[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                 FULL COMMITTEE HEARING ON COMPETITIVE

                   BIDDING FOR CLINICAL LAB SERVICES:

                   WHERE IT IS HEADING AND WHAT SMALL


                         BUSINESSES CAN EXPECT

=======================================================================

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 25, 2007

                               __________

                          Serial Number 110-38

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DEAN HELLER, Nevada
YVETTE CLARKE, New York              DAVID DAVIS, Tennessee
BRAD ELLSWORTH, Indiana              MARY FALLIN, Oklahoma
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)




           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)




                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES


PANEL I
Love, Timothy P., U.S. Department of Health and Human Services...     4


PANEL II
Bejgrowicz, Thomas S., M.S., L.N.H.A., American Health Care 
  Association (AHCA).............................................    13
Bonifas, Mary Jo, Clinical Laboratory Management Association 
  (CLMA).........................................................    15
Schild, Tod,National Independent Laboratory Association (NILA)...    17
Weiss, Dr. Ronald, American Clinical Laboratory Association 
  (ACLA).........................................................    19

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    33
Chabot, Hon. Steve...............................................    35
Altmire, Hon. Jason..............................................    37
Clarke, Hon. Yvette..............................................    38
Love, Timothy P., U.S. Department of Health and Human Services...    39
Bejgrowicz, Thomas S., M.S., L.N.H.A., American Health Care 
  Association (AHCA).............................................    49
Bonifas, Mary Jo, Clinical Laboratory Management Association 
  (CLMA).........................................................    66
Schild, Tod,National Independent Laboratory Association (NILA)...    71
Weiss, Dr. Ronald, American Clinical Laboratory Association 
  (ACLA).........................................................    76

Statements for the Record:
NILA Attachment..................................................    80
American Association for Clinical Chemistry......................    81
American Medical Technologists...................................    83
American Society for Clinical Pathology..........................    85
College of American Pathologists.................................    87
Laboratory Corporation of America Holdings (LabCorp).............    90

                                  (v)




                       FULL COMMITTEE HEARING ON



                    COMPETITIVE BIDDING FOR CLINICAL



                       LAB SERVICES: WHERE IT IS



                         HEADING AND WHAT SMALL



                         BUSINESSES CAN EXPECT

                              ----------                              


                        Wednesday, July 25, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Cuellar, Braley, 
Ellsworth, Sestak, Chabot, Heller and Davis.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. This hearing on competitive bidding is 
now called to order. Clinical laboratory services are an 
essential component of quality health care. They provide 
physicians with objective data needed to help them diagnose, 
treat and monitor diseases and other medical conditions. Often 
laboratory testing is done on the same day the specimen is 
received and the results reported on the following day.
    As with many parts of our health care system, small 
businesses play a critical role in this area. The laboratory 
industry is dominated by small businesses who work with 
hospitals, nursing homes and health facilities to provide care. 
In fact, nearly 90 percent of the industry is made up of small 
firms. The clinical lab industry is highly complex and 
integrated structure. Numerous relationships exist between 
diverse small and large firms which rely on one another to 
ensure high quality lab services are provided.
    The industry did not develop quickly and the market has 
allowed for labs providing different services. Today we will 
hear how CMS competitive bidding project threatens to dismantle 
this system overnight. It seems that CMS has ignored 
Congressional intent and moved forward with a project that 
creates a cumbersome bureaucracy. As proposed, it could be make 
impossible for small labs to survive.
    CMS argues that small businesses are protected because labs 
with less than $100,000 of Medicare business are exempted from 
the project. This threshold will not save small businesses. To 
suggest otherwise is disingenuous.
    In particular terms, virtually all independent and most 
hospital labs doing business in the demonstration area will 
exceed the limit. Even the smallest labs have business revenue 
of at least $1 million to $2 million annually and for those 
that are below the threshold, the new payment structure will 
mean that they are paid Medicare fees that simply won't cover 
costs.
    Despite pleas from labs both big and small, CMS has ignored 
the concerns of these businesses. We heard a similar tale last 
week. CMS failed to solicit input of small pharmacists when 
developing the price formulation for generic drugs. The result 
will be the same in that small health care providers cannot 
survive. When small labs go out of business, they stay out of 
business. Because of the investment in equipment and especially 
trained personnel, a laboratory cannot shut its door 
temporarily and start up again when circumstances change. This 
will leave vulnerable patient populations with compromised 
access to lab services. In short, instead of competition 
deciding market share, CMS will determine market share winners 
and losers and the losers are small local businesses.
    It is apparent from the written testimony that the Agency 
has not engaged them adequately. While CMS will say that 
Congress mandated the action, it clearly never ordered them to 
ignore the input of the stakeholders.
    Competitive bidding for laboratory services in any form 
could have wide-reaching implications for the health care 
industry. Medicare beneficiaries receive over 250 million 
laboratory tests each year and while these services account for 
less than two percent of Medicare spending, they impact on 
estimated 60 percent of all medical decisions.
    Given this broad impact, an important question must be 
answered today on whether this project will actually work. I 
look forward to today's testimony and thank the witnesses for 
their participation. I now yield to Mr. Chabot for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you, Madam Chair. Good morning and thank 
you all for being here as we examine the Centers for Medicare 
and Medicaid Services, Medicare Clinical Laboratory Competitive 
Bidding Demonstration Project. It's a mouthful. I would like 
thank Chairwoman Velazquez for holding this hearing and each of 
the witnesses for taking the time to provide this Committee 
with testimony.
    On December 8, 2003, President Bush signed into law the 
Medicare Prescription Drug Improvement and Modernization Act of 
2003. The legislation produced the largest overhaul of Medicare 
in the public's health program 38 year history. Among other 
things, the legislation required CMS to run a demonstration 
using competitive bidding and performance-based contracting 
procedures when entering into contract for the administration 
of benefits under Medicare Part B.
    Before this legislation, Medicare contracting was not 
subject to competition. Between 2005 and 2009, CMS will be 
conducting full and open competitions to replace the 
contractors that currently perform claims processing and 
related functions for the Medicare program. The legislation 
requires the competition and resulting contracts be in 
accordance with the Federal Acquisition Regulation or FAR.
    FAR Part 19 implements federal government policy to provide 
maximum practicable opportunities in its acquisitions to small 
businesses, veteran owned small business, service disabled 
veteran small businesses, HUB Zone small businesses, small 
disadvantaged businesses and women-owned small business 
concerns. Such concerns must also have the maximum practicable 
opportunity to participate as subcontractors in the contracts 
awarded by any executive agency consistent with efficient 
contract performance.
    The legislation also requires CMS to conduct demonstration 
projects on the application of competitive acquisition for 
durable medical equipment, prosthetics, orthotics and supplies 
and for payment for clinic laboratory diagnostic tests that 
would otherwise be made under Medicare Part B, Clinical 
Laboratory Fee Schedule. The latter competitive demonstration 
project is the subject to today's fact-finding hearing to 
acquire a better understanding of the CMS demonstration 
project's definition and impact on small business clinical 
laboratory.
    In developing demonstration project procedures relating to 
competitive bidding and the awarding of contracts, the CMS is 
required by legislation to take appropriate steps to ensure 
that small business clinical laboratories have an opportunity 
to be considered for participation. Unlike the contracting for 
administration of benefits under Medicare Part B, the 
legislation does not require the demonstration of the subject 
to the FAR.
    Competition is the foundation of capitalization. 
Competition stimulates innovation, encourages efficiency and 
drives down prices savings taxpayer dollars. Small business has 
historically been the engine of innovation and a catalyst for 
competition. They also employ more than 50 percent of all 
employees in this country.
    While I support competition and the outcomes it normally 
produces, I want to ensure that the demonstration project 
design methodology meets the intent of the Small Business Act 
by providing small business clinical laboratories the maximum 
practicable opportunities to participate in the demonstration 
as both prime contractors and sub-prime contractors.
    It is also critical to the success of the demonstration 
project that CMS' demonstration's project design maintains or 
enhances the current competitive environment, service 
accessibility and service quality. The demonstration's project 
design should not result in fewer small business clinical 
laboratories leading to increased prices, reduced service 
accessibility and a deterioration of service quality over the 
long run.
    We have excellent witnesses here today to provide us with 
insight into the rationale behind the demonstration project's 
definition of a small business clinical laboratory and how the 
demonstration project's competition methodology ensures maximum 
practicable opportunities for that. We look forward to hearing 
from all the witnesses here today and I want to again thank 
you, Madam Chair, and I yield back the balance of my time.
    ChairwomanVelazquez. Thank you. Our first witness is Mr. 
Timothy Love. Mr. Love is the Director of the Office of 
Research, Development and Information at the Centers for 
Medicare and Medicaid Services. The Office of Research, 
Development and Information at the Center of CMS, the main role 
is to lead the agency in providing information on expertise to 
shape the current and future directions of CMS programs or to 
cooperate all demonstration activities including the project 
being discussed today.
    Mr. Love, you're welcome and you will have basically five 
minutes and your entire testimony will be entered in the 
record.


