Cost and quality control of laboratory services: the New York City medicaid centralized laboratory proposal

Faced with constantly increasing costs for the provision of laboratory services to Medicaid recipients, the New York City Department of Health last year attempted to implement a program to fundamentally restructure the organizational patterns and financing mechanisms of New York City's clinical laboratory industry. The program, based on competitive bidding, gave one laboratory in each of New York's five boroughs exclusive rights to process Medicaid lab samples and replaced presently existing fee-for-service reimbursement mechanisms with a unique system combining unit pricing and capitation. This paper outlines the principal provisions of the City's proposed contract, analyzes the underlying motivations of the City's decision, and describes the reactions of the existing laboratory service delivery system. In addition, the generic problems of implementing effective administrative techniques for cost and quality control of laboratory services are discussed.