One medical testing company was led by a convicted felon, another was accused of delays and unreliable results
Like many states, Florida has worked hard to quickly ramp up diagnostic testing for SARS-CoV-2, the coronavirus that causes the COVID-19 illness. For the most part this has been a good thing. However, local media in that state reported problems with two no-bid contracts for clinical laboratory testing, including one with a Dallas-based company whose founder pleaded guilty last year to two felonies involving insurance fraud.
In a press conference announcing the two deals, Florida Governor Ron DeSantis said, “We have two contracts in place with two new labs that will increase our lab capacity by 18,000 samples per day.” He added that he expected a 24- to 48-hour turnaround.
“That’s a lot better than we’ve been getting from Quest and LabCorp,” he said. “These labs will be primarily where we send our samples that we collect in the long-term-care and assisted-living facilities and at the community-based walk-up sites.”
The announcement followed DeSantis’ March 9 emergency decree, which allowed state agencies to award contracts to companies without undergoing formal bidding processes, reported Florida Bulldog, an independent non-profit news site.
In his announcement, DeSantis did not identify the companies that had received the lab test contracts. However, Florida Bulldog reported that those companies were:
Indur Services, a Dallas-based health-coaching company, and
Southwest Regional PCR, a CAP-accredited lab in Lubbock, Texas, that does business as MicroGenDX Laboratory (MicroGen Diagnostics, LLC).
The Indur contract—initially valued at $11.3 million—included $10.2 million for 140,000 COVID-19 RT-qPCR test kits, plus additional payment for supplies, Florida Bulldog reported based on information from the state contract database. Later, the contract was reduced to $2.2 million solely for supplies.
The MicroGenDX contract—valued at $11 million—called for 8,000 tests per day for 14 days at a cost of $99 per test, Florida Bulldog reported. That contract was later cancelled due to concerns about reliability and processing speed.
Indur’s Legal Troubles
Indur is a self-described “health and wellness lifestyle and products company” founded in 2017 by Brandt Beal, according to Business Insider. In 2019, Beal pleaded guilty to two felonies involving insurance fraud in Texas and was given 10 years’ probation in each case, Florida Bulldog reported. He also was required to pay restitution. He pleaded guilty to a separate charge of felony theft in 2017 and was sentenced to nine years’ probation.
In an interview with Florida Bulldog, Beal claimed that “the man who pleaded guilty to those charges is actually his cousin with the same name.” However, Beal “would not provide requested contact information for his cousin,” the Florida Bulldog reported, which posted photos demonstrating that the Indur founder and the person who pleaded guilty to the felonies were the same individual.
Jason Mahon, Communications Director at the Florida Division of Emergency Management (above), told Florida Bulldog that Indur’s COVID-19 testing contract was scaled back in May “because Indur Services did not provide testing directly, but rather was providing testing services through another company.” The state then contracted directly with that clinical laboratory company to obtain the COVID-19 testing services. “Time is of the essence when securing these critical testing supplies for Floridians, and that limited time does not allow for the Division to vet every company’s executive leadership or board of directors,” Mahon told Florida Bulldog. (Photo copyright: LinkedIn.)
The amended contract, valued at $2.2 million, called for Indur to deliver swabs and vials. “To date, everything that’s been ordered they’ve delivered on,” said Jared Moskowitz, Director of the Florida Division of Emergency Management department.
Testing Delays Snag MicroGen Diagnostics
The state cancelled its contract with MicroGenDX on May 15, Florida Bulldog reported.
“As with any lab, we do our due diligence to ensure the company will be able to provide reliable services before sending any samples,” said Jason Mahon, Communications Director at the Florida Division of Emergency Management. “Upon further interaction with this vendor, the Division determined that the state could not be 100% confident in the results that would come from this vendor, or with the processing speed, which is critical for COVID-19 testing.”
This came as AdventHealth, a non-profit health system based in Altamonte Springs, Fla., was having its own difficulties with MicroGenDX.
On May 16, AdventHealth announced that it had terminated a COVID-19 testing contract with an unnamed third-party lab, claiming that the provider was “unable to fulfill its obligation.” Multiple media outlets later revealed MicroGenDX as the third-party lab, and USA Today reported that the FDA had launched an investigation.
“This issue impacts more than 25,000 people throughout Central Florida,” stated an AdventHealth press release. “This situation has created unacceptable delays and we do not have confidence in the reliability of the tests.” AdventHealth said it would contact affected individuals about the need for retesting.
However, MicroGenDX CEO Rick Martin refuted the health system’s claims. “You can go after me because I didn’t meet your capacity and I couldn’t deliver on your drive-through testing because of things that I couldn’t control, but don’t attack the reliability of my test,” he told the Orlando Sentinel.
According to MicroGenDX, the company received an emergency use authorization (EUA) from the FDA on April 23 for an internally-developed RT-PCR test that can be performed on nasal swabs or sputum samples, noted a press release. The tests are run in the company’s lab facility in Lubbock, Texas.