  STATEMENT OF TIMOTHY P. LOVE, DIRECTOR, OFFICE OF RESEARCH, 
 DEVELOPMENT AND INFORMATION, CENTERS FOR MEDICARE & MEDICAID 
     SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr.Love. Thank you, Madam Chair.
    Good morning, Madam Chairwoman and Distinguished Ranking 
Member and Members of the Committee. I'm pleased to be here 
today to discuss the clinical laboratory competitive bidding 
administration mandated by the Medicare Prescription Drug 
Improvement and Modernization Act of 2003, also known as the 
MMA.
    Mr.Chabot. Excuse me. Could you pull that even a little 
closer?
    Mr.Love. I'm sorry.
    Mr.Chabot. That's all right. Just kind of hard to hear in 
the room if you don't have--You have to speak right into it.
    Mr.Love. I'll try to project a bit better, sir.
    Mr.Chabot. Thanks.
    Mr.Love. Certainly. As you know, the Medicare Program 
expenditures are expected to grow significantly in coming 
years. Medicare costs including clinical lab expenditures are 
increasing much faster than the rate of inflation and our 
program is particularly vulnerable because the number of 
beneficiaries will spike with the impending Medicare 
eligibility of baby boomers.
    In the past three decades, Congress has directed our agency 
to conduct demonstrations that have saved Medicare tens of 
billions of dollars and extended the life of the trust funds. 
The advantage of a demonstration is that we can learn something 
on a small scale before going program wide. Of course, any 
decision to go beyond the limited scope of this demonstration 
would be up to the Congress.
    Medicare payments to clinical laboratories are significant. 
Madam Chairwoman mentioned that it is two percent of the 
program, but that does translate into $6.7 billion a year and 
Congress clearly saw this as an opportunity to investigate more 
efficient payment in competitive market-based demonstration as 
an alternative to the status quo which is a centralized, one-
size-fits-all administrative pricing program.
    With regard to the particular interests of the House Small 
Business Committee, I want to assure you that CMS has worked 
diligently to implement the law while treating smaller 
laboratories fairly. For example, we will choose multiple 
winners and even the smallest, local clinical labs will be 
allowed to participate in the demonstration as opposed to a 
winner-takes-all approach favoring large national laboratories.
    CMS will not require the smallest laboratories to bid, 
though they will have that option. These non-bidding labs will, 
however, have to accept competitively set market prices. 
Bidders that are not selected will still be able to receive 
Medicare payment for provision of services to Medicare outside 
of the competitive bidding area and outside of the Medicare 
fee-for-service program. This certainly doesn't affect any labs 
that are providing services to beneficiaries under Medicare 
Managed Care.
    In response to comments from smaller labs, we have 
simplified the bidding process so that only one-third of the 
existing fee schedule still covering 99 percent of cost and 
volume are up for bid. Our goal is to assure that small 
businesses can participate in the demonstration on a level 
playing field and have an equal opportunity to win a place in 
the demonstration. Small laboratories that want to use the 
demonstration as an opportunity to expand their market may do 
so by competing for additional Medicare business.
    In closing, I would like to make a final point regarding 
the essential role of quality assurance in performing clinical 
laboratory tests for Medicare beneficiaries in this 
demonstration. We are not interested in conducting a 
demonstration that establishes a more efficient price at the 
expense of quality. In the law, Congress directed us to apply 
all the current protections available under the Clinical 
Laboratory Improvement Act, also known as CLIA. In the 
demonstration design, however, we have gone beyond the CLIA 
regulations. Winning laboratories will be required to supply 
quality data throughout the demonstration in such critical 
areas such as tests, turnaround time, log-in error rates and 
unusable or lost specimens. At CMS, we think of quality 
assurance as a stewardship issue, equal in importance to our 
stewardship responsibilities to promote trust fund solvency.
    I thank you again for inviting me to speak with you today 
and, Madam Chairwoman, you've raised a number of points that I 
didn't get to in my opening remarks and I will be happy to 
answer any or all of those questions. Thank you.
    [The prepared statement of Mr. Love may be found in the 
Appendix on page 39.]

