the designated areas. The first demonstration project for clinical diagnostic laboratory bidding, in the San Diego-Carlsbad-San Marcos area, has just been halted by an injunction handed down by U.S. District Judge Thomas J. Whelan in the Southern District of California due to the likelihood of irreparable harm to nonwinning labs in the site area.

As previously covered in DOTmed News, there is a broad base of medical areas hit by competitive bidding and the subsequent loss of business. (See previous reports at www.dotmed.com/news/story/5773, and www.dotmed.com/news/story/5662 detailing concern over the effects of demonstration bidding projects on durable medical equipment, prosthetics, orthotics and supplies).

Plaintiffs Sharp Healthcare, Scripps Health, and Internist Laboratory requested the court enjoin CMS from selecting winners in the clinical laboratory bid. The plaintiffs argue the procedures of the demonstration project are unfair and in some instances, illegal. Their arguments give insight to challenges of future demonstration projects under the MPDIMA. Even winning labs will be uncertain what they will ultimately be paid due to the complex nature of the final fee schedule calculations, which are based upon an average of bids.
The plaintiffs argue the following procedures and rules will affect both themselves and similar laboratories in the site area: losing bidders will be required to continue to handle Medicare patient testing without reimbursement; CMS's exemptions from the demonstration project (including labs with face-to-face testing procedures and small business labs) are unfairly defined; labs that do not perform all 303 tests in the demonstration project must still submit a bid for all tests involved; an additional requirement for labs to also submit bids on collecting and handling procedures is illegal and exceeds authority of the statute; and the requirement for exempt labs that exclusively service nursing facility patients and end stage renal disease tests must accept prices determined through the bidding process.

The first two contentions are alleged to be in violation of the Administrative Procedure Act (APA). Under the APA, when a governmental policy acts as a rule and alters existing regulation, the agency must first give the public "notice"--publishing the changes in the Federal Register, and allow the public to participate in policy-making by submitting written comments. This is known as the "notice and comment" rulemaking requirements.

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