One factor in the dispute was the handling of patient samples, USA Today reported. Martin told reporters that representatives from AdventHealth had visited the lab and observed samples that were stored at room temperature. “[Martin] maintains the samples were still valid and that the delays were due to AdventHealth not providing proper patient data and the lab running out of plastic parts used in its equipment,” noted USA Today.
Mahon told Florida Bulldog that the state did not send samples to MicroGenDX for processing. And the Florida Bulldog reported that Martin said his lab was so “hammered with huge volumes of samples” that he would have turned down any requests, adding that Martin “stood by the reliability and accuracy of his firm’s testing and said he looks forward to a day of vindication after federal inspectors conduct any inquiries.”
Collectively, these news stories scratch the surface of a bigger situation involving COVID-19 laboratory testing. The fact that Congress authorized billions of dollars to fund COVID-19 testing was noticed by some individuals who saw the funding as an opportunity to “make a quick buck” if they could get contracts to provide COVID-19 testing—whether they owned a CLIA-certified complex laboratory or not.
Thus, it’s no surprise that more companies are bidding on COVID-19 testing contracts. What remains unknown is how many of those companies are actively soliciting COVID-19 testing contracts throughout the United States.
Given this situation, and the facts recounted above, it is reasonable to ask an obvious question: Why did Florida state officials not do a more rigorous check into the credentials of the clinical laboratory entities they were preparing to award no-competitive-bid contracts to for COVID-19 testing?
Lab leaders may recall similar requests for data from other government agencies and wonder if FTC will take steps to investigate pricing and competition among clinical laboratories as well
It appears that the Federal Trade Commission (FTC) is ready to look into hospital consolidation, as evidenced by the extent of data—including pricing and managed care contracts—it requested from healthcare providers and health insurers last fall. This may not seem unusual to clinical laboratory leaders who remember having to respond to similar requests for information back in 2011.
In October of 2019, the federal agency took the unusual action of ordering two healthcare provider systems in Tennessee and West Virginia, as well as five health insurers, to share vast amounts of data “to study the effects of Certificates of Public Advantage (COPAs) on prices, quality, access, and innovation of healthcare services. The FTC also intends to study the impact of hospital consolidation on employee wages,” stated a news release.
Tale of Two COPAs
On its website, the Tennessee Department of Health describes a COPA as a “written approval by the Tennessee Department of Health (TDH) that governs a Cooperative Agreement (a merger) among two or more hospitals. A COPA provides state action immunity to the hospitals from state and federal antitrust laws by replacing competition with state regulation and Active Supervision. The goal of the COPA process is to protect the interests of the public in the region affected and the State.”
However, in its news release, the FTC described COPAs as “regulatory regimes adopted by state governments intended to displace competition among healthcare providers,” and said that, “COPAs purport to immunize mergers and collaborations from antitrust scrutiny under the state action doctrine. FTC staff are engaged in an ongoing policy project to assess the effects of COPAs, which includes the study of COPAs recently approved for Ballad Health in Tennessee and Virginia, and Cabell Huntington Hospital in West Virginia.”
In its 32-page “Order to File Special Report,” the FTC required the two healthcare organizations to provide “aggregated patient billing and discharge data; health system employee wage data; and other information relevant for analyzing the health systems’ prices, quality, access, and innovation,” the news release states.
The five health insurers required to respond to the FTC’s order included:
Aetna, Inc.
Anthem, Inc.
BlueCross BlueShield of Tennessee
Cigna Corporation
United Healthcare
From these insurers, the FTC required “patient-level commercial claims data,” states the news release.
Is the FTC conducting a study to determine if mergers and acquisitions are giving pricing power to hospitals at the expense of health insurers and patients? The FTC said that it plans to report the study’s findings, as appropriate, and use information to better understand COPAs, inform advocacy, and guide states involved in COPAs, the news release states.
“In the big picture, the FTC is potentially looking out for buyers. In this case, the insurers are the buyers. It’s the health systems that, if the FTC concludes that COPAs are bad for consumers, it would be the hospitals that would stand to lose,” Jonathan Grossman, antitrust attorney and partner at international law firm Cozen O’Conner, told Modern Healthcare. (Photo copyright: Cozen O’Connor.)
What Are COPAs and Do They Circumvent Antitrust Laws?
In a statement, the American Hospital Association (AHA) said COPA laws allow merging providers to make agreements that “might otherwise be subject to antitrust scrutiny.” COPA laws are coming about, AHA added, due to the FTC’s “overly harsh treatment of efficiencies claims made by merging hospitals.”