    ChairwomanVelazquez. Thank you.
    Mr. Love, CMS estimated the cost to small businesses of 
submitting bids will be approximately $4,000. According to 
numerous comments CMS received at the July 16, 2007 Open Door 
Forum, potential bidders estimated that the cost will 
significantly exceed that amount. Can you tell the Committee 
how did you, CMS, estimated the cost to small businesses?
    Mr.Love. The projection of demonstration participation 
costs or bidding costs, we had established by our contractor or 
our economic experts who developed the bidding schedule and 
although I cannot provide you that technical detail, I would be 
happy to submit that for the record.
    ChairwomanVelazquez. But can you talk to us as to how did 
you get to that figure of $4,000?
    Mr.Love. It is a projection of the level of effort and 
opportunity costs put into submitting a bid for consideration 
in the competitive bidding process. There is a--We've actually 
created a specific software--
    ChairwomanVelazquez. Okay.
    Mr.Love. --that is we think quite user friendly and we 
really did try to limit the opportunity costs of the bidders 
having to pull that information out.
    ChairwomanVelazquez. So how could you explain such a 
disagreement between those who participated in the Open Door 
Forum and your technical experts?
    Mr.Love. Madam Chairwoman, I would say that there are a 
number of legitimate disagreements and you mentioned a number 
of them in your opening remarks and this may be one of those 
situations where we would have to agree to disagree on the 
outcome. But we would be happy to support that methodology 
establishing the $4,000 figure.
    ChairwomanVelazquez. Can you tell us who was the contractor 
who did the analysis?
    Mr.Love. Yes. That is RT International, Research Triangle 
International. It's a very well regarded economics research 
firm.
    ChairwomanVelazquez. Once the bidder's package is final, 
will CMS re-estimate the actual cost of bidding? Will it 
consult with the laboratories themselves on the true cost of 
bidding?
    Mr.Love. I'm sorry. I didn't understand the question.
    ChairwomanVelazquez. Once the bidder's package is final, 
will CMS re-estimate the actual cost of bidding.
    Mr.Love. No Madam. We are going to evaluate the bids on 
price and non price criteria. But we will evaluate it based on 
the prices submitted.
    ChairwomanVelazquez. Isn't the $4,000 an estimate?
    Mr.Love. No. I think the $4,000 may be referring to the 
logistical costs of assembling the bid where the actual price 
bid to participate in the demonstration, that would be the 
result of the bidding process that the bid evaluation panel 
would establish and we will be happy for both the winning and 
non winning labs to debrief them as to the process that 
produces the demonstration participants.
    ChairwomanVelazquez. The clinical laboratory industry 
describes competitive bidding as a misguided approach to the 
reimbursement of laboratory services. What are your thoughts 
about this observation?
    Mr.Love. I think it's important as you will know that our 
job is to implement the law as decided by Congress and signed 
by the President.
    ChairwomanVelazquez. But we didn't tell you what type of 
approach or model you would apply, did we?
    Mr.Love. No, certainly--Excuse me. Certainly the Congress 
gave us some --
    ChairwomanVelazquez. Latitude, yes.
    Mr.Love. --parameters. Exactly. Is your question relating 
specifically to the competitive nature of it?
    ChairwomanVelazquez. Yes.
    Mr.Love. The competitive nature, and I heard some of these 
arguments at last week's Open Door Forum among other places, 
and I'm frankly a bit puzzled by it in that the status quo is 
an administrative pricing system established by my very capable 
colleagues in Baltimore, but it is an administrative, 
centralized pricing system.
    The demonstration has a market driven method for 
establishing a price. But equally important, there are non 
price features where I think really provides some opportunities 
for smaller businesses and those opportunities are being able 
to provide faster turnaround time, better customer service to 
physicians, to beneficiaries, and certainly a level of market-
specific savvy that some of the larger labs simply will not 
have.
    ChairwomanVelazquez. Mr. Love, when you met with the 
industry, especially those small labs, did they provide you any 
other alternative in terms of input and why did you choose only 
the competitive bidding as the only approach? Why did you 
decide that was the best model?
    Mr.Love. Well, on the competitive bidding, we had no 
discretion there. Congress by law, we did have to do it in a 
competitive bidding structure. It's how we configured the 
competitive bidding within that overall structure that we did 
have some discretion.
    ChairwomanVelazquez. Okay, and did you get any input from 
the industry as to how--
    Mr.Love. Yes. Certainly we did.
    ChairwomanVelazquez. And did you consider any of those? Let 
me ask you. How many times did you meet with those 
stakeholders?
    Mr.Love. We met--Well, in differing categories, well over a 
dozen times. We had four Open Door Forum. If I may, I could 
give you a specific answer to that. We had the Open Door Forum 
that you referred to last Monday, I believe. That was actually 
the third Open Door Forum we've had which is a public forum for 
interested parties to give input to the process.
    In addition, shortly after becoming Director of the Office 
of Research, Development and Information two years ago, I had 
my first meeting with representatives of the lab industry. I've 
since had two others. Former Administrator McClellan has met 
with these representatives. Staff have spoken each year at 
industry conferences to explain this and we have been very much 
in the sunshine on this issue.
    ChairwomanVelazquez. Just not to explain. I'm talking to 
you about input.
    Mr.Love. Yes. Input certainly, and I can give you several 
examples of where we have accepted input from--
    ChairwomanVelazquez. As a result of the Open Door last 
week, are you planning to revise your model?
    Mr.Love. We have--There are three issues, one of which was 
addressed in the Open Door Forum last week and that is there 
are, as you know, both the bidding lab itself and the referral 
lab. You referred in your opening remarks to the interaction 
between labs to produce their results and the referral labs in 
our original design, we only had the bidding lab able to bill 
Medicare and we got input from a number of stakeholders that 
said, ``Logistically, this is just not how the industry 
works.'' And as one modification, we are allowing either the 
bidding lab or the referral lab to submit bills to Medicare.
    We had some visits about a year ago, a meeting I attended 
with representatives that included the ASRD Laboratory industry 
who made a fairly compelling case, I think, for their 
particular issues with the design of the demonstration and we 
have created modifications in demonstration design for that as 
well. A year ago (Inaudible.)
    ChairwomanVelazquez. Okay. For small businesses to have a 
real opportunity to compete, I think this is a fair questions. 
What are the metrics for non price features of a competitive 
bidding?
    Mr.Love. The non price features will--The evaluation 
features are going to be on quality, the quality and the 
ability to perform the tests on access to ensure that Medicare 
beneficiaries, particularly our most vulnerable beneficiaries 
in nursing homes and rural areas who may otherwise have access 
problems. That is a criteria we are going to consider very 
carefully.
    Gaming, quite frankly, and more specifically our economic 
experts at RTI had some concerns that the larger labs could 
low-ball and price some of the small labs out of the market and 
that's something we're going to look at very carefully in the 
business.
    ChairwomanVelazquez. Okay. That's one of our concerns. 
Because in 2000, the Institute of Medicine stated that the 
nation's two largest laboratories, Quest and LabCorp, controls 
61 percent. That was in 2000. Do you know what is the 
percentage today that they control in 2007 between those two?
    Mr.Love. Not offhand, Madam Chairwoman.
    ChairwomanVelazquez. So then how can you effectively 
guarantee that there is going to be competition?
    Mr.Love. That really comes into the $100,000 price 
threshold that you referred to and what we've done, had that 
threshold been higher, it frankly would have left not quite a 
monopoly, but certainly a very small number of large players 
driving the bids. By lowering it, we will have at least ten 
bidders competing for Medicare business in the market area and 
that in our mind is fairly robust competition.
    ChairwomanVelazquez. I'm going to get back to this question 
again. But I am going to recognize Mr. Chabot.
    Mr.Chabot. Thank you very much, Madam Chair. Mr. Love, just 
a few questions. First of all, Congress told you to do a 
demonstration project and the idea as you stated in doing a 
demonstration project is perhaps learning, getting, the bugs 
out before you do it broadly at which time it would have a 
greater impact and cost a lot more and that sort of thing. Is 
that correct?
    Mr.Love. Yes sir.
    Mr.Chabot. Now it's my understanding that the clinical 
laboratory industry currently is composed of a few large 
players that together have a very large market share and a 
large number of smaller laboratories that together have a much 
smaller market share. How was this addressed in the 
demonstration project's design?
    Mr.Love. We really looked at the markets under 
consideration and we looked at the status quo and the markets 
that are eligible for the demonstration based on the criteria. 
For example, we are not looking at metropolitan service areas 
that span states, for example, the New York Metropolitan 
Service Area which includes New Jersey and Connecticut as well 
as New York. That would not make sense in terms of the 
participation in the demonstration.
    So we looked at specific within state metropolitan service 
areas, MSAs, and determined the number of bidders that would be 
required for an authentic market competition and these are labs 
that are viable and functioning in that market now, although 
they may not be covering the entire market area, if that's your 
question sir, regarding the market penetration, say, and the 
market made up of inclusive zip codes.
    And under the demonstration, they will not have to cover 
that entire area. We will certainly make sure that in the 
aggregate all winning bidders are able to cover that and ensure 
access for our Medicare beneficiaries. But there will be 
certainly opportunities for smaller labs to prosper or to bid 
in their current market or, if they choose, expand into greater 
service areas within the bidding area.
    Mr.Chabot. And what outreach efforts are being done by CMS 
and the clinical laboratory community to ensure that the 
community is aware of the demonstration project?
    Mr.Love. I would defer to the second panel to refer to 
industry outreach. For CMS in addition to the Open Door Forum, 
every document, again getting back to the demonstration 
development and the sunshine issue, that we have been able to 
make public is currently available on our web site.
    Open Door Forum are either in person or by phone. Folks are 
able to participate. We are going to have an ombudsman for the 
project. We're working with the carriers who are associated 
with paying the bills in these districts to make sure they are 
informing beneficiaries as well as lab participants, bidding 
labs, about the development of the demonstration.
    Mr.Chabot. Okay. Let me ask one more questions. Has CMS 
considered two partial small business clinical laboratory set-
asides for services they normally perform for the local 
community?
    Mr.Love. I'm sorry. There are two specific services that 
Congress had exempted in the Medicare Modernization Act. I'm 
not sure if that's what (Inaudible.)
    Mr.Chabot. Okay. I'll yield back the balance of my time. 
Thank you.
    ChairwomanVelazquez. Mr. Cuellar.
    Mr.Cuellar. No questions.
    ChairwomanVelazquez. I do have more questions. Mr. Love, 
you mentioned in your testimony that your multiple bid winner 
approach will ensure small lab participation. Other than having 
one more than, yes, one more bid winner, what are your 
assurances or what assurances can you provide to this Committee 
that small business or small labs will be winners?
    Mr.Love. I'm sorry, Madam, if I used the word ``ensure.'' 
That was not my attention. We're going to offer them the 
opportunity to compete with a number of the provisions that I 
stipulated to ensure that it is a level playing field both on 
price and non price criteria.
    ChairwomanVelazquez. Would you agree that this method in no 
way provides really real opportunities for small labs to 
survive and isn't it true that many labs will be forced to 
close their doors under this model?
    Mr.Love. No, madam. I would not agree with that. We would--
The outcome of the demonstration, I didn't have an opportunity 
to mention it, but we do have an rigorous evaluation in place 
that will look to that among the several issues that you have 
mentioned which would inform the Congress and other policy 
makers before we went any further with this.
    ChairwomanVelazquez. Were you at the Open Forum last week?
    Mr.Love. Yes, madam, I was.
    ChairwomanVelazquez. Okay. A number of lab providers 
indicated that the $100,000 Medicare revenue threshold was 
unreasonably low. How did CMS calculate the threshold and did 
it reconsider the impact that it will have a small business 
lab?
    Mr.Love. Yes, we did consider quite carefully and there 
really were two considerations. One is again ensuring a robust 
market competition. If the threshold were set too high, you 
would just have the big players driving a price quite frankly. 
So when it's lower, there would be more opportunities for 
bidders to participate making more robust competition.
    But the other feature quite frankly was a small business 
consideration. Those below the threshold have the option of 
playing or being what we call passive labs. They still would be 
subject to the fee schedule, but they would not be involved in 
the bidding process. And our view was that for smaller labs to 
really be playing in this demonstration, they should have every 
opportunity to have a voice in the bidding process.
    ChairwomanVelazquez. The Small Business Administration 
defines a small business laboratory as generating revenue of 
$12.5 million. Were you aware of that?
    Mr.Love. Yes, madam, I was.
    ChairwomanVelazquez. So given that Medicare usually 
accounts for 40 percent of revenues for a small lab, it seems a 
more reasonable threshold for a small lab will be near $4.8 
million. How do you explain this enormous discrepancy?
    Mr.Love. Again, within the market area, it is just Medicare 
fee-for-service business in the market area, not necessarily 
the Medicare fee-for-service business outside the market area 
or Medicare managed care service within the market area. It 
really doesn't have to do with the Medicare managed care part 
of the program. But again, it really did come down those 
features of how do we ensure robust competition which was our 
understanding of the intent of Congress as well as allowing 
these smaller labs to have a bid, a voice and the bid, rather 
than just being swept along as the passive bidder.
    ChairwomanVelazquez. As I mentioned to you before, a lot of 
the people that participated, the small labs, they say that the 
$100,000 Medicare revenue threshold was unreasonably low. Are 
you planning to re-evaluate?
    Mr.Love. No, madam, we're not. We have consulted and we 
went back after our Open Door Forum last week and went back 
with our economic experts and considered that very issue and we 
ran into the same problem. By raising it, we are really 
concerned that it will be too exclusive to the benefit of the 
larger national labs.
    ChairwomanVelazquez. My understanding is that you will be 
contracting a research company to evaluate the success of the 
demonstration project.
    Mr.Love. Correct. There are actually--If I could, there are 
three parties in the evaluation. That would be CMS, of course, 
our economic experts at the Research Triangle Institute as well 
as the folks at Palmetto which is a carrier that's responsible 
for the operational end of the implementation.
    ChairwomanVelazquez. Who will be writing the check for the 
private research company?
    Mr.Love. That is funded by the Center for Medicare and 
Medicaid Services.
    ChairwomanVelazquez. But do you think that some people will 
call into question their findings?
    Mr.Love. Our agency has a long, and I would argue, 
distinguished record in the independence of our findings and 
certainly, I've had no indication that it would be otherwise 
and I'm speaking as the director of the agency's R&D shop right 
now.
    ChairwomanVelazquez. Yes.
    Mr.Love. We live and die by the ability to be credible in 
our findings.
    ChairwomanVelazquez. Well, last week we held a hearing in 
this Committee with CMS where we were discussing generic drugs 
reimbursement and the IG and the General Accounting Office 
called into question their finding. So that's why I'm asking 
the question of questioning the company's research finding that 
you are hiring. Let me ask you. Would you agree that a General 
Accounting Office study requested by Congress may help ensure 
more accuracy and independence?
    Mr.Love. I'm certainly--and the GAO is a great source, I 
think, for helping us better understand and improve our 
programs and I would be very supportive of GAO looking into 
this issue.
    ChairwomanVelazquez. Very good. Any other member who wishes 
to ask questions? Mr. Chabot.
    Mr.Chabot. I don't have any more additional questions, but 
if you--Are there any points that you think might have been 
unclear or anything that you would like to expound upon to 
clear up anything that you think wasn't perfectly clear?
    Mr.Love. Just that I appreciate that this is very 
sensitive. It is a bread-and-butter issue for a lot of small 
labs and we appreciate that and we have tried to be sensitive 
to that in the development of the demonstration. We are 
implementing the law to the best of our ability considering all 
stakeholder interests particularly those of small businesses.
    Mr.Chabot. Thank you. I yield back.
     ChairwomanVelazquez. I have two more questions.
    Mr.Love. Yes madam.
    ChairwomanVelazquez. Even though laboratories with less 
than $100,000 in business are not required to bid, it is my 
understanding that they must live with the bid, the winning 
price. This will place a severe hardship on small laboratories 
that service the more challenging areas of the local market 
where operating costs can be higher. Why should they be 
required to accept this price and how can labs be expected to 
survive under those conditions?
    Mr.Love. The small labs below the $100,000 threshold 
actually have the option. They can bid if they choose to. They 
may also, particularly if they're interested in expanding their 
business beyond $100,000 during the three years of the 
demonstration, they would be required to bid. But it is--I'm 
sorry. I forgot the second part of your question.
    ChairwomanVelazquez. Why should they be required to accept 
this price?
    Mr.Love. There essentially would really, I think, 
eviscerate our ability to have competition in the market if you 
really excluded a significant and important part of the market 
and our understanding is that would be inconsistent with the 
direction of Congress.
    ChairwomanVelazquez. But you don't think that isn't fair if 
they have no participation or input into the bidding process 
and then they will have to accept whatever price is imposed.
    Mr.Love. They do have the option to participate if they 
choose. We just--We certainly have no indication from Congress 
that we could accept or exempt participants from a market. It 
is market-specific and inclusive.
    ChairwomanVelazquez. Mr. Love, if winning bidders drop out 
of the demonstration for quality or other reasons, what is CMS' 
plan to recalculate that demonstration prices?
    Mr.Love. I'm sorry.
    ChairwomanVelazquez. If winning bidders drop out of the 
demonstration for quality or other reasons, what is CMS's plan 
to recalculation the demonstration prices?
    Mr.Love. We actually will not recalculate the demonstration 
prices. What we will do is as part of the bid evaluation panel 
as well as the terms and conditions of the demonstration, we 
will ensure that there is a safety net to provide access to 
quality lab services for Medicare beneficiaries.
    ChairwomanVelazquez. We're going to call--Do you have staff 
here with you?
    Mr.Love. Yes, madam, I do.
    ChairwomanVelazquez. Who are they?
    Mr.Love. I have with me the lead technical analyst who is 
really the woman who has done much of the presenting at the 
national conferences.
    ChairwomanVelazquez. Okay, and she will be staying here to 
listen to the other panel.
    Mr.Love. I will be staying also. This is a very interesting 
issue for me and I think an important one.
    ChairwomanVelazquez. Okay. Thank you very much.
    Mr.Love. Thank you.
    ChairwomanVelazquez. You are excused.
    And now I will ask that the witnesses of the second panel 
to please come forward and take your seats.
    (Pause.)
    ChairwomanVelazquez. Our first witness is Mr. Thomas, and 
I'm going to try very hard, Bejgrowicz.
    Mr.Bejgrowicz. Perfect.
    ChairwomanVelazquez. Thank you.
    Mr. Bejgrowicz is the Client Account Manager for AccuLabs, 
a laboratory services nursing homes in New Jersey. He has held 
administrative positions at a number of facilities and is a 
licensed nursing home administrator. AccuLabs has been in 
business for over 35 years. Mr. Bejgrowicz is here testifying 
on behalf of the American Health Care Association that is the 
nation's leading long-term care organization representing 
11,000 industry members.
    Mr. Bejgrowicz, welcome and you have five minutes to make 
your presentation and your entire testimony will be entered 
into the record.

