Judge will decide the restitution Holmes must pay to defrauded Theranos investors at future court date; Ex-COO Ramesh “Sunny” Balwani to be sentenced next month
Clinical laboratory leaders and anatomic pathologists who closely followed the fraud trial of Elizabeth Holmes may have wondered how the Theranos founder and ex-CEO would be punished for her crimes. Now we know.
Late into the four-hour sentencing hearing, Holmes tearfully spoke, according to a twitter post by NBC reporter Scott Budman, who was in the courtroom. “I am devastated by my failings,” Holmes said. “I have felt deep pain for what people went through because I have failed them … To investors, patients, I am sorry.”
Davila ordered Holmes to surrender to authorities on April 27 to begin her time behind bars. She is free until that time. Her upcoming prison term caps off one of the biggest downfalls ever of an American entrepreneur.
Elizabeth Holmes (above), founder and former CEO of Theranos, the now defunct clinical laboratory company, as she enters the federal courthouse in San Jose, Calif., prior to her sentencing on Friday. In January, Holmes was convicted on three counts of wire fraud and one count of conspiracy. Last summer, Theranos’ former CLIA laboratory director, pathologist Adam Rosendorff, MD, expressed remorse over his testimony which led to Holmes’ defense team requesting a new trial. The judge denied that request and allowed the sentencing of Holmes to proceed as scheduled. (Photo copyright: Jim Wilson/The New York Times.)
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Defense Lawyers Plan to Appeal
Dean Johnson, JD, a California criminal defense lawyer, told NBC Bay Area News during live coverage of the hearing on Friday that Holmes’ defense team will appeal her conviction.
“I have no doubt there will be an appeal in this case,” Johnson said.
Judge Edward Davila, who oversaw Holmes’ trial and sentencing hearing in US District Court in San Jose, Calif., estimated that the total loss for Theranos investors was $121 million. Investors had committed funds to support the company’s flawed Edison blood testing technology. A separate restitution hearing for Holmes will be scheduled for a later date.
Beyond the sentencing, Holmes, 38, will be saddled by infamy for the rest of her life, with her past reputation as a charismatic innovator ruined.
“The judge [said] evidence shows Elizabeth Holmes was leader of the company, but not necessarily the leader of the criminal acts,” Budman tweeted. Those words clearly pointed to Balwani, who Holmes’ defense team had painted as exerting control over her and the company.
Prosecutors Sought a Stiffer Sentence for Holmes
Prosecutors had asked Davila to sentence Holmes to 15 years in prison, arguing that her conviction represented “one of the most substantial white collar offenses Silicon Valley or any other district has seen,” according to NBC Bay Area News, which cited court documents. The government also wanted her to pay $803 million in restitution.
Holmes’ defense team, however, wished for no prison time at all, instead asking that Holmes serve time under house arrest. “If a period of confinement is necessary, the defense suggests that a term of 18 months or less, with a subsequent supervised release period that requires community service, will amply meet that charge,” her lawyers wrote in a court filing.
Prior to the sentencing, Davila received 130 letters supporting Holmes and asking for leniency, NPR reported. Among them was a note from William “Billy” Evans, Holmes’ partner.
“If you are to know Liz, it is to know that she is honest, humble, selfless, and kind beyond what most people have ever experienced,” Evans wrote, NPR reported. “Please let her be free.”
Holmes and Evans have a 16-month-old son together, and she is pregnant with the couple’s second child. Her first pregnancy caused her trial to be rescheduled. Prior to last week’s sentencing, some reporters covering the trial speculated that because Holmes was the mother of an infant—and now pregnant again—the judge might be more lenient in sentencing. The 11-year, four-month sentence indicates that the judge was not much influenced by that factor.
Last Minute Pitch for New Trial Failed
Holmes’ legal wranglings continued until the very end.
However, Rosendorff later told the court that he stood by his testimony about problems with Theranos’ blood testing technology.
In denying the request for a new trial, Davila wrote, “The court finds Dr. Rosendorff’s statements under oath to be credible,” according to The Washington Post.