Big Data Order from FTC
In its order, the FTC required the health systems, providers, and insurer to provide massive amounts of information by January 1, 2020, including:
Patient records related to admissions, outpatient visits, skilled nursing visits, hospice, and other care in the COPA market since Jan 1, 2011;
Billed charges, diagnosis codes, and insurance coverage for the records;
Inpatient admissions, Jan. 1, 2011 to the present, aggregated on a monthly basis;
Data computed separately for Medicaid, Medicare, commercial, and other patients;
Patient totals, their billed charges, and payment by insurers and patients;
Changes in prices since Jan 1, 2011, which Modern Healthcare said is an effort to find “efficiencies, cost savings, and benefits as a result of COPAs”;
Facilities the provider opened, closed, or expanded since Jan. 1, 2011;
Changes in ownership and select capital investments;
Copies of health plan contracts effective since Jan. 1, 2011;
Salary, hours, and benefits of each person employed since Jan. 1, 2011;
And more.
Should Clinical Laboratory Leaders Be Concerned?
Medical lab leaders within hospital multi-lab systems will want to take note of the FTC’s interest in so much information. It was just a few years ago when US Senators Chuck Grassley and Max Baucus asked medical laboratory testing companies and health insurers for similar information, notes a 2011 news release from the office of Iowa Senator Chuck Grassley. Dark Daily reported on this in a November 2011 e-briefing.
The lab testing companies were:
Quest Diagnostics Incorporated (NYSE:DGX)
Laboratory Corporation of America (NYSE:LH)
UnitedHealth Group, Inc. (NYSE:UNH)
Aetna, Inc. (NYSE:AET)
Cigna Corp. (NYSE:CI)
According to the news release, Senators Baucus and Grassley requested “information about a practice where insurers receive discounted pricing from labs in exchange for referrals, including testing for Medicare beneficiaries.” In the letters to the lab companies, the senators described this pricing practice as “pull-through.”
Lab leaders also may recall the federal Department of Health and Human Services (HHS) collecting payment data in 2011 from 50 state Medicaid programs as part of a report on Competitive Bidding for Medicare Part B clinical laboratory services.
Could the FTC’s data request lead to other agencies taking steps that limit how providers set prices and reach out to markets, including clinical laboratories?
Put Prices Out There, President Says
Perhaps all this data collection is about price transparency in healthcare. The Trump Administration took action on healthcare price and quality transparency through the Improving Price and Quality Transparency in American Healthcare executive order. Under the order, the CMS has released two rules requiring hospital pricing information to be publicly available, noted a statement by the HHS.
So, there is a lot of data being shared. It is likely the FTC will share data it collects with other federal healthcare regulatory bodies as well. Therefore, medical laboratory managers would be well advised to stay abreast of mergers and acquisitions in their markets and be ready for future information requests from federal authorities.
Previously unreported email messages and documents paint vivid picture of public health laboratory officials’ dismay and frustration over testing delays
Between late January and early March, Clinical laboratory leaders watched with dismay as federal government missteps crippled the Centers for Disease Control and Prevention’s (CDC) rollout of its COVID-19 diagnostic testing in the early days of the pandemic. The resulting lack of testing capacity enabled the novel coronavirus’ spread across the United States.
This first part of Dark Daily’s two-part e-briefing covers how investigators at the Washington Post (WP) have produced a timeline describing the CDC initial failure to produce a reliable laboratory test for COVID-19 and the regulatory hurdles that blocked medical laboratories from developing their own tests for the virus. The WP’s report is based on previously unreleased email messages and other documents reviewed by the WP, as well as the newspaper’s exclusive interviews with medical laboratory scientists and officials involved.
A New York Times report on the federal government’s initial review of the testing kit failure pinned the blame on sloppy practices at CDC laboratories in Atlanta and a lack of expertise in commercial manufacturing. However, the WP reported that COVID-19 testing kits were delayed due to a “glaring scientific breakdown” at the central lab, created when the CDC facilities that assembled the kits “violated sound manufacturing practices” that resulted in cross contamination of testing compounds.
The US and other countries have criticized China for a lack of transparency about the virus’ emergence, which came to light on December 31, 2019, when China reported a cluster of pneumonia cases in Wuhan, according to a World Health Organization (WHO) timeline. A week later, Chinese authorities identified the pneumonia-like illness as being caused by a new novel coronavirus.
In the US, the first case of COVID-19 was found January 21 in a Washington State man who had traveled to Wuhan. But in the weeks that followed, the US government’s inability to establish a systematic testing policy became the catalyst for the virus’ ultimate spread to more than two million people, notes the CDC website.
ProPublica, which conducted its own investigation into the early stages of the government’s coronavirus response, blamed the failures on “chaos” at the CDC and “an antiquated public health system trying to adapt on the fly.”
The CDC’s first mistake may have been underestimating the danger COVID-19 posed to public health in this country. During a January 15 conference call, CDC scientists assured state and county public health officials that the agency was developing a COVID-19 diagnostic test which soon would be available, but which may not be needed “unless the scope gets much larger than we anticipate right now,” reported the WP.
A week later, an interview with CNBC, President Trump said, “We have it under control. It’s going to be just fine.”
CDC scientists designed their test in seven days, which, according to the WP investigators, is “a stunningly short period of time for a healthcare system built around the principles of medical quality and patient safety, not speed.” But when those initial CDC-made tests arrived at a New York City public health laboratory on February 8, lab technicians discovered the COVID-19 assays often indicated the presence of the coronavirus in samples that the lab’s scientists knew did not contain the virus.