   STATEMENT OF THOMAS S. BEJGROWICZ, M.S., L.N.H.A, CLIENT 
 ACCOUNT MANAGER, ACULABS,ON BEHALF OF THE CLINICAL LABORATORY 
                     MANAGEMENT ASSOCIATION

    Mr.Bejgrowicz. Thank you. Good morning. On behalf of 
American Health Care Association, its nursing home members and 
many small businesses throughout the country, I thank you, 
Madam Chair, Mr. Ranking Member and other Members of the 
Committee for giving me the opportunity to testify. My name is 
Tom Bejgrowicz.
    For as long as I can remember, I've always been drawn to 
health care. The quintessential moment that I decided to 
dedicate my life to helping others is when my grandfather was a 
resident in a nursing home. Now I am a licensed nursing home 
administrator and over the past 17 years, I have worked for 
small facilities, large corporation and hospital-owned not-for-
profit centers.
    American Health Care Association and I am concerned that 
Medicare beneficiaries in nursing homes will no longer have 
access to quality laboratory services if CMS continues to 
implement competitive bidding. Quality of care could be 
jeopardized and many residents like my grandfather could be 
negatively impacted if competitive bidding comes to fruition. 
At best, competitive bidding will put small labs out of 
business. At worst, it will restrict access to quality health 
care for Medicare beneficiaries, limit choice, disturb the 
continuity of care and ultimately increase the cost to 
Medicare.
    Federal law requires nursing home residents to receive the 
necessary care and services in accordance with comprehensive 
assessment and plan of care. Many relatively small independent 
clinical labs such as AccuLabs where I am currently employed 
have supported nursing homes in meeting this requirement by 
tailoring their services to go beyond that of simply analyzing 
a blood specimen. Thus, nursing homes rely on these services to 
provide the highest level of care.
    For example, phlebotomists, the people who draw your blood, 
very often travel many miles from facility to facility 
collecting specimens from bed-bound patients. Often, these 
laboratories will provide a testing menu that is highly focused 
to ensure rapid turnaround time of critical testing, will often 
develop normal ranges centered around specific age groups and 
utilize certain testing methodology to ensure continuity of 
care. Our experience is that why the larger labs will in some 
cases in doing the test, they are not interested in providing 
tailored services.
    Continuity of care for patients at smaller nursing homes 
may also suffer. Smaller labs that are not able to participate 
in competitive bidding may be required to close due to 
decreased business and nursing facilities will be required to 
find another laboratory to provide services. Not only will the 
facility and the patient have to adjust to a new laboratory 
service provider, but it also may take some time to find an 
alternative provider.
    Should the small lab be forced out of the market by 
competitive bidding, access to care will be severely hindered. 
CMS assumes the winning labs are interested in servicing all 
Medicare beneficiaries which is simply not the case. 
Historically, the large laboratories have shifted their focus 
from long-term care to the more lucrative physicians' offices. 
As such, termination notices were issued to many long-term care 
and assisted living facilities.
    At present, there are two major labs that command nearly 70 
percent of the market and once competitive bidding is in place, 
they will likely have an even greater percent of the market in 
that competitive bid area. Under those circumstances, it is not 
likely that the large labs will have more motivation to service 
the nursing home population than they have now.
    Another area of concern is that not only will competitive 
bidding create barriers to access to laboratory services, but 
also it will cause a decline in the quality of laboratory 
service.
    CMS has not released detailed specification for the 
indicators that it will use to measure laboratory service 
quality of care, although it plans to implement this demo in 
less than one year. The health care community has asked CMS 
repeatedly for these performance measures, but CMS has not 
developed them. On July 16, 2007, an Open Door Forum was held 
during which CMS stated the quality measures will be 
standardized across all laboratories. This one-size-fits-all 
mentality does not apply to the dynamic field of laboratory 
medicine.
    In closing, with competitive bidding in place, CMS will tie 
the hands of the facilities. The choice of which laboratory 
provider a nursing facility can use will be limited. There will 
fewer laboratories to choose from after the demonstration 
project is implemented. Those that remain will be the larger 
national laboratories that have focused their attention on 
markets on other than nursing facilities.
    It is with the best interest of all long-term care 
residents and all Medicare beneficiaries that I ask Congress to 
re-examine this ill-conceived plan and repeal competitive 
bidding legislation. The potential impacts on access and 
quality of care as well as the increases of Medicare costs go 
against AHCA's mantra of performance excellence and commitment 
to affordable, healthy and ethical long-term care.
    Thank you for your consideration in this important matter.
    [The prepared statement of Mr. Bejgrowicz may be found in 
the Appendix on page 49.]

    ChairwomanVelazquez. Thank you, Mr. Bejgrowicz. And now I 
recognize Mr. Braley for the purpose of introducing his 
constituent.
    Mr.Braley. Thank you, Madam Chairwoman. It is my honor and 
privilege to introduce one of my constituents, Mary Jo Bonifas, 
who is here to share her testimony with us today. Mary Jo is a 
certified medical technologist and has over 36 years of 
experience in the clinical lab. She is currently the Manager of 
Laboratory Services for United Clinical Laboratories, Inc., a 
foresight joint venture laboratory system based in Dubuque, 
Iowa. She has been with the Dubuque lab system for over 30 
years and a laboratory manager for 26 years.
    Mary Jo is a member of the board of directors of the Iowa 
Chapter of Clinical Laboratory Management Association (CLMA) 
and is also president of the board of directors for the 
National CMLA Advocacy Group. It is my distinct privilege and 
pleasure to welcome her to this hearing.

 STATEMENT OF MARY JO BONIFAS, MANAGER OF LABORATORY SERVICES, 
  ON BEHALF OF THE CLINICAL LABORATORY MANAGEMENT ASSOCIATION

    Ms.Bonifas. Thank you. Madam Chairwoman Velazquez, 
Congressman Chabot and Congressman Braley, thank you for the 
opportunity to testify today on behalf of Clinical Laboratory 
Management Association on this very important issue.
    CMLA's membership is comprised of approximately 4300 
clinical laboratory managers serving in hospitals, independent 
labs, skilled nursing facilities, physician offices, research 
facilities as well as representatives from medical device 
industry. While the majority of CMLA's members are hospital 
based, we attempt to present a perspective that is shaped by 
all sectors of the clinical lab industry.
    My perspective on competitive bidding is shaped by my 
current role as a lab manager and over 35 years of experience 
at a small, community-based laboratory in Dubuque, Iowa, 
serving hospitals and physicians within a 50 mile radius of 
Dubuque. United Clinical Laboratories is a consolidation of 
laboratory services at two Dubuque hospitals and a pathology-
owned independent laboratory.
    We have built our business in a very competitive market, 
not on lowest price, but on a recognized quality and service. 
We are neither the cheapest nor the most expensive option, but 
we have been deemed the best option for clinical lab services 
by our almost 200 clients. The competitive bidding project as 
designed by CMS is flawed and, if allowed to proceed, will be 
devastating to the clinical lab industry especially the small 
community labs like mine, many of which will be put out of 
business.
    I would like to focus on just what could happen to my lab 
under competitive bidding. Because I receive at least $100,000 
in revenue from Medicare B reimbursement, I qualify as a 
required bidder, the only laboratory in Dubuque required to 
bid. What concerns me is there will be drastic consequences if 
I'm a bid loser and also significant consequences even if I'm a 
bid winner.
    If I am bid winner, I am guaranteed at least five to ten 
percent less reimbursement for my Medicare work simply based on 
the design of the demonstration. With already extremely small 
profit margins, what will this do to my bottom line? Even if I 
win, can I afford to do testing if reimbursement in some cases 
is below my cost to do the test?
    If I'm not a bid winner and local physicians and clinics 
can't use my lab for Medicare testing, I will also lose their 
non Medicare testing. It is just too difficult to divide work 
between multiple labs based on payor and one-stop-shopping is 
the name of the game. The bottom line is can my lab survive. 
There is really a high possibility it cannot.
    I currently use Mayo Medical Labs for specialized testing 
that I am unable to do in my lab and my bid must also include a 
bid for these tests. What if Mayo, my preferred reference lab, 
is not a bid winner? This 30 year relationship with Mayo will 
have to be severed. This 30 year relationship provides not only 
testing services, but also consulting services to local 
physicians. I will have to establish a relationship with a new 
laboratory, arrange for courier service, perhaps pay for and 
wait for a laboratory results interface to my computer system 
and at the same time not allow service interruptions to any of 
my clients.
    Let's also look at quality and access. Quality cannot and 
should not be assumed just because a lab has a CLIA 
certificate. There is a difference in quality. Quality is not 
just the quality of the test result, but the quality of the 
service provided. A correct lab result reported hours after it 
was critically needed by a physician is not a quality result 
even if it is the right result.
    If testing cannot be done by my community laboratory 
because we are not a bid winner and must be sent out of town, 
test results will be back the next day rather than in hours or 
minutes and this impacts the quality of patient care. The 
competitive bidding demonstration as designed guaranteeing 
there will be bid loser means that this will happen and patient 
care will be adversely affected.
    Access. Access includes both the patients and a physician's 
access to quality lab services and to testing results. If I am 
not a bid winner and the Medicare patient has to travel to a 
laboratory for services, how far are we willing to have them 
travel before we say there is an access problem? In Iowa, a bid 
winning lab may be 50 miles away. If the Medicare beneficiary's 
physician collects a specimen and has to sent to a winning lab 
out of town, how long is too long to wait for results?
    And what about Dubuque nursing homes? My laboratory is the 
only lab providing services to 20 local nursing homes. If I am 
not a bid winner, who will provide their lab services?
    Nursing home patients today are much sicker than in the 
past. They require more lab tests and they require these 
results within minutes or hours, not the next day. This is not 
a Dubuque problem. It's a problem that will occur nationwide.
    Access also includes physician access to lab results. My 
laboratory has developed an inquiry program used community wide 
that allows any physician with Internet access the ability to 
access a patient's complete laboratory record whether that 
testing was done in the hospital, at any UCL site, at a local 
clinic or even Mayo. If I'm not a bid winner and testing has to 
be done by another laboratory, this capability not available in 
most cities the size of Dubuque will be lost.
    To summarize as we look at quality and look at access, 
isn't limiting access to laboratory services a quality issue 
and isn't a physician's inability to have lab services 
furnished by a laboratory they trust and are familiar with an 
access issue? Quality and access are intertwined. It's clear to 
me and to the lab community that this CMS demonstration project 
cannot be carried out without guaranteed negative effect on 
both quality and access.
    CMS, if the competitive bidding demo saves the Medicare 
program money at the cost of compromising a Medicare 
beneficiary's access to quality lab services and ultimately 
their health care, what have you really saved?
    Madam Chairwoman and Committee Members, I thank you once 
again for allowing me to be part of this hearing. It's 
critically important that you, our members of Congress, hear 
the voices of all stakeholders and that this competitive 
bidding demonstration project be stopped. Thank you.
    [The prepared statement of Ms. Bonifas may be found in the 
Appendix on page 66.]