From Teen Founder to Disgraced Entrepreneur
Holmes founded Theranos in 2003 at age 19 while she was attending Stanford University as a chemical engineering major. She dropped out of Stanford as a sophomore to focus on her new company.
Theranos claimed its technology—known as Edison—could perform diagnostics tests using a finger prick and a micro-specimen vial instead of a needle and several Vacutainers of blood. The company said it could return results to patients and clinicians in four hours for about half of the cost of typical lab test fees.
However, the promise of this technology began to unravel in 2015 following an investigative article by The Wall Street Journal that revealed the company ran only a handful of tests using its technology, instead relying on traditional testing for most of its specimen work.
Following The Journal’s exposé, the Centers for Medicare and Medicaid Services (CMS) sanctioned Theranos and Holmes in 2016. Meanwhile, the US Securities and Exchange Commission (SEC) investigated Holmes for raising hundreds of millions from investors by exaggerating or making false statements about the company’s technology and financial performance.
In 2018, the US Department of Justice (DOJ) indicted Holmes and Balwani, and Theranos closed shortly after.
Fortunately, the Theranos saga has not stunted investment in healthcare technology startups. Spending was in the tens of billions in 2021, although that number has dropped this year as the COVID-19 pandemic has waned, according to TechCrunch. Nevertheless, it is safe to assume that healthcare tech investors are scrutinizing scientific data from startups more thoroughly because of the Theranos fraud case.
Meanwhile, the saga of Theranos continues to leave a bad taste in the mouths of many clinical laboratory managers and pathologists. That’s because, during the peak period of adulation and spectacular news coverage about Elizabeth Holmes and her plans to totally disrupt the clinical laboratory industry, hospital and health system CEOs believed that they would be able to downsize their in-house medical laboratories and obtain lab tests from Theranos at savings of 50% or more. Consequently, during the years 2013 through the end of 2015, some hospital lab leaders saw requests for capital investment in their labs denied or delayed.
One example of how hospital CEOs embraced news of Theranos’ blood testing technology took place at the Cleveland Clinic. Elizabeth Holmes did such a good job selling the benefits of the Edison technology, then-CEO, Toby Cosgrove, MD, placed Theranos at number three on its list of top ten medical innovations for 2015.
In later years, Cosgrove admitted that no one at Cleveland Clinic or its pathologists were allowed to examine the analyzers and evaluate the technology.
It was for these reasons that the demise of Theranos was welcomed by many hospital lab administrators and pathologists. The fact that two of Theranos’ senior executives have been convicted of fraud validates many of the serious concerns that medical laboratory professionals had at that time, but which most major news reporters and media ignored and failed to report to the public.
Several young companies hope to expand the direct-to-consumer test market by introducing new diagnostic tests to serve the women’s health market
Providing women with at-home lab test kits is the goal of a growing class of start-up companies that are bringing to market consumer test kits for a range of health conditions common to women. These companies believe they can shift a substantial volume of such testing away from the nation’s medical laboratories.
Moreover, diagnostic startups that develop at-home direct-to-consumer (DTC) clinical laboratory genetic tests have been hot commodities among venture capitalists and other healthcare investors willing to put tens of millions of dollars into these new firms. The New York Times observed that, until recently, women’s healthcare needs have rarely been the focus of new diagnostic testing companies, but that the situation may be changing.
“Femtech” (short for female technology) products and services that address the health and wellness needs of women is the new buzz word in healthcare. It describes female-focused diagnostic startups aiming at vaginal health and other medical issues that go beyond reproductive health concerns.
This, however, is a dual-edged sword for clinical laboratory leaders. Growth in this segment could lead to new diagnostics tests that boost a medical lab’s bottom line or, conversely, it could reduce revenue as patients self-diagnose urinary tract infections (UTIs), yeast infections, and other conditions through at-home DTC testing.
“The market potential is huge,” Michelle Tempest, MD (above), a partner at the London-based healthcare consulting firm Candesic, told The New York Times. “There’s definitely an increasing appetite for anything in the world which is technology and a realization that female consumer power has arrived—and that it’s arrived in healthcare.” Tempest maintains the women’s health marketplace is ripe for growth, which could mean a boon for clinical laboratory testing and diagnostics designed specifically for women. (Photo copyright: Candesic.)