When the scientists informed Lab Director Jennifer Rakeman, PhD, Assistant Commissioner, New York City Department of Health and Mental Hygiene, her response, according to the WP, was “Oh, s—. What are we going to do now?”
That night, Director Jill Taylor, PhD, Director of New York State’s Wadsworth Center public health reference laboratory, emailed state health officials, stating, “There is a technical problem in one of the reagents which invalidates the assay and will not allow us to perform the assay,” reported the WP. “I’m sorry not to have better news.”
Scott Becker (above), Executive Director of the Association of Public Health Laboratories (APHL), voiced his concerns about the CDC’s flawed COVID-19 test kits in an email to a CDC official, reported the WP. “The states and their governors are going to come unglued,” Becker wrote, adding, “If the CDC doesn’t get ahead of this, it will be a disaster.” (Photo copyright: Bill O’Leary/The Washington Post.)
‘The Silence from CDC is Deafening’
On February 10, Joanne Bartkus, PhD, then-Lab Director of the Minnesota Health of Department, wrote to APHL Executive Director Scott Becker: “The silence from CDC … is deafening. What is going on?” reported the WP.
By the end of February, the Associated Press (AP) reported that only 472 patients had been tested for COVID-19 nationwide. By comparison, South Korea, which identified its first case of COVID-19 on the same day as the US, was testing 1,000 people per day.
A WHO spokesperson told the WP that, “… no discussions occurred between WHO and CDC (or other US government agencies) about WHO providing COVID-19 tests to the US.” When the CDC’s original COVID-19 test kit failed, there may not have been a Plan B. This may explain why the opportunity to contain COVID-19 through surveillance testing was lost during the weeks it took to design a fix for the CDC test and loosen regulations so clinical laboratories could develop their own tests.
As medical laboratory scientists and clinical laboratory leaders know, the lack of early COVID-19 testing was a public health failure and painted a false picture of the virus’ spread. Nearly five months after the first case of the virus was confirmed in the US, testing capacity may only now be outpacing demand.
Click here to read part two of our coverage of the Washington Post’s investigation.
Though some experts claim widespread antibody testing is key to effective public health safety, the WHO warns positive serological tests may not indicate immunity from reinfection or transmission of SARS-CoV-2
It may be the largest program of clinical laboratory testing ever conducted in the United States. Health officials are preparing to undertake large-scale serological surveys (serosurveys) to detect and track previously undetected cases of SARS-CoV-2, the novel coronavirus, that causes the COVID-19 illness.
Microbiologists, epidemiologists, and medical laboratory leaders will be interested in these studies, which are aimed at determining how many adults in the US with no confirmed history of SARS-CoV-2 infection actually possess antibodies to the coronavirus.
Serological screening testing may also enable employers to identify employees who can safely return to their job. And researchers may be able to identify communities and populations that have been most affected by the virus.
Serological Study of COVID-19 Taking Place in Five States
In an interview with Science, Michael Busch, MD, PhD, Senior Vice President, Research and Scientific Affairs of Vitalant (formerly Blood Systems), one of the nation’s oldest and largest nonprofit community blood service providers, and Director of the Vitalant Research Institute, discussed several serological studies in which he is involved. The first study, which he said is being funded by the National Institutes of Health (NIH), is taking place in six metropolitan regions in the US: Seattle, New York City, San Francisco, Los Angeles, Boston, and Minneapolis.
The interesting twist in these studies is that they will test blood samples from people donating blood. In March, participating blood centers in each region started saving 1,000 donor samples per month. Six thousand samples will be assessed monthly for a six-month period using an antibody testing algorithm that enables researchers to monitor how people develop SARS-CoV-2 antibodies over time.
Busch told Science this regional study will evolve into three “national, fully representative serosurveys of the US population using blood donors.” This particular national serosurvey will study 50,000 donations in September and December of 2020 and in November 2021.
“We’re going to be estimating overall antibody prevalence to SARS-CoV-2 within each state, but also map it down within the states to regions and metropolitan urban areas, and look at the differences,” Busch told Science, which called the serosurvey “unprecedented.”
“It’s certainly the largest serosurvey I’ve ever been involved with,” Busch said.
In the third NIH serosurvey, according to Busch, NIH blood-donor serosurveys will be compared with results from population serosurveys taking place through the University of Washington and University of California San Francisco, which involve neighborhood door knocking and sampling from hematology labs.
“An antibody test is looking back into the immune system’s history with a rearview mirror,” said Matthew J. Memoli, MD (above,) an infection disease specialist with the NIH and Director of the National Institute of Allergy and Infectious Diseases (NIAID), in a news release. “By analyzing an individual’s blood, we can determine if that person has encountered SARS-CoV-2 previously.” (Photo copyright: National Institutes of Health.)