    ChairwomanVelazquez. Thank you very much. Our next witness 
is Mr. Tod Schild. Mr. Schild is representing Schild Medical 
Laboratory as the Senior Vice President.
    Schild Laboratories employs over 350 people and is located 
in Brooklyn, New York. Mr. Schild is testifying here today on 
behalf of the National Independent Laboratory Association.
    Welcome.

  STATEMENT OF TOD SCHILD, VICE PRESIDENT SALES & MARKETING, 
  SHIEL MEDICAL LABORATORY, ON BEHALF OF NATIONAL INDEPENDENT 
                     LABORATORY ASSOCIATION

    Mr.Schild. Thank you. Good morning. I want to thank the 
Chair, the Ranking Member and the other Members of the 
Committee for the opportunity to testify before you today. As 
you mentioned, I am the Senior Vice President of Schild Medical 
Laboratory headquartered in the Brooklyn Navy yard and an 
active member of the National Independent Laboratory 
Association. Schild employs 360 people. Our business provides 
service to private physician practices and nursing home 
throughout the New York metropolitan area.
    I am not an expert in legislative matters, but I think 
rarely in our history has been there been Congressional 
legislation that although well intended was planned in such a 
way as to devastate the industry that is critical to the health 
and well-being of the American public.
    The clinical laboratory project designed by CMS will 
irrevocably alter the market for laboratory services, reduce 
patient choice and limit access to quality testing. The program 
has critical flaws and missing pieces. Rather than fostering 
competition, it will create government sponsored oligopolies. 
Instead of reducing laboratory costs for Medicare, it will 
increase costs. Rather than improve the quality of health care, 
it will diminish patient access and stifle life-saving 
innovation. We all agree that overall Medicare costs reductions 
are desirable, but this is not an appropriate way to achieve 
that goal.
    The CMS proposal is opposed by all major professional 
groups involved in the clinical laboratory services industry. 
It was strongly opposed at the most recent CMS Open Door Forum 
by almost every person who commented on the proposed design. 
Over 400 individuals tried to participate in that forum and 
only a fraction of the questions asked were answered.
    By its design, the effect of the demonstration will be to 
reduce the number of labs permitted to perform Medicare work in 
the demonstration area. Loss of the ability to perform and bill 
tests to Medicare patients would most assuredly be a death 
sentence for the vast majority of non-winning bidder 
laboratories. Quality and service of the remaining labs will 
decrease from the strain of their additional volume.
    Medicare is just over 30 percent of Schild's work. For some 
labs, the portion of Medicare work might be as high as 70 to 80 
percent. Under the demonstration, there will only be a handful 
of winners. Non-winners will be out of the program for three 
years before they get a chance to bid again. Very few non-
bidders will survive. Schild operates at only a five to seven 
percent profit margin. I know that we cannot survive beyond a 
year with the loss of 30 percent of our revenue.
    Given that the demonstration project is fraught with danger 
for small labs, it had been our hope that CMS would have 
consulted with representatives of the small business community 
and the Small Business Administration to determine how to 
design this project. Unfortunately, CMS did not do so. CMS did 
not even use the established SBA definition of small 
laboratories being classified as $12.5 million or less. The 
technical expert panel selected by the Agency did not include a 
single representative of the small community lab market.
    The independent laboratory market while still competitive 
is dominated by two national labs holding approximately 65 
percent of the market. The extent of this concentration is 
illustrated by the chart in my written testimony. The large 
national labs can discount their bids in the demonstration zone 
and compensated for these temporary discounts through their 
work in other parts of the country. Labs like Schild that 
operate in only one or two of the 22 metropolitan statistical 
areas identified by CMS will not have that advantage. Schild or 
other labs like us will be the losers in the bidding process.
    Let me add that in no way do any labs large or small see 
any benefit to the American public coming out of this ill-
conceived plan. We are all united in our objective to stop this 
demonstration from proceeding. The difference is that large 
labs in the demonstration are fighting for their bottom line 
and the smaller labs are fighting for their existence.
    Medicare competitive bidding for laboratories is the 
opposite of what it purports to be. It is clearly anti-
competitive. The demonstration will permanently alter the 
market of any metropolitan statistical area that has the 
misfortune of being chosen. Long-time quality laboratories will 
be forced out of business and new start-up laboratories will be 
a thing of the past.
    Nursing home residents are particularly vulnerable and will 
suffer the most under this demonstration. Only local and 
regional lab service nursing homes, the high cost of sending in 
personnel to draw blood and deliver results within several 
hours and the limited Medicare reimbursement for onsite 
services and travel have driven many labs to seek higher profit 
margins elsewhere.
    Medicare's competitive bidding will eliminate the existence 
of many of the labs that are willing to take on the high 
operating costs to provide quality care for our aging 
population in long-term care facilities. At last week's Open 
Door Forum, CMS was not able to adequately respond to our 
questions and concerns regarding how these facilities can 
continue to receive the level of service required.
    Additionally, the design complexity of the bidding process 
and the reporting to CMS required of winning bidders will 
require a large investment in personnel and infrastructure 
potentially making it cost prohibitive for even the winners in 
the demonstration area. CMS itself will have to take on 
administration costs far beyond what they are anticipating. It 
only takes a review of the bidder's package draft to see how 
CMS is over-complicating an already expensive and complicated 
process. Any savings that they would have hoped to realize by a 
slightly reduced fee schedule will be consumed by their own 
additional overhead.
    In conclusion, there are no laboratory winners in the 
Medicare competitive bidding demonstration, only losers and 
bigger losers. Our industry and the American public will be 
worse off and no savings will result. The only result will be 
diminished quality, limited access, stifled innovation, lost 
jobs, poorer health, lost lives and further crippling of our 
already crippled national health care system.
    On behalf of Schild Medical Laboratory, NILA and laboratory 
professionals across the country, I urge you to repeal the 
authority for CMS to move forward with this project. There are 
simply too many unanswered questions and too many risks 
associated with this ill-designed experiment.
    [The prepared statement of Mr. Schild may be found in the 
Appendix on page 71.]

    ChairwomanVelazquez. Thank you, Mr. Schild.
    Our next witness is Dr. Ronald Weiss, M.S., M.B.A. Dr. 
Weiss is President and COO of ARUP Laboratories. Dr. Weiss is 
Board certified in Anatomic and Clinical Pathology, Medical 
Microbiology and Hematology.
    ARUP Laboratories is a national laboratory and an 
enterprise of the University of Utah and its Department of 
Pathology. He is here today on behalf of the American Clinical 
Laboratory Association, a group of national and regional 
laboratories across the country.
    Welcome sir.

    STATEMENT OF RONALD WEISS, M.D., PRESIDENT & COO, ARUP 
    LABORATORIES, INC., ON BEHALF OF THE AMERICAN CLINICAL 
                     LABORATORY ASSOCIATION

