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Separate Reports Shed Light on Why CDC SARS-CoV-2 Test Kits Failed During Start of COVID-19 Pandemic

HHS Office of Inspector General was the latest to examine the quality control problems that led to distribution of inaccurate test to clinical laboratories nationwide

Failure on the part of the Centers for Disease Control and Prevention (CDC) to produce accurate, dependable SARS-CoV-2 clinical laboratory test kits at the start of the COVID-19 pandemic continues to draw scrutiny and criticism of the actions taken by the federal agency.

In the early weeks of the COVID-19 pandemic, the CDC distributed faulty SARS-CoV-2 test kits to public health laboratories (PHLs), delaying the response to the outbreak at a critical juncture. That failure was widely publicized at the time. But within the past year, two reports have provided a more detailed look at the shortcomings that led to the snafu.

The most recent assessment came in an October 2023 report from the US Department of Health and Human Services Office of Inspector General (OIG), following an audit of the public health agency. The report was titled, “CDC’s Internal Control Weaknesses Led to Its Initial COVID-19 Test Kit Failure, but CDC Ultimately Created a Working Test Kit.”

“We identified weaknesses in CDC’s COVID-19 test kit development processes and the agencywide laboratory quality processes that may have contributed to the failure of the initial COVID-19 test kits,” the OIG stated in its report.

Prior to the outbreak, the agency had internal documents that were supposed to provide guidance for how to respond to public health emergencies. However, “these documents do not address the development of a test kit,” the OIG stated.

Jill Taylor, PhD

“If the CDC can’t change, [its] importance in health in the nation will decline,” said microbiologist Jill Taylor, PhD (above), Senior Adviser for the Association of Public Health Laboratories in Washington, DC. “The coordination of public health emergency responses in the nation will be worse off.” Clinical laboratories that were blocked from developing their own SARS-CoV-2 test during the pandemic would certainly agree. (Photo copyright: Columbia University.)

Problems at the CDC’s RVD Lab

Much of the OIG’s report focused on the CDC’s Respiratory Virus Diagnostic (RVD) lab which was part of the CDC’s National Center for Immunization and Respiratory Diseases (NCIRD). The RVD lab had primary responsibility for developing, producing, and distributing the test kits. Because it was focused on research, it “was not set up to develop and manufacture test kits and therefore had no policies and procedures for developing and manufacturing test kits,” the report stated.

The RVD lab also lacked the staff and funding to handle test kit development in a public health emergency, the report stated. As a result, “the lead scientist not only managed but also participated in all test kit development processes,” the report stated. “In addition, when the initial test kit failed at some PHLs, the lead scientist was also responsible for troubleshooting and correcting the problem.”

To verify the test kit, the RVD lab needed samples of viral material from the agency’s Biotechnology Core Facility Branch (BCFB) CORE Lab, which also manufactured reagents for the kit.

“RVD Lab, which was under pressure to quickly create a test kit for the emerging health threat, insisted that CORE Lab deviate from its usual practices of segregating these two activities and fulfill orders for both reagents and viral material,” the report stated.

This increased the risk of contamination, the report said. An analysis by CDC scientists “did not determine whether a process error or contamination was at fault for the test kit failure; however, based on our interviews with CDC personnel, contamination could not be ruled out,” the report stated.

The report also cited the CDC’s lack of standardized systems for quality control and management of laboratory documents. Labs involved in test kit development used two different incompatible systems for tracking and managing documents, “resulting in staff being unable to distinguish between draft, obsolete, and current versions of laboratory procedures and forms.”

Outside Experts Weigh In

The OIG report followed an earlier review by the CDC’s Laboratory Workgroup (LW), which consists of 12 outside experts, including academics, clinical laboratory directors, state public health laboratory directors, and a science advisor from the Association of Public Health Laboratories. Members were appointed by the CDC Advisory Committee to the Director.