Some of the SARS-CoV-2 serological surveys underway include:
The National Institutes of Health serosurvey involving as many as 10,000 adults in the US who have no confirmed history of infection with SARS-CoV-2, which will analyze blood samples for two types of antibodies—anti-SARS-CoV-2 protein IgG and IgM. Researchers also may perform additional tests to evaluate volunteers’ immune responses to the virus.
A World Health Organization (WHO) coordinated follow-up study to its Solidarity Trial named Solidarity 2, which will “pool data from research groups in different countries to compare rates of infection,” which WHO officials say is ‘critical’ to understanding the true extent of the pandemic and to inform policy, Research Professionals News reported.
In Germany, the Robert Koch Institute, the country’s disease control and prevention agency, is tackling Europe’s first large-scale COVID-19 antibody testing. Its three-phase study will include serological testing on blood from donation centers, followed by testing on blood samples from coronavirus regional hotspots and then the country’s broader population.
But Can Serological Testing Prove Immunity to COVID-19?
However, whether having COVID-19 antibodies will make people immune to reinfection or unable to spread the disease is not yet known.
“We don’t have nearly the immunological or biological data at this point to say that if someone has a strong enough immune response that they are protected from symptoms, … that they cannot be transmitters,” Michael Mina, MD, PhD, Assistant Professor of Epidemiology at Harvard’s T.H. Chan School of Public Health and Associate Medical Director in Clinical Microbiology (molecular diagnostics) in the Department of Pathology at Brigham and Women’s Hospital, told STAT.
The Times of Sweden reported the WHO warned in mid-April that there is no proof recovering from COVID-19 provides immunity.
“There are a lot of countries that are suggesting using rapid diagnostic serological tests to be able to capture what they think will be a measure of immunity,” said Maria Van Kerkhove, PhD, the WHO’s Technical Lead for COVID-19, at a news conference in Geneva, Switzerland, the Times of Sweden reported.
“Right now, we have no evidence that the use of a serological test can show that an individual has immunity or is protected from reinfection,” she said, adding, “These antibody tests will be able to measure that level of seroprevalence—that level of antibodies—but that does not mean that somebody with antibodies [is] immune.”
In addition, the reliability and quality of some serological tests produced in China, as well as some being manufactured in the US, have come into question, the Financial Times reported.
Nevertheless, as serological testing for COVID-19 becomes more widespread, clinical laboratories should plan to play an ever-increasing role in the battle to stop a second wave of the epidemic in this country.
Limited availability of COVID-19 clinical lab tests is major topic at federal briefings and news stories, yet many of nation’s labs are laying off staff and at point of closing
Cash flow at the nation’s clinical laboratories has crashed, with revenues down by more than $5 billion since early March. This is the biggest financial disaster for the nation’s clinical laboratory industry in its 100-year history and it couldn’t come at a worse time for the American public and the US healthcare system.
At the precise moment when the nation needs clinical laboratories to begin performing millions of tests for SARS-CoV-2, the coronavirus that causes the COVID-19 illness, those same labs are watching their cash flow collapse.
Data from multiple sources gathered by The Dark Report, sister publication of Dark Daily, confirm that—beginning in early March and continuing through last week—clinical laboratories in the United States saw incoming flows of routine specimens decline by between 50% and 60%. During this same time, lab revenue fell by similar amounts.
Clinical Lab Industry Currently Losing $800 to $900 Million Weekly
To give this decline context, the healthcare system spends about $80 billion annually on medical laboratory testing. Thus, labs across the US generated about $1.5 billion in revenue each week during 2019 and into 2020. By April 5, the decline in routine lab specimen volumes reached 55% to 60%. Since then, the clinical lab industry now loses between $800 million and $900 million each week. Total revenue loss from previous levels is already estimated to be $5.2 billion, and it is growing by an additional $800 million to $900 million every week that patients stay away from hospitals and physicians’ offices.
In the eight weeks since the COVID-19 pandemic caused patients to cease coming to hospitals and visiting their doctors, incoming routine specimens and revenue fell by 60%, causing cumulative lost routine revenue of $5.2 billion for the clinical laboratory industry in the United States. Each week that the existing shelter-in-place directives are effective, labs lose another $800 million to $900 million. The Dark Report based these estimates on data provided by multiple companies working with lab billing/claims, middleware analytical solutions, and customer relationship management (CRM) and electronic health record (EHR) products. (Chart copyright: The Dark Intelligence Group, Inc.)
The recent dire financial condition of labs small and large has gone unremarked by federal healthcare officials at the daily White House COVID-19 Task Force briefings. National news sources have yet to report on this development and its implications for successfully expanding the availability and numbers of COVID-19 tests in response to the pandemic.
The rapid and deep decline in specimens and revenue is not limited to clinical laboratories. Biopsy cases referred to anatomic pathology groups have declined by 50% to 60%. Some subspecialty pathology labs saw case referrals drop by 80% or more.
The nation’s two biggest clinical laboratory companies confirmed similar declines in their normal daily flow of routine specimens. Both companies recently reported first-quarter earnings (which included the month of March).