Vaginal Microbiome At-home Clinical Laboratory Tests in High Demand
One area in particular drawing the attention of several female-led startups is vaginal health. According to an article in Vogue, test developers Juno Bio and Evvy are leading the way with at-home vaginal microbiome tests that let users “know what’s up down there.”
New York City-based Evvy ($129 for a single test or $99 each for four tests per year) uses metagenomic sequencing to identify the bacteria and fungi present in the vaginal microbiome. This information helps customers to understand their levels of protective and disruptive bacteria, which can be associated with everything from reoccurring infections and transmission of sexually transmitted diseases to infertility.
London-based Juno Bio ($149 per test) does not disclose its testing method. It does, however, provide users with a “full vaginal microbiome profile.” The profile is accessed online within a “few days” of returning the vaginal swab sample to the company’s clinical laboratory.
Both companies note that their tests are intended to be used for wellness purposes and are not meant to diagnose or treat disease or substitute for a physician’s consultation.
Gynecologist Oluwatosin Goje, MD, MSCR, FACOG, a reproductive infectious disease specialist at Cleveland Clinic, believes the availability of at-home vaginal microbiome testing will provide valuable information to both women and their doctors.
“It’s a powerful tool because it enables us to look at the entire microbial community through metagenomics and decipher how the overall composition might be affecting symptoms and infections, as well as determine the best treatment pathway,” Goje, an Evvy Medical Advisor, told Vogue. “Understanding the complete vaginal microbiome allows us to be good antibiotic stewards and only administer antibiotics when needed. Patients can also retest remotely to understand how antibiotics and other treatments impacted their vaginal microbiome.”
Evvy, which offers women an at-home vaginal microbiome test (above) that can provide insights into chronic vaginal infections and proclivity to contract sexually transmitted diseases and other women’s health issues, is one of several women-led diagnostic start-ups focused on women’s health. (Photo copyright: Evvy.)
Removing the Discomfort of Shopping for Women’s Health Products
Jamie Norwood and Cynthia Plotch, co-founders of Stix, a supplier of women’s health products and education, launched their company with a product line of at-home pregnancy and ovulation tests. They have since expanded their offerings to include urinary tract infection (UTI) and yeast infection testing and treatments.
“You can test, relieve, treat, and help prevent future infections—all from the comfort of your own home,” Norwood, told Vogue. She emphasized that this is the kind of experience healthcare consumers are demanding in today’s ever-growing direct-to-consumer clinical laboratory testing landscape. “Agonizing over confusing over-the-counter products in the drugstore aisles, or bending over backwards to pick up a prescription at the pharmacy, just isn’t cutting it for Millennial and Gen Z consumers.”
According to WebMD, yeast infections are a chronic problem for many women. While 75% of women will get at least one yeast infection in their lifetime, up to 8% get more than four a year. In addition, the federal Centers for Disease Control and Prevention (CDC) points out that bacterial vaginosis is the most common vaginal condition in females ages 15-44.
Lola Priego, is CEO and founder of blood test company Base, which sells at-home saliva and finger-prick blood tests to monitor hormone levels, vitamin levels, neurotransmitters, and blood cell markers to improve everything from sleep and diet to sex drive. She predicts direct-to-consumer testing will become as common as fitness watches.
“Eventually, at-home lab testing will be another readily-used tool, similar to your health-tracking wearables, that helps us optimize for a well-rounded healthy lifestyle in a more individualized way,” Priego told Vogue.
Femtech a ‘Significantly Underdeveloped’ Market
In its latest Analyst Note, financial data firm PitchBook maintained that the market for female health products is poised for growth. TechCrunch, which reviewed PitchBook’s analysis of female-focused health products, reported that Femtech remains a “significantly underdeveloped” slice of health-tech spending.
While women spend an estimated $500 billion annually on medical expenses, only 4% of research and development money is targeted at women’s health, PitchBook noted. In its analysis, Pitchbook predicted the global market for female-focused health products will reach $3 billion by the end of 2030. By comparison, that segment of the healthcare market totaled $820.6 million last year.