    Dr.Weiss. Thank you.
    Chairwoman Velazquez, Congressman Chabot, Members of the 
Committee, I thank you for this opportunity to testify on an 
issue as you've heard that has great importance and significant 
ramification for our patients.
    As you indicated, my name is Ronald Weiss. I am President 
of ARUP Laboratories in Salt Lake City. I am a pathologist and 
a physician practicing laboratory medicine and I've twice 
served as chairman of the board of the American Clinical 
Laboratory Association and it's my honor to testify on behalf 
of ACLA and all of its members, small and large. More pertinent 
to the subject at hand, I have also served on CMS's technical 
expert panel for the demonstration project.
    Madam Chairwoman, the concept of competitive bidding for 
laboratory services is not a new idea. The Department of Health 
and Human Services has struggled for almost two decades to 
develop a competitive bidding demonstration project. It is not 
an idea that has improved with time. Repeated attempts to move 
in this direction have each failed because of the complexity of 
that task because of the huge destabilizing and anti-
competitive effect it will have on the laboratory industry and 
most importantly, because it would severely undermine the 
quality and access of laboratory services to Medicare 
beneficiaries.
    The competitive bidding model being considered will take a 
huge toll on small business as you've heard and on vulnerable 
populations including nursing home residents and homebound 
patients. This point of view has unanimity within the clinical 
laboratory community, small laboratories, large commercial 
laboratories, niche service laboratories and hospital based 
labs and it speaks volumes that when the Centers for Medicare 
and Medicaid Services released the 75 page bidder's package 
last week there were over 80 people present at the Open Door 
meeting and another 400 on the call-in line.
    All of those who made statements at the Forum were opposed 
to the demonstration project. This unanimity exists between all 
sectors of the laboratory industry because all of these sectors 
play a role in providing Medicare beneficiaries approximately 
one million clinical laboratory tests every single day and they 
understand that no competitive bidding design can accommodate 
the complexities involved in keeping this service both seamless 
and exemplary.
    There is a clear contradiction in terms at work here and 
this is called a competitive bidding model, but it is clearly 
anti-competitive and it will drive a significant number of 
clinical laboratories out of business. Competitive bidding when 
done in the private sector establishes service commitments and 
acceptable prices through a negotiation process. For laboratory 
services, this depends upon a clear knowledge of the volume of 
those needed services, a streamline submission and payment 
process and consistency in laboratory to laboratory referral 
arrangements, none of which exists in this demonstration 
project.
    Extensive analysis of the demonstration by the ACLA yields 
a number of clear conclusions and I would like to briefly 
mention five of the most striking ones now.
    1. All laboratories especially small, local, independent 
and hospital outreach laboratories with limited resources will 
find it impossible to deal with the extraordinary complexity of 
the bidding process. This flawed design will prove fatal to 
them as they will likely lose their Medicare reimbursement and 
be forced out of business.
    2. Many of those small laboratories who are perhaps 
fortunate to win the bidding process will actually lose because 
they will be forced to accept bids well below their already 
conservative profit margins, forcing them to close their doors.
    3. As more labs have difficulty staying in business, the 
vulnerable patient populations I've mentioned will find access 
to laboratory services seriously compromised.
    4. The demonstration could severely disrupt the existing 
complex web of arrangements between the local laboratories that 
service Medicare patients by performing many common laboratory 
tests and reference laboratories such as ARUP that perform many 
of the more complex tests for them.
    Some of these high complexity esoteric reference 
laboratories are thousands of miles from the demonstration 
area, yet they will have to bid in the demonstration area if 
they provide more than $100,000 in services. It's not even 
clear that these labs will know that they are required to bid 
and win in order to continue to be reimbursed by Medicare for 
services provided in that area.
    5. Other reference laboratories may choose not to bid or 
may not be selected as winners if they do so. This would 
disrupt existing complex laboratory to laboratory referral 
arrangements, previously described by my colleague, Ms. Bonifas 
and create a situation in which local laboratories simply 
cannot put together a winning bid on all 358 tests specified in 
the project leaving them out of business and beneficiaries 
without access to these medically-important, complex tests.
    In the final analysis, Madam Chairwoman, one has to ask the 
question, is there really a compelling need for such a 
demonstration project. Medical laboratory services account for 
only 1.7 percent of Medicare spending and payments for those 
services have already been reduced by roughly 40 percent in 
inflation adjusted terms between 1984 and 2004. If the goal is 
to seek savings, those savings have already been realized and 
this model will only add a substantial and cumbersome 
administrative burden for CMS while disadvantaging 
beneficiaries and their health care providers.
    America's clinical laboratories have one simple objective 
and that is to provide accessible, quality medical services to 
patients and to the health care community. Laboratory medicine 
is a value proposition driving 70 percent of medical decision 
making at two to three percent of total health care costs. As a 
complex medical service provided by specialized physicians and 
laboratory professionals, it is not a commodity product. This 
demonstration project clearly does not help us achieve the goal 
of preserving this service objective and should be repelled 
before it is allowed to begin.
    The Medicare physician fee schedule is not competitively 
bid nor should it be and the clinical laboratory fee schedule 
should not be either. I would not like to look back and take an 
solace in the fact that Medicare beneficiaries' laboratory 
services went to the lowest bidder while the true cost was poor 
quality and limited access.
    And if I may have a moment, I would like to clarify the 
market size and share numbers that have been repeatedly 
mentioned this morning. When you look at the entirety of 
medical laboratory services, hospital laboratories provide 
approximately 60 percent by volume of total laboratory 
services, physician office laboratory is approximately ten 
percent and independent laboratory is about 30 percent. The two 
largest laboratories in that independent laboratory sector 
account for 60 percent of that sector which is approximately 18 
to 20 percent overall, not the 70 percent number that had been 
mentioned.
    Thank you for this opportunity and I look forward to your 
questions.
    [The prepared statement of Dr. Weiss may be found in the 
Appendix on page 76.]