Quest Diagnostics, LabCorp Each Disclose Volume Declines of 50% to 60%
During its Q1 2020 earnings conference call, Chairman, President, and CEO of Quest Diagnostics (NYSE:DGX), Steve Rusckowski, stated, “In April, volume declines continue to intensify as we are seeing signs that volume declines are bottoming out at around 50% to 60%.”
The drop-off in routine lab test referrals was the similar at LabCorp (NYSE:LH). “In our diagnostics business, at the end of the quarter, we experienced reductions in demand for testing of 50% to 55% versus the company’s normal daily levels,” explained Glenn Eisenberg, Executive Vice President and CFO during LabCorp’s Q1 2020 earnings call. “This reduction in demand impacted testing volume broadly but was more heavily weighted towards routine procedures.”
Interviews with independent clinical lab owners and the administrative directors of hospital and health system labs further confirm this rapid and dramatic decline in the number of routine specimens arriving in their labs. Fewer specimens mean fewer claims, which means less revenue to laboratories.
Two Different Financial Futures for ‘Have’ Labs and ‘Have Not’ Labs
What happens next to the clinical laboratory industry in the United States—and to its ability to continue ramping up the availability of adequate numbers of COVID-19 tests in major cities, small towns, and rural areas—will be a story of “haves” and “have nots.”
The “haves” are clinical labs that have access to money. These are publicly-traded lab companies, academic medical center labs, and the sophisticated labs of health networks that operate multiple hospitals. In each case, these organizations have capital reserves and access to loans that will probably enable them to sustain COVID-19 lab testing services at the large volumes required to respond to the pandemic.
clinical labs operated by community hospitals and rural hospitals that were not financially robust before the onset of the pandemic; and,
specialty lab companies that perform a specific number of proprietary diagnostic tests (and for which demand has collapsed as patients stopped seeing their doctors).
Medicare Led Payers in the ‘Lab Test Price Race to the Bottom’
Prior to the onset of the SARS-CoV-2 pandemic, the finances of the “have-not” labs were already shaky, with many on the verge of filing bankruptcy, closing, or selling to a bigger lab company. Much blame for the deteriorating finances at a large proportion of community lab companies, community hospital labs, and rural hospital labs can be attributed to the deep, multi-year price cuts to the Medicare Part B clinical laboratory fee schedule as mandated by the Protecting Access to Medicare Act of 2014 (PAMA).
Medicare’s multi-year cuts to lab test prices were immediately copied by most state Medicaid programs. During this period, private payers followed Medicare’s lead and enacted their own deep cuts to the prices they paid labs for both routine tests and molecular/genetic tests.
That is why—when the pandemic intensified in early March—the 50% to 60% drop in specimens and revenue that hit these labs starved them of essential cash flow. When polled, the owners and directors of these labs acknowledge layoffs of the majority of their staff in all departments. They also reported substantial delays—both in submitted lab test claims and in getting payment for those claims—because claims-processing departments at the labs and private health insurers are understaffed due to shelter-in-place directives.
COVID-19 Test Revenue Helps Only Labs Performing Those Tests
Revenue from COVID-19 testing is helping certain labs offset the revenue loss from fewer routine specimens. XIFIN, Inc., a San Diego company that provides revenue cycle management (RCM) services for clinical laboratories and pathology groups, analyzed the lab test claims for COVID-19 rapid molecular tests. It determined that labs performing these tests are generating enough revenue from these test claims to equal about 20% of their pre-pandemic revenue.
The chart above was prepared by XIFIN, Inc., of San Diego and is based on the changes XIFIN observed in the volume of routine clinical laboratory test claims generated by client labs on a weekly basis. In the first two months of 2020, routine lab test claims ran at expected levels until the first week of March. During the rest of March, routine lab test claims declined by 60%. During April, incoming routine lab test claims remained 55% to 60% below pre-pandemic levels. The shaded area shows the number of COVID-19 test claims coming into clinical labs. XIFIN says COVID-19 test claims make up about 20% of the decline in routine test specimens for those labs performing COVID-19 tests. The Dark Report estimates that the clinical laboratory industry has lost $800 million to $900 million in routine test revenue each week since March 23. Weekly revenue losses will continue at this rate until patients begin visiting their physicians and hospitals again perform elective services. (Chart copyright: XIFIN, Inc.)
Many CLIA-certified community laboratories and hospital labs have the diagnostic instruments and experience to perform rapid molecular tests for COVID-19. But when contacted, they tell us that their suppliers do not ship them even minimal quantities of the COVID-19 kits, the reagents, and the consumables. Thus, they cannot meet the needs of their client physicians. Instead, they watch as these physicians refer COVID-19 tests to the nation’s largest labs. The supply shortage prevents these smaller labs from doing larger numbers of COVID-19 test for the patients in the communities they serve. It also prevents them from earning the revenues from COVID-19 testing that currently helps the nation’s “have” labs offset the decline in revenue from routine testing.