“While we still view Femtech as a niche industry, we believe secular drivers could help propel new growth opportunities in the space,” PitchBook analysts wrote. “These include the increasing representation of women in the venture-backed technology community, rising awareness and acceptance of women’s health issues, and the growing prevalence of infectious diseases among women in some countries in Africa and Asia.
“Furthermore, while the majority of Femtech products have traditionally focused on reproductive health, we believe new approaches to women’s health research will help open the door to new products and services,” they noted.
Clinical laboratory leaders will be wise to carefully watch the growth of at-home DTC tests and products targeted at female healthcare consumers since fewer trips to physicians’ offices may mean fewer test orders for local labs.
At the same time, the opportunity exists for innovative pathologists and lab managers to develop digital services that allow consumers who are self-testing to store their home-test results in the lab’s app. They can then receive relevant insights from clinical pathologists to help them fully understand the implications of the test results.
Unlike most other CRISPR/Cas-9 therapies that are ex vivo treatments in which cells are modified outside the body, this study was successful with an in vivo treatment
Use of CRISPR-Cas9 gene editing technology for therapeutic purposes can be a boon for clinical laboratories. Not only is this application a step forward in the march toward precision medicine, but it can give clinical labs the essential role of sequencing a patient’s DNA to help the referring physician identify how CRISPR-Cas9 can be used to edit the patient’s DNA to treat specific health conditions.
Most pathologists and medical lab managers know that CRISPR-Cas9 gene editing technology has been touted as one of the most significant advances in the development of therapies for inherited genetic diseases and other conditions. Now, a pair of biotech companies have announced a milestone for CRISPR-Cas9 with early clinical data involving a treatment delivered intravenously (in vivo).
As with other therapies, determining which patients are suitable candidates for specific treatments is key to the therapy’s success. Therefore, clinical laboratories will play a critical role in identifying those patients who would most likely benefit from a CRISPR-delivered therapy.
Such is the goal of precision medicine. As methods are refined that can correct unwelcome genetic mutations in a patient, the need to do genetic testing to identify and diagnose whether a patient has a specific gene mutation associated with a specific disease will increase.
Cleveland Clinic describes ATTR amyloidosis as a “protein misfolding disorder” involving transthyretin (TTR), a protein made in the liver. The disease leads to deposits of the protein in the heart, nerves, or other organs.
According to Intellia and Regeneron, NTLA-2001 is designed to inactivate the gene that produces the protein.
The interim clinical trial data indicated that one 0.3 mg per kilogram dose of the therapy reduced serum TTR by an average of 87% at day 28. A smaller dose of 0.1 mg per kilogram reduced TTR by an average of 52%. The researchers reported “few adverse events” in the six study patients, “and those that did occur were mild in grade.”
Current treatments, the companies stated, must be administered regularly and typically reduce TTR by about 80%.
“These are the first ever clinical data suggesting that we can precisely edit target cells within the body to treat genetic disease with a single intravenous infusion of CRISPR,” said Intellia President and CEO John Leonard, MD, in a press release. “The interim results support our belief that NTLA-2001 has the potential to halt and reverse the devastating complications of ATTR amyloidosis with a single dose.”
He added that “solving the challenge of targeted delivery of CRISPR-Cas9 to the liver, as we have with NTLA-2001, also unlocks the door to treating a wide array of other genetic diseases with our modular platform, and we intend to move quickly to advance and expand our pipeline.”
“It’s an important moment for the field,” MIT biomedical engineer Daniel Anderson, PhD (above), told Nature. Anderson is Professor, Chemical Engineering and Institute for Medical Engineering and Science at the Koch Institute for Integrative Cancer Research at MIT. “It’s a whole new era of medicine,” he added. Advances in the use of CRISPR-Cas9 for therapeutic purposes will create the need for clinical laboratories to sequence patients’ DNA to help physicians determine the best uses for a CRISPR-Cas9 treatment protocol. (Photo copyright: Massachusetts Institute of Technology.)