    ChairwomanVelazquez. Thank you, Dr. Weiss. Dr. Weiss, you 
mentioned that basically in the meetings that had been held 
between the industry and CMS and the most recent one last week 
on the Open Door Forum there was basically people were united 
in terms of their objection to the use of the competitive 
bidding to determine pricing for lab services. However, you 
also indicated that it is important for CMS to gather 
information on lab pricing. If competitive bidding is not an 
effective mechanism for capturing information about market 
pricing, what alternative exists to capture accurate data?
    Dr.Weiss. Thank you, Madam Chairwoman. As I mentioned, 
medical laboratory services is a professional medical service 
and certainly competitive bidding is not the answer. The IOM 
study looked at several different options when they published 
their results in 2000. One of those was actually to just 
continue to use the current clinical laboratory fee schedule 
and in fact one recommendation was to set it at the national 
limitation amount.
    It's true that the CLFS is not a perfect system for 
reimbursing for these services, but it's one that laboratorians 
in the laboratory industry have worked with now for over 20 
years and I think it would be far better to continue to try and 
improve that system rather than to make a drastic change and do 
something like competitive bidding which I believe is a flawed 
concept.
    ChairwomanVelazquez. Dr. Weiss, you mentioned that you took 
part of the technical expert panel. Were there--Can you talk to 
us about how much sensitivity there was in their discussion 
regarding the impact that this will have on small businesses 
represented by small labs?
    Dr.Weiss. The technical expert panel that was established 
by CMS and RTI we only met once face to face in Baltimore on, I 
believe it was May 25, 2005. That was an all-day meeting. There 
were no minutes from that meeting, but I can tell you that 
there were far-ranging discussions that touched upon many of 
the issues we've talked about this morning and including the 
impact on smaller laboratories.
    We only had one other interaction as the TEP and that was 
on a conference call to review the draft bidder application 
form and that was held almost to the day a year later in 2006 
and we've not had any other request to provide input since 
then.
    ChairwomanVelazquez. Was there sharing information 
regarding data collected or impact analysis based on--
    Dr.Weiss. There was no impact analysis of the kind we've 
talked about this morning, certainly, to look at the impact on 
quality and access. No such analysis has been done to my 
knowledge and at least published and shared with the TEP.
    ChairwomanVelazquez. Thank you. Ms. Bonifas.
    Ms.Bonifas. Bonifas.
    ChairwomanVelazquez. A nationally-recognized accreditation 
group has cited United Clinical Laboratories as a gold standard 
laboratory and the best laboratory they have ever seen. 
However, competitive bidding prices places an emphasis on 
obtaining the best price over quality. How will a competitive 
bidding program affect your gold standard service and will it 
reward such a service?
    Ms.Bonifas. The effect of competitive bidding on my 
laboratory as I said in my remarks, even if I win, I'm going to 
have to accept less Medicare reimbursement. That's going to 
impact my already small profit margins. If I'm a bid loser, 
there will be a significant community impact in Dubuque. Where 
will Medicare beneficiaries? What about turnaround time? What 
about nursing homes?
    There will be a major impact on the service delivery system 
that we have set up and that's one of the things we're 
recognized for in that the Joint Commission Inspector when he 
called us a gold standard laboratory. It has a chance to 
jeopardize the system that we've put in place in Dubuque which 
is recognized in the community as a very beneficial service to 
the community. We've provided cost savings to all patients in 
Dubuque because of the joint venture system that we've set up 
and that's been in place for over 20 years and that whole 
consolidated lab system is in jeopardy.
    If I'm going to lose my outreach market, United Clinical 
Labs is the merger of two hospital and the independent lab. We 
service the local physicians. If I lose that outreach testing, 
then it puts more of a burden on my inpatient and outpatient 
costs because the outreach testing is what allows me to offset 
some of the costs of my inpatient and outpatient work. So the 
consolidated lab as we know it, I don't think, would survive 
and that would have a significant impact on the community of 
Dubuque.
    ChairwomanVelazquez. Thank you. Mr. Bejgrowicz, one of the 
problems with this project is that it doesn't account for the 
highly unique nature of the tests required by skilled nursing 
facilities. How confident are you that the bid demo will be 
able to arrive at an accurate and fair price for the tests?
    Mr.Bejgrowicz. First of all, Madam Chair, quality is what 
drives nursing home care. So looking at price, looking at 
quality, looking at the number of tests, a lot of the tests are 
very, very specialized tests that the nursing home patients 
require.
    Physicians are looking for quick turnaround times. The 
physicians are looking for results within six to eight hours. 
These are the necessary goals to which the laboratories really 
need to adhere in order to provide services to the long-term 
care residents.
    ChairwomanVelazquez. I would like to ask this question to 
each one of you. Is it true that different labs may use unique 
testing procedures for a specified lab test? Can lab tests be 
fairly compared under the CMS demo if lab use different testing 
procedures?
    Mr.Schild. I would like to address that first.
    ChairwomanVelazquez. Sure
    Mr.Schild. There are often more than one way to perform the 
same test and it was brought up today about continuity of care. 
There are different methods and different reference ranges for 
many of the tumor markers that are run like CA125 and CEA and 
those are used to monitor patients who are being treated for 
cancer. If a lab that a hematology/oncology uses does not win 
the bid process and can no longer process Medicare specimens, 
those physician practices will be forced to go another lab.
    When, believe it or not, we obtain a new account from some 
of our competition, they often don't shift over all of their 
business because patients that they started testing at one lab 
they don't want to move over to another lab. So, yes, it could 
have a big impact. There is different equipment. There is 
different methodologies. There are different reference ranges 
and it will affect the continuity of care.
    Ms.Bonifas. I would just like to echo what Mr. Schild has 
said. What my laboratory has done when, for example, we brought 
CEA testing, one of the tumor marks. We used to send it to 
Mayo. We now do it in our lab.
    Before we started releasing results to the physicians, we 
did baseline studies on all their patients, both at Mayo and in 
our lab so we could see if there was any difference in the 
results and so that the physicians would be able to monitor 
them and there was a difference in the reference range and the 
difference in methodology. So there was a chance that there 
would be some difference in interpretation of the results.
    Now we didn't get paid for doing the test twice. We only 
got paid once, but those are the things that we did in order to 
make sure that the physician interpretation was correct and the 
patients were correctly monitored and we could bring the 
testing in-house. So, yes, different testing methodologies, 
different reference ranges, can cause a difference in 
interpretation and patients would have to be studied. Yes, it 
will impact.
    ChairwomanVelazquez. Let me recognize. Dr. Weiss, do you 
want to--
    Dr.Weiss. I just wanted to echo those comments and say that 
we work in a very dynamic and innovative medical laboratory 
community in the United States and inherent in your question is 
the fact that there are constant endeavors to improve not only 
the quality but the timeliness of individual laboratory tests 
and the cost of doing those tests. So manufacturers of test 
kits and test instruments are constantly trying to improve 
that. So we do end up with a situation where for each 
individual HCPCS Code on that list there may be several 
different methodologies that have inherently different costs.
    ChairwomanVelazquez. Thank you. Mr. Chabot
    Mr.Chabot. Thank you very much, Madam Chair. Mr. 
Bejgrowicz, I'll being with you if I can. Would you please tell 
us again why you believe, or expound upon it, the CMS's 
demonstration project's design will at best put smaller 
laboratories out of business and at worst restrict access to 
quality health care for Medicare beneficiaries and limit choice 
and disrupt the continuity of care and ultimately increase the 
cost to Medicare?
    Mr.Bejgrowicz. Congressman, again, the first priority for a 
nursing home owner, a nursing home operator, a nursing home 
administrator, is quality of care. When we look at this 
demonstration project, we look at the quality. We look at the 
access to care. Nursing home residents, again, need specific 
access. They need service.
    For example, we're talking about laboratories that will 
provide phlebotomy services. Again, I explained phlebotomy 
services as the people that will come in and draw your blood. A 
lot of times these larger laboratories don't have phlebotomy 
services. They require the nursing staff to draw the blood.
    Again, we're looking at the test methodologies, the test 
ranges. The smaller independent laboratories specialize in 
long-term care. The larger laboratories have pulled out of 
providing care to the nursing homes.
    Mr.Chabot. Thank you very much. Ms. Bonifas, let me turn to 
you next if I can. If the demonstration project isn't ended or 
stopped as you, I believe, had suggested that you would prefer, 
what changes would you recommend in the demonstration project 
that would make it fairer and would remedy some of the problems 
that have been raised by the panel members?
    Ms.Bonifas. Well, when I asked for the project to be 
stopped, I meant to be stopped and not change it. I don't 
think--I agree with Dr. Weiss. There are other ways if CMS and 
Congress is looking to save money in the Medicare program in 
clinical lab services. I think the competitive bidding demo is 
not the way to do it and there are some alternatives to look 
at.
    I think the competitive bidding demo as presented is flawed 
and I'm not sure there's anything that could be done to fix it 
that would make it a successful demonstration project. I think 
as Dr. Weiss said it's simply complex. It's been tried.
    I mean, I've been in this industry a long time. We've been 
talking about competitive bidding for over 20 years. It's not 
something that has been tried and failed. It's been something 
that can't even be tried because the issue is some complex we 
can't even figure out how to try it. And to go forward with the 
demo and saying that, ``Well, it's just a demo. Let's see what 
happening,'' to proceed with a demo when there are these many 
problems with it, what happens if you proceed with the demo 
just because it's a demo and businesses like mine go out of 
business. We're not going to be able to re-enter the market.
    Let's stop looking at competitive bidding as a way to save 
money in the clinical lab field for Medicare and look at some 
other alternatives. The Institute of Medicine recommended a 
revision to the clinical lab fee schedule. The clinical lab 
industry is dealing with a Medicare fee schedule that was 
developed in 1984. Everyone including CMS recognizes that it's 
archaic, it's irrational and it's out of date. Other 
physicians, radiologists, ambulance have all revised their fee 
schedule. Let's take a look at that as an option and stop 
competitive bidding.
    Mr.Chabot. Thank you. Mr. Schild, would you explain how the 
demonstration project that we're referring to here today would 
irrevocably alter the market for laboratory service resulting 
in reduced patient choice and limited access and resulting 
market concentration?
    Mr.Schild. Congressman, I think that's relatively easy to 
answer. I could use the New York area as an example and I know 
it was indicated that we wouldn't be the first, but there are 
30 laboratories approximately operating in lower New York 
serving New York Metro. Even if 15 laboratories were selected 
as winners out of the 30 that had to bid, there are 15 labs 
that will close.
    Schild Medical Laboratory has a dozen patient service 
centers throughout the boroughs of New York City and Long 
Island and Lower Westchester. All of those would close and the 
patients would have to seek having their blood drawn at another 
patient service center. A lot of the larger labs, they have a 
very, very big network, but there is no much need out there the 
wait times there are already extremely long. If you limit the 
number of labs in the marketplace, there is the answer to your 
access question, where do they go.
    What this demonstration project is all about is government 
reshaping a free market and I really don't think that that's 
what our country is about and I think it's going to have 
devastating implications and labs will close and labs that 
leave the marketplace will not be able to re-enter.
    Again, we have very narrow margins, somewhere between five 
and seven percent, depending on the year. Medicare is 30 
percent of our revenue. Remove that. I don't think we could go 
beyond the year in existence, plus it will stifle innovation 
because new players can't enter into the market. How can 
Medicare create a system that will stop new businesses from 
forming and that's where we say it will irrevocably reshape the 
marketplace. All you'll have is the existing player and they'll 
just keep dwindling and dwindling down until everybody realizes 
that this was a mistake and you start over again.
    Mr.Chabot. And finally, Dr. Weiss, would you explain again 
in your statement that you made in your testimony that the CMS 
demonstration project will cause a huge destabilizing and anti-
competitive effect on the clinical laboratory community?
    Dr.Weiss. Thank you, Congressman. As my other colleagues on 
the panel have indicated, the complexity of what we are dealing 
with in terms of the relationships between laboratories 
functioning in communities is such that disrupting that will 
create major impacts not only on those laboratories but the 
patients they serve.
    And if I can use my organization as an example, we have 
recognized that a laboratory like ours is not suited to 
providing clinical laboratory services to a number of the 
segments of the patient population. It's truly the independent 
and hospital based laboratories in communities and in regions 
that could be affected by this demonstration project. Those are 
the entities that are best suited to provide these services.
    So we have this complex relationship between laboratories 
at several different levels, all of us trying our best to 
provide high quality services to patient populations like those 
in Medicare and competitive bidding will throw a tremendous 
monkey wrench, if you will, into that process and be extremely 
disruptive in my opinion.
    Mr.Chabot. Thank you, Doctor. I yield back the balance of 
my time.
    ChairwomanVelazquez. Mr. Braley.
    Mr.Braley. Madam Chairwoman, Ranking Member Chabot, I have 
only served on this Committee with you for six months, but I am 
fairly confident in saying that only CMS could create a 
competition where if you win you lose.
    (Laughter.)
    Mr.Braley. It's very disturbing to those of us who have 
recently come to Congress to be sitting here week after week 
talking about CMS driven decisions that have an adverse impact 
on the people we represent in our districts.
    And, Ms. Bonifas, I want to start to talking to you about 
your comment that 20 local nursing homes in your area are 
served only by your laboratory. Do you remember making that 
comment? Last week, another one of my constituents from 
Maqueketa, Iowa, a family pharmacist was here, talking about 
some of the extraordinary things that people in his profession 
had done above and beyond the call of duty to help people coup 
with the new Medicare D requirements, that they received no 
compensation for but felt that they were obligated to do as a 
sense of professional calling.
    And what I would like you to do is help us put a human face 
on the type of services you and your employees provide above 
and beyond what's normally expected just in order to get an 