This group cited four major issues:

  • Lack of adequate planning: For the “rapid development, validation, manufacture, and distribution of a test for a novel pathogen.”
  • Ineffective governance: Three labs—the RVD Lab, CORE Lab, and Reagent and Diagnostic Services Branch—were involved in test kit development and manufacturing. “At no point, however, were these three laboratories brought together under unified leadership to develop the SARS-CoV-2 test,” the report stated.
  • Poor quality control and oversight: “Essentially, at the start of the pandemic, infectious disease clinical laboratories at CDC were not held to the same quality and regulatory standards that equivalent high-complexity public health, clinical and commercial reference laboratories in the United States are held,” the report stated.
  • Poor test design processes: The report noted that the test kit had three probes designed to bind to different parts of the SARS-CoV-2 nucleocapsid gene. The first two—N1 (topology) and N2 (intracellular localization)—were designed to match SARS-CoV-2 specifically, whereas the third—N3 (functions of the protein)—was designed to match all Sarbecoviruses, the family that includes SARS-CoV-2 as well as the coronavirus responsible for the 2002-2004 SARS outbreak.

The N1 probe was found to be contaminated, the group’s report stated, while the N3 probe was poorly designed. The report questioned the decision to include the N3 probe, which was not included in European tests.

Also lacking were “clearly defined pass/fail threshold criteria for test validation,” the report stated.

Advice to the CDC

Both reports made recommendations for changes at the CDC, but the LW’s were more far-reaching. For example, it advised the agency to establish a senior leader position “with major responsibility and authority for laboratories at the agency.” This individual would oversee a new Center that would “focus on clinical laboratory quality, laboratory safety, workforce training, readiness and response, and manufacturing.”

In addition, the CDC should consolidate its clinical diagnostic laboratories, the report advised, and “laboratories that follow a clinical quality management system should have separate technical staff and space from those that do not follow such a system, such as certain research laboratories.”

The report also called for collaboration with “high functioning public health laboratories, hospital and academic laboratories, and commercial reference laboratories.” For example, collaborating on test design and development “should eliminate the risk of a single point of failure for test design and validation,” the LW suggested.

CBS News reported in August that the CDC had already begun implementing some of the group’s suggestions, including agencywide quality standards and better coordination with state labs.

However, “recommendations for the agency to physically separate its clinical laboratories from its research laboratories, or to train researchers to uphold new quality standards, will be heavy lifts because they require continuous funding,” CBS News reported, citing an interview with Jim Pirkle, MD, PhD, Director, Division of Laboratory Sciences, National Center for Environmental Health, at the CDC.

—Stephen Beale

Related Information:

CDC’s Internal Control Weaknesses Led to Its Initial COVID-19 Test Kit Failure, but CDC Ultimately Created a Working Test Kit  

Review of the Shortcomings of CDC’s First COVID-19 Test and Recommendations for the Policies, Practices, and Systems to Mitigate Future Issues      

Collaboration to Improve Emergency Laboratory Response: Open Letter from the Association of Pathology Chairs to the Centers for Disease Control and Prevention    

The CDC Works to Overhaul Lab Operations after COVID Test Flop

Thirty US Congress Members Ask HHS To Send COVID-19 Testing Funds Directly to Clinical Laboratories

US Representatives want clinical laboratories to have better support for their increased efforts to expand testing for the coronavirus

On June 8, Congressmen Tom Reed (NY-23), Scott Peters (CA-52), and 28 other members of the US House of Representatives sent a letter to Secretary of the Department of Health and Human Services (HHS) Alex Azar requesting that funds from the Paycheck Protection Program and Health Care Enhancement Act (H.R.266) be sent directly to clinical laboratories that have heavily invested in increasing their COVID-19 testing capacity.

In their letter, the Representatives wrote, “As you are aware, the recently enacted Paycheck Protection Program and Health Care Enhancement Act (PPPHCE Act) invests $25 billion in the [Public Health and Social Services Emergency Fund (PHSSEF)], including $11 billion for states, localities, territories, and tribes, to enhance all aspects of COVID-19 testing capacity. This funding is in addition to the funds already appropriated to the PHSSEF under the CARES Act.

“While laboratories are eligible, along with other providers, for these funds,” they continued, “there have been no federal funds specifically designated for the laboratories that have stepped up in this public health crisis and have made significant investments to expand access to COVID-19 testing despite 40-60 percent reductions in regular commercial volume due to the economic lockdowns.

“As laboratories work to maintain their investments in critical resources for testing platforms, reagents, swabs, and PPE, as well as hiring, training, and overtime pay for the laboratory workforce, we urge HHS to direct a portion of funding that has not already been allocated towards these efforts. These funds will ensure that labs can continue to rapidly scale up diagnostic and antibody testing, particularly for healthcare workers, first responders, and other Americans on the frontlines of this pandemic,” concluded the Representatives.