In Part 2 of the Phase 1 trial, Intellia plans to evaluate the new therapy at higher doses. After the trial is complete, “the company plans to move to pivotal studies for both polyneuropathy and cardiomyopathy manifestations of ATTR amyloidosis,” the press release states.
Previous clinical trials reported results for ex vivo treatments in which cells were removed from the body, modified with CRISPR-Cas9 techniques, and then reinfused. “But to be able to edit genes directly in the body would open the door to treating a wider range of diseases,” Nature reported.
How CRISPR-Cas9 Works
On its website, CRISPR Therapeutics, a company co-founded by Emmanuelle Charpentier, PhD, a director at the Max Planck Institute for Infection Biology in Berlin, and inventor of CRISPR-Cas9 gene editing, explained that the technology “edits genes by precisely cutting DNA and then letting natural DNA repair processes take over.” It can remove fragments of DNA responsible for causing diseases, as well as repairing damaged genes or inserting new ones.
The therapies have two components: Cas9, an enzyme that cuts the DNA, and Guide RNA (gRNA), which specifies where the DNA should be cut.
Charpentier and biochemist Jennifer Doudna, PhD, Nobel Laureate, Professor of Chemistry, Professor of Biochemistry and Molecular Biology, and Li Ka Shing Chancellor’s Professor in Biomedical and Health at the University of California Berkeley, received the 2020 Nobel Prize in Chemistry for their work on CRISPR-Cas9, STAT reported.
It is important to pathologists and medical laboratory managers to understand that multiple technologies are being advanced and improved at a remarkable pace. That includes the technologies of next-generation sequencing, use of gene-editing tools like CRISPR-Cas9, and advances in artificial intelligence, machine learning, and neural networks.
At some future point, it can be expected that these technologies will be combined and integrated in a way that allows clinical laboratories to make very early and accurate diagnoses of many health conditions.
In the absence of a “gold standard,” researchers are finding a high frequency of false negatives among SARS-CoV-2 RT-PCR tests
Serology tests designed to detect antibodies to the SARS-CoV-2 coronavirus that causes the COVID-19 illness have been dogged by well-publicized questions about accuracy. However, researchers also are raising concerns about the accuracy of molecular diagnostics which claim to detect the actual presence of the coronavirus itself.
“Diagnostic tests, typically involving a nasopharyngeal swab, can be inaccurate in two ways,” said Steven Woloshin, MD, MS, in a news release announcing a new report that “examines challenges and implications of false-negative COVID-19 tests.” Woloshin is an internist, a professor at Dartmouth Institute, and co-director of the Geisel School of Medicine at Dartmouth.
“A false-positive result mistakenly labels a person infected, with consequences including unnecessary quarantine and contact tracing,” he stated in the news release. “False-negative results are far more consequential, because infected persons who might be asymptomatic may not be isolated and can infect others.”
Woloshin led a team of Dartmouth researchers who analyzed two studies from Wuhan, China, and a literature review by researchers in Europe and South America that indicated diagnostic tests for COVID-19 are frequently generating false negatives. The team published their results in the June 5 New England Journal of Medicine (NEJM).
For example, one research team in Wuhan collected samples from 213 hospitalized COVID-19 patients and found that an approved RT-PCR test produced false negatives in 11% of sputum samples, 27% of nasal samples, and 40% of throat samples. Their research was published on the medRxiv preprint server and has not been peer-reviewed.
The literature review Woloshin’s team studied was also published on medRxiv, titled, “False-Negative Results of Initial Rt-PCR Assays for COVID-19: A Systematic Review.” It indicated that the rate of false negatives could be as high as 29%. The authors of the review looked at five studies that had enrolled a total of 957 patients. “The collected evidence has several limitations, including risk of bias issues, high heterogeneity, and concerns about its applicability,” they wrote. “Nonetheless, our findings reinforce the need for repeated testing in patients with suspicion of SARS-Cov-2 infection.”