reimbursement from Medicare serving the needs of all the 
patients who are currently in those 20 nursing homes. What type 
of experiences are typical to the people who work in your 
laboratory?
    Ms.Bonifas. Thank you, Congressman Braley. I wasn't always 
the only laboratory that provided services to the Dubuque 
nursing homes. A large multi-physician clinic also used to send 
phlebotomists to the nursing homes and after awhile, they just 
stopped and basically United Clinical Labs was left with the 
business.
    We don't do nursing home business because we make money on 
it. Most of it is out of a sense of obligation and if we don't 
do this, who is going to do this? We have three phlebotomists 
who go to the nursing homes. They used to go every day. As long 
as the nursing home called, we would send them. Now they go--
The nursing homes have been put on a schedule. Certain nursing 
homes are only visited on certain days. We've worked with the 
homes to teach them how to draw their own blood. Our couriers 
pick it up.
    But our employees that are going out to the nursing homes 
do that not because they get paid well for that because they 
don't and the reimbursement to go out to the nursing home to do 
that work is not much. But our employees that do that do it 
because they like to do it. They enjoy working with the older 
people and one of them in particular who has been a nursing 
home phlebotomist for over 25 years said even when she retires 
she would still do it and do it for nothing because she just 
likes the people in the nursing homes.
    So, as I said, we don't do it because we make money on it. 
We feel there's a sense of obligation because if we don't do 
it, I don't know who will.
    Mr.Braley. Isn't it true that given the age of the patient 
population in those nursing homes you're more likely to 
encounter patients who have compromised immune systems where 
these access to laboratory services can have a dramatic impact 
on their health outcomes?
    Ms.Bonifas. Yes, I think that would be true.
    Mr.Braley. One of the things you talked about was some of 
the innovative things you were doing with electronic management 
of medical records and I guess my question for you is in this 
competition that CMS set up were there any points or positive 
awards made for people who were taking innovative approaches in 
EMR like you described your laboratory was doing?
    Ms.Bonifas. No, not to my knowledge. I don't think the 
bidding demonstration even requires that you transmit results 
electronically. But we were very innovative in Dubuque. I think 
if you talk to any of the Dubuque physicians, they will tell 
you one of the things they really like is this program that our 
in-house computer programmers wrote that allows them anywhere 
to access the result and it also saves money. Someone who is 
being seen in the hospital who also may have just been seen in 
the doctor's office rather than ordering the test again, they 
can look and see ``Oh, this person had this test. We don't need 
to order it. Here are the results.'' They can print that 
result. They can chart that result. It is a very innovative 
program and like I said, not available in most cities the size 
of Dubuque.
    Mr.Braley. If a competitive bidding program were to be 
enacted in the Dubuque area, what can Medicare beneficiaries 
that rely upon United Clinical Laboratories for lab service 
expect to happen in terms of their care?
    Ms.Bonifas. Well, it depends if we're a winner or a loser 
or a winning loser maybe is the right.
    Mr.Braley. I'm not sure if you win you really win.
    Ms.Bonifas. Exactly. Medicare beneficiaries are used to 
using our facilities and it's not just the Medicare 
beneficiaries. It's their physicians who are used to using our 
laboratory. If I'm a bid winner, then I'm going to get less 
reimbursement. If I'm not a winner, I'm not sure where they're 
going to go. I'm not sure where the physicians are going to 
have to send their testing. All of those, that infrastructure 
that we've built, that service delivery system, is going to be 
lost.
    And because of the consolidated lab in Dubuque, physicians, 
even the large multi-physician clinic with over 100 physicians 
and the large internal medicine practice, they rely on us. Most 
of them don't do Medicare testing if they know we do it because 
they would rather send it to us and not lose money on it.
    Mr.Braley. Thank you for sharing those insights and thank 
you for holding the hearing.
    ChairwomanVelazquez. Mr. Davis.
    Mr.Davis. Thank you, Madam chairwoman and I thank the 
panelists for being with us today. I actually come out of the 
background of health care before I came to Congress. I 
understand CMS very well. I've dealt with them for almost 30 
years either in the hospital setting or in an outpatient 
setting. Thank you for what you do.
    One thing that I found and I would like to know if this is 
what you've seen in your experiences that bigger is not always 
best, farther away is not always best. Do you see in your 
judgment and experience having local access to physicians and 
clinical lab and home health care and pharmacies and those 
things that make for an integrated health system are done 
better at the local level or is it better done at some far 
away, out of sight resource and anyone could just answer that 
for me.
    Mr.Schild. I would like to respond because New York is a 
unique market. Both the large players and the small players 
provide local service. So in New York, that isn't as much of a 
factor but the whole concept of just reducing the number of 
laboratories will have a significant impact on an already very, 
very crowded marketplace where access is key. We serve so many 
millions of people that we can't afford to reduce the number of 
players in the marketplace.
    Mr.Davis. Anyone else?
    Dr.Weiss. Health care is local and it's critically 
important that health care be delivered to patients by 
physicians and health care providers in the local areas. In our 
circumstance, we're a laboratory located in Salt Lake City and 
we provide services to hospital laboratories and independent 
laboratories around the country. But we provide that in a very, 
very narrow niche of very unusual testing.
    We don't attempt nor should we to provide services that are 
best delivered at the local level and to the populations in 
particular that we've been talking about, nursing home and 
homebound patients, it would be impossible for a laboratory 
like ours if we were required to bid and to bid on those 
services to provide those services in an effective way. It is 
really most important that those services be provided locally.
    Ms.Bonifas. I would also like to say that the service needs 
to be local. There is a place for both. There is testing that 
needs to be done in the community and it's the rapid turnaround 
time, the things that are needed right away, the easier things 
to do. That needs to be done in the community lab. Those tests 
shouldn't be sent to a large national reference lab.
    There is a place for all labs. We need the national 
reference labs. We need the Mayos and the ARUPs and the Quests 
and the LabCorps. We need them to do the esoteric tests that we 
can't do because we don't have the technology or the expertise 
or the volume to do effectively. So we need everybody. We need 
the community-based laboratory and we need regional labs. We 
need national labs. We need everybody and we don't need to 
exclude anybody from that market.
    Mr.Davis. In most industries in America, competition is a 
good thing. If you have more competition, it breeds better 
quality and it also breeds lower cost. Do you see that in 
health care?
    Mr.Schild. It's an absolute in health care. The more 
players in the market, the more new ideas and concepts get 
introduced and sometimes the smallest labs in the industry have 
contributed technology that was adopted by all. So if you start 
reducing the number of small clinical laboratories that will 
disappear.
    One example I could give you of technology that has 
impacted the whole industry is one of my competitors, Sunrise 
Medical Labs in Hophog Long Island, introduced the first 
computer system that helped distinguish a patient's insurance 
and which plan it had to go to because of some exclusionary 
decisions that were made by managed care organizations. Schild 
Medical Laboratory is working on introducing a new cardiac risk 
assessment test that we think is going to revolutionize the 
marketplace. So it is so important for there to be small 
players in the market because they, too, can reshape health 
care in a positive way.
    Mr.Davis. Let me ask one last question. What will happen if 
a physician orders a stat test and you've gone to a national 
health system, basically what I see this coming to, and there's 
not that local competition there available and for the other 
members on the panel stat means immediate? Anyone like to take 
that as to what would happen?
    Mr.Bejgrowicz. Congressman, if I can. That resident would 
be shipped to the hospital incurring large costs while if we 
had that test performed in the nursing home, the physician then 
could treat the resident. Frankly, I'm very worried about the 
residents in the nursing homes. I really am.
    Mr.Davis. Thank you. I yield.
    ChairwomanVelazquez. Mr. Sestak.
    Mr.Sestak. Thank you, Madam Chair. I probably only have one 
question but a couple of observations. I think this hearing is 
tremendous for a number of reasons. First, I was taken that CMS 
has absolutely ignored the Institute of Medicine's 
recommendation a few years ago that if it were to do this 
competitive bidding it was to be focused on gaining accurate 
information about market pricing by its purchase of service. 
They completely ignored that recommendation.
    Second, every hearing I've been to has always talked about 
health care in terms of affordable, accessible, quality of 
care. For some reason, they've decided to talk about the 
affordability here. In lieu of the third point and missed so 
much else where affordability could be gained, you brought it 
up. One area would be preventive care. Heaven forbid if we ever 
looked at preventive, early diagnosis. Twenty-two percent of 
our payments out of Part B go to 67 percent of Medicare 
recipients because they had five more chronic disease, fee for 
service and you kind of looked at that management of that care 
and early diagnosis and continuing to help prevent it from 
getting worst, the savings would be enormous. And then we 
narrow down in this small area instead of going for the big 
prize.
    And, finally, and most importantly is my own experience. 
You said it so well. But for me when my four-year-old daughter 
had her malignant brain tumor and was given three to nine 
months to live a year and a half ago, I can't tell you how 
helpful community-based system was and it was in the Navy. 
Tragedy struck us and I have to tell you as we hunted for the 
right labs because much of this stuff is done at home, you can, 
the right place that can do the right blood tests for tumors. 
Staying up throughout the night to administer stuff they give 
us, but always there on call because they had a great 
relationship with the patients and a great relationship with 
the hospitals.
    I am quite taken that the quality of affordable, accessible 
health care goes a long way towards this type of community-
based approach. I don't have the statistics to prove it, but I 
am quite taken as we came to know the small labs as we switched 
from brain surgeries to chemo to radiation to work on future 
hopefully quality of life. That's more of a comment.
    But I was taken and if each of you would, in matter of 
fact, if you don't, if one or two just might, this community-
based relationship you spoke about, I see it everywhere during 
my exposure there. It prevented the seams in which so much 
happens at the worst moment of time that if you have that kind 
of community-based relationship things don't get dropped 
through the crack. They can have some impact on your care. 
Would you can expound on that if you care? I made more of a 
statement because it was very personal to me. But there is 
something more to add on this community-based I think will go 
away with the focus upon larger rather than smaller.
    Mr.Schild. I guess what I could add to that is our lab is 
very often willing to take on work that is a little bit more 
labor intensive and results a lower profit because we have to 
survive. So sometimes a tiny, tiny profit is better than none 
at all and we also recognize that we live in a community and 
one of our contracts is with the visiting nurse service and we 
have an army of phlebotomists that go out on a daily basis and 
go to very homebound and ill patients and draw their blood and 
we deliver a quality result the very next morning or if it's 
stat, the same day and a lot of labs aren't willing to do that.
    We agree with your statement and that's just why it's so 
important that we maintain our current system and re-examine 
other ways to reduce our Medicare expenditures.
    Mr.Sestak. And there are other ways.
    Mr.Schild. There are so many.
    Mr.Bejgrowicz. Congressman, if I can just make a statement. 
From a nursing home perspective, the residents' lives are very 
scheduled and honestly the nursing home residents almost look 
forward to that visit from that phlebotomist. They become 
friends with that phlebotomist and that would disappear.
    Mr.Sestak. People can dismiss that easily but there are 
studies, statistical studies, that show the relationship that 
someone can have doing health care goes a long way to their 
health achievement. It's absolutely a fact. Thank you.
    ChairwomanVelazquez. Mr. Love, I noticed that you're still 
here and I'm glad that you decided to stay here. While I know 
that it is the policy of CMS to not testify on panels with 
industry, I just would like to ask you to please come to the 
table to answer just one question. Would you please come 
forward, Mr. Love? Fine.
    Mr.Love. Yes madam.
    ChairwomanVelazquez. Mr. Love, given what you heard here 
today, will there be time for input by the industry before the 
implementation of the demonstration and when will the 
demonstration program start?
    Mr.Love. Thank you. First, Mr. Sestak, I'm very sorry to 
hear about that. We have taken extensive input, some of which 
we got as recently as last week as you know from the Open Door 
Forum and we are not at the point where we are actually 
announcing a site and we are continuing to evaluate that input 
not only from the Open Door Forum, but at our web site we have 
received comments since the Open Door Forum, some of which I 
was reading well into last evening. We will continue to 
consider that information as we move forward.
    ChairwomanVelazquez. Well, the Committee still has a number 
of questions after we listened to the witnesses on the second 
panel and I would like to ask unanimous consent that we are 
going to send to you questions in writing and we expect those 
questions to be submitted to the Committee before you implement 
the program.
    Mr.Love. We will certainly be responsive to the Committee's 
questions.
    Mr.Chabot. Madam Chairwoman.
    ChairwomanVelazquez. Yes
    Mr.Chabot. I assume you mean the answers to the questions.
    ChairwomanVelazquez. Yes, the answers to the questions 
before he implements the program.
    Mr.Chabot. Thank you.
    ChairwomanVelazquez. Thank you. And the gentleman is 
excused.
    Mr.Love. Thank you.
    ChairwomanVelazquez. Let me just say that it is obviously 
that this is a very complex issue and I think every witness had 
provided compelling arguments here as why they feel that this 
project, this demonstration project, could put them out of 
business, compromising not only the free market system that we 
have but the quality of care that we are providing to the 
American people. So this is an issue that is important to this 
Committee in the sense that we have to make sure that every 
federal agency when they are creating rules, issuing rules, or 
creating new demonstration projects that they really take into 
account the impact that such a project will have on the small 
businesses.
    We will continue to monitor this situation. We will ask CMS 
to continue to have meaningful meetings with the industry and 
to take into account those input provided for those small 
businesses that will impacted by this demonstration project.
    I ask unanimous consent that members have five legislative 
days to enter them into the record without objection. So order 
and this hearing is now adjourned. Off the record.
    [Whereupon, at 11:56 a.m., the Committee was adjourned.]
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