Congress, national healthcare policymakers, and state governors need to immediately address this situation. Each week that passes during the COVID-19 pandemic and the shelter-in-place directives drains another $800 million to $900 million in revenue from routine lab testing that previously flowed into the nation’s clinical laboratories.
‘Have-not’ Clinical Labs in Small Towns Will Quietly Shrink and Disappear
Without timely intervention and financial support, the nation’s network of ‘have not’ labs, which have so capably served towns away from big metropolitan centers and rural areas, will quietly begin shrinking. One at a time, labs in small towns will close or sell. Local lab facilities will be shuttered and specimens from small-town patients will be transported to big labs hundreds or thousands of miles away.
It is also true that the financial disaster besetting the nation’s clinical laboratory industry will have comparable dramatic consequences for the in vitro diagnostics (IVD) manufacturers that sell them automation, analyzers, reagents, and other supplies. Since early March, IVD manufacturers watched as the pandemic caused orders for new instruments to collapse. During these same weeks, their clinical lab customers ceased ordering routine test kits at pre-pandemic levels. Dark Daily will cover the challenges confronting the IVD and other diagnostics industries in future e-briefings.
Announcing Free COVID-19 STAT Intelligence Briefings for Clinical Labs
With the COVID-19 pandemic creating chaos in nearly every aspect of healthcare, business, and society, clinical labs and their suppliers need timely intelligence and analysis about the innovations and successes achieved by their peers. This week, Dark Daily and The Dark Report are launching COVID-19 STAT Intelligence Briefings (Copy and paste this URL into your browser: https://www.covid19briefings.com). This comprehensive service is free and will cover four basic areas of needs for clinical laboratories as they ramp up COVID-19 testing:
Daily and weekly COVID-19 testing dashboards to guide every lab’s short-term planning;
Proven steps for labs to introduce and validate COVID-19 tests (both rapid molecular tests and serology tests);
Getting paid for COVID-19 testing to ensure every lab’s financial stability and clinical quality; and
Legal and regulatory updates for labs doing COVID19 tests to ensure full compliance.
Also, to help clinical laboratory leaders deal with the coming wave of COVID-19 serology tests, we are producing a free webinar led by James O. Westgard, PhD, FACB, and Sten Westgard, Director of Client Services and Technology, of Westgard QC, Inc.
Each week that the SARS-CoV-2 pandemic continues, and strict shelter-in-place directives are in place, the clinical laboratory industry loses another almost $900 million in revenue from lower volumes of routine testing. No industry can survive when its incoming revenue collapses by 50% to 60% for sustained periods of time.
Will Congress Recognize the Need for a Financial Rescue of ‘Have-not’ Labs?
Thus, it is incumbent on Congress, elected officials, and healthcare policymakers to recognize the financial consequences of the pandemic to the nation’s clinical laboratories. That is particularly true of the ‘have-not’ clinical labs. They do not have the same access to decisionmakers in government as billion-dollar lab companies.
And yet, these labs located in small communities and rural areas often are the only local labs that can do STAT testing in a couple of hours, and where clinical pathologists are personally familiar with local physicians and patients.
These “have-not” labs are vital healthcare resources. They should receive the help they need to get through this unprecedented crisis that is the COVID-19 pandemic.
Two major clinical laboratory conferences reschedule, as the SARS-CoV-2 pandemic continues to disrupt long-planned events; Many labs are losing money as fewer patients visit physicians
This week, the ongoing Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2) pandemic was responsible for two important developments in the clinical laboratory industry. Both involved the rescheduling of major annual conferences. In both cases, conference organizers are placing different bets on when they think the COVID-19 outbreak, the illness caused by the SARS-CoV-2 coronavirus, will have passed and when they believe some semblance of normalcy will return to both social interaction and business activities.
On Monday, the American Association of Clinical Chemistry (AACC) announced that it would reschedule its 2020 AACC annual meeting and exhibition—originally scheduled for July 26-30, 2020, at McCormick Place in Chicago—to Dec. 13-17, 2020, also at McCormick Place.
On the same day, Dark Daily’s sister publication, The Dark Report, announced it had rescheduled the 25th annual Executive War College on Laboratory and Pathology Management to new dates and to a new hotel. This conference will now take place on July 14-15, 2020, at the Hyatt Regency Hotel in New Orleans. This is a change from the originally scheduled date of April 28-29, 2020, and from the original location, the Sheraton New Orleans Hotel.
On its website, AACC stated: “Based on input from all stakeholder groups, and in close collaboration with host city officials, the organization is pleased to announce that AACC will be able to preserve the complete Annual Scientific Meeting and Clinical Lab Expo experience to which its members, exhibitors, and the entire laboratory medicine community have been looking forward. The 2020 AACC Annual Scientific Meeting and Clinical Lab Expo will now be held December 13-17, 2020, at McCormick Place in Chicago, IL, USA.”