Another literature review, published in the Annals of Internal Medicine, titled, “Variation in False-Negative Rate of Reverse Transcriptase Polymerase Chain Reaction–Based SARS-CoV-2 Tests by Time Since Exposure,” estimated the probability of false negatives in RT-PCR tests at varying intervals from the time of exposure and symptom onset. For example, the authors found that the median false-negative rate was 38% if a test was performed on the day of symptom onset, versus 20% three days after onset. Their analysis was based on seven studies, five of which were peer-reviewed, with a total of 1330 test samples.
Doctors also are seeing anecdotal evidence of false negatives. For example, clinicians at UC San Diego Health medical center treated a patient with obvious symptoms of COVID-19, but two tests performed on throat samples were negative. However, a third test, using a sample from a bronchial wash, identified the virus, reported Medscape.
Sensitivity and Specificity of COVID-19 Clinical Laboratory Tests
The key measures of test accuracy are sensitivity, which refers to the ability to detect the presence of the virus, and specificity, the ability to determine that the targeted pathogen is not present. “So, a sensitive test is less likely to provide a false-negative result and a specific test is less likely to provide a false-positive result,” wrote Kirsten Meek, PhD, medical writer and editor, in an article for ARUP Laboratories.
“Analytic” sensitivity and specificity “represent the accuracy of a test under ideal conditions in which specimens have been collected from patients with either high viral loads or a complete absence of exposure,” she wrote. However, “sensitivity and specificity under real-world conditions, in which patients are more variable and specimen collection may not be ideal, can often be lower than reported numbers.”
In a statement defending its ID Now molecular point-of-care test, which came under scrutiny during a study of COVID-19 molecular tests by NYU Langone Health, Northwell Health, and Cleveland Clinic, according to MedTech Dive, Abbott Laboratories blamed improper sample collection and handling for highly-publicized false negatives produced by its rapid test. An FDA issued alert about the test on May 14 noted that Abbott had agreed to conduct post-market studies to identify the cause of the false negatives and suggest remedial actions.
Issues with Emergency Use Authorizations
In their NEJM analysis, Woloshin et al point to issues with the FDA’s process for issuing Emergency Use Authorizations (EUAs). For example, they noted variations in how manufacturers are conducting clinical evaluations to determine test performance. “The FDA prefers the use of ‘natural clinical specimens’ but has permitted the use of ‘contrived specimens’ produced by adding viral RNA or inactivated virus to leftover clinical material,” they wrote.
When evaluating clinical performance, manufacturers ordinarily conduct an index test of patients and compare the results with reference-standard test, according to the Dartmouth researchers. For people showing symptoms, the reference standard should be a clinical diagnosis performed by an independent adjudication panel. However, they wrote, “it is unclear whether the sensitivity of any FDA-authorized commercial test has been assessed in this way.” Additionally, a reference standard for determining sensitivity in asymptomatic people “is an unsolved problem that needs urgent attention to increase confidence in test results for contact-tracing or screening purposes.”
“To truly determine false negatives, you need a gold standard test, which is essentially as close to perfect as we can get,” Stephen Rawlings, MD, PhD, (above), a resident physician of internal medicine and infectious diseases fellow at UC San Diego’s Center for AIDS Research (CFAR), who has been working on SARS-CoV-2 test validation since March. “But there just isn’t one yet for coronavirus,” he told Medscape. (Photo copyright: University of California, San Diego.)
Continued adherence to current measures, such as physical distancing and surface disinfection.
Development of highly sensitive and specific tests or combinations of tests to minimize the risk of false-negative results and ongoing transmission based on a false sense of security.
Improved RT-PCR tests and serological assays.
Development and communication of clear risk-stratified protocols for management of negative COVID-19 test results.
“These protocols must evolve as diagnostic test, transmission, and outcome statistics become more available,” they wrote.
Meanwhile, clinical laboratories remain somewhat on their own at selecting which COVID-19 molecular and serology tests they want to purchase and run in their labs. Complicating such decisions is the fact that many of the nation’s most reputable in vitro diagnostics manufacturers cannot produce enough of their COVID-19 tests to meet demand.
Consequently, when looking to purchase tests for SARS-CoV-2, smaller medical laboratory organizations find themselves evaluating COVID-19 kits developed by little-known or even brand-new companies.
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.