ACLA President Made Similar Plea for Direct Funding to Clinical Laboratories

As Dark Daily reported in “Federal Government Is Sending Nearly $11 Billion to States for COVID-19 Clinical Laboratory Testing and Testing-Related Activities,” in April, Julie Khani, President of the American Clinical Laboratory Association (ACLA), sent a similar letter to Azar urging the HHS to provide some of the stimulus money directly to clinical laboratories.

“In order to deliver accurate, reliable results for patients at a national scale, we must allocate funding to support [clinical laboratories’] expanded efforts,” she said in a statement following an April 27 meeting at the White House.

In her letter, Khani wrote, “It is essential that HHS allocate $10 billion from the fund to support labs’ further expansion of testing capacity to fulfill the testing needs of all of the states and to protect the lives and livelihood of all Americans.

“Further,” she continued, “HHS should note that investing in the nation’s laboratories will not only enhance testing capacity in the short-term, but it also will allow the country to benefit from a robust testing infrastructure for the duration of the COVID-19 pandemic and beyond.”

President Trump signed H.R.266 into law on April 24. It includes $25 billion earmarked for research, development, validation, manufacturing, purchasing, administering, and expanding capacity for COVID-19 testing. According to the language of H.R.266, that includes, “tests for both active infection and prior exposure, including molecular, antigen, and serological tests, the manufacturing, procurement and distribution of tests, testing equipment and testing supplies, including personal protective equipment needed for administering tests, the development and validation of rapid, molecular point-of-care tests, and other tests, support for workforce, epidemiology, to scale up academic, commercial, public health, and hospital laboratories, to conduct surveillance and contact tracing, support development of COVID-19 testing plans, and other related activities related to COVID-19 testing.”

“As the demand for testing continues to grow, clinical laboratories need dedicated funding to plan for challenges that lie ahead. Strong federal coordination and leadership is essential, and we’re looking forward to working with HHS to ensure that laboratories have the resources necessary to continue to expand our role at the forefront of the nation’s response,” said Julie Khani (above), President of the American Clinical Laboratory Association (ACLA), in a press release following the June 8 letter sent to HHS by 30 members of Congress requesting funds from H.R.266 be sent directly to clinical laboratories. Khani will be speaking on federal policies now impacting clinical laboratories at the upcoming 25th annual Executive War College on Laboratory and Pathology Management in New Orleans on July 14-15. (Photo copyright: ACLA.)

Financial Struggles for Hospitals and Clinical Laboratories

This new round of stimulus funding comes at a time when many providers and clinical laboratories are struggling financially, despite the influx of COVID-19 patients.

“Across the country, laboratories have made significant investments to expand capacity, including purchasing new platforms, retraining staff, and managing the skyrocketing cost of supplies. To continue to make these investments and expand patient access to high-quality testing in every community, laboratories will need designated resources. Without sustainable funding, we cannot achieve sustainable testing,” said Khani in an ACLA statement.

As the COVID-19 coronavirus pandemic evolves, federal regulations, as well as emergency funding for COVID-19 testing that is provided by federal legislation, will evolve in unexpected ways. For that reason, clinical laboratory leaders will want to closely track announcements by such federal agencies as the Department of Health and Human Services, the Centers for Medicare and Medicaid Services, the Food and Drug Administration, the Centers for Disease Control and Prevention, and the Federal Emergency Management Administration as decisions are made about how to assign the $25 billion authorized in H.R.266 for “testing.”

—Stephen Beale

Related Information:

Reps. Reed and Peters Lead 28 House Members in Calling on HHS to Allocate Additional Federal Support to Clinical Laboratories for COVID-Testing

Reed Leads Members in Requesting More Widespread COVID-19 Testing

Amid Growing Demand for Testing, Lawmakers Call on HHS to Designate Resources for Clinical Laboratories

The Paycheck Protection Program and Health Care Enhancement Act: Summary of Key Health Provisions

H.R.266 – Paycheck Protection Program and Health Care Enhancement Act

Special Bulletin: HHS Announces How it Will Distribute Additional Funds to Providers Under CARES Act

What Clinical Diagnostic Laboratories and Manufacturers Need to Know about the CARES Act

Latest Updates on the CARES Act Public Health and Social Service Emergency Fund

Lab Test Volumes Plummet as Patients Put