Each conference claims to be “the largest” in some
dimension. Each year, AACC’s annual conference attracts more than 20,000
attendees, as measured by clinical chemists and other visitors to its Expo,
which features more than 750 lab companies.
While the Executive War College claims to be the largest conference serving the business, management, operations, and financial health needs of clinical laboratories and pathology groups. Each year, it hosts almost 900 attendees—generally senior administrators, lab executives, pathologist-business leaders, consultants, and in vitro diagnostics (IVD) manufacturers. The conference is supported by more than 50 corporate benefactors and sponsors.
AACC’s rescheduling of its conference from July to December
will delay two important activities:
Many lab scientists planning to attend were hoping to participate in the first assessments of the novel coronavirus pandemic, assuming that the pandemic had passed by mid-summer.
During AACC is when the nation’s major IVD manufacturers and companies that sell lab automation, instruments, test kits, reagents, and other products introduce their latest-generation solutions. Now, many of those product launches will be pushed back to December.
Meanwhile, organizers of the Executive War College are betting that the novel coronavirus pandemic will taper down, possibly synchronized with the end of the annual influenza season in North America, which is typically sometime in April or early May.
If this proves true, then conducting the conference on July 14-15, 2020, will give lab leaders the opportunity to gather and share lessons learned during this COVID-19 outbreak in time to prepare for a possible second outbreak of COVID-19 when the next influenza season arrives in the fall. It will also be an important opportunity for lab managers and pathologists to learn ways to restore revenue lost during the pandemic.
Clinical Laboratories, Pathology Groups, Hospitals, at
Brink of Financial Ruin
“What has gone unrecognized by the national news media is how the novel coronavirus pandemic is causing financial devastation to the finances of the nation’s clinical laboratories and anatomic pathology groups,” stated Robert L. Michel, Editor-in-Chief of The Dark Report and Founder of the Executive War College. “In absolute terms, the pandemic is a growing financial disaster to the medical lab industry, and it will take years for many labs to rebuild the staff that they have laid off or terminated in recent months in order to stay operational.
“Why are all labs losing money at this time?” asked Michel.
“The answer is simple—beginning early in March, patients stopped visiting their
doctors. Hospitals ceased to admit patients for elective procedures. Fewer
patients per day means fewer lab test referrals per day and loss of the revenue
generated by those claims that pays the salaries and expenses of the labs
performing those tests. Laying off or furloughing staff is one way labs lower
costs in response to lower income.
“Many clinical labs, pathology groups, and the hospitals
they serve are steadily approaching financial ruin,” he continued. “Every week
the pandemic continues, and North American citizens are advised to shelter in
place, forces labs to draw down their dwindling financial reserves to keep
their doors open.”
Robert Michel (above), Editor-in-Chief of The Dark Report and Dark Daily and Founder of The Dark Intelligence Group, will host the 25th anniversary Executive War College on Lab and Pathology Management on July 14-15, 2020, in New Orleans. Attendees from clinical laboratories and pathology groups will gain critical insights from such learning opportunities as: “Preparing Your Lab for a Second Outbreak of COVID-19,” and “Rapidly Building Cash Flow and Restoring Your Lab’s Financial Stability Post-Pandemic.” (Photo copyright: The Dark Report.)
This crisis has created three big questions that labs need
to answer:
How much longer will the COVID-19 pandemic last
before some degree of normalcy is restored (meaning patient office visits resume
and physicians begin ordering lab tests every day)?
If there is a second outbreak of SARS-CoV-2 this
fall, what does every lab need to know to be ready?
As American society and business return to
normal, how can labs quickly build up cash flow, collect more revenue, and
restore financial stability?
“Given the unknown aspects of the SARS-CoV-2 coronavirus,
the answer to the first question is a crap-shoot. But to reschedule the
Executive War College to dates that are 14 weeks away seems a reasonable bet,”
noted Michel. “The pay-off to that bet is the ability to provide the owners and
leaders of the nation’s labs answers to the second and third questions.
“The 14 weeks between now and mid-July give us the
opportunity to organize sessions and invite speakers who can provide answers
and information to help labs with their two most pressing needs: to be prepared
for another COVID-19 outbreak later this year, and to restore cash flow and
financial health as soon as possible,” said Michel. “This will be the very
first opportunity for lab managers and pathologists to assemble, learn the
COVID-19 lessons from successful labs, gain financial insights, and network
with their peers.”
The Executive War College team is inviting suggestions for
speakers and session topics for the July 14-15 conference. The original agenda
that was taking shape for the planned dates of April 28-29 will be revised so
as to include presentations now directly relevant to the state of the clinical
lab and pathology professions for mid-year 2020. Send your suggestions for
topics and speakers to info@darkreport.com.
Information on registering for the 25th annual Executive War College, and on placing reservations at the Hyatt Regency Hotel in New Orleans, is available on the EWC website (or copy and paste this URL in your browser: https://www.executivewarcollege.com.)
People already registered for Executive War College 2020
will have their registrations automatically applied to the new July 14-15
dates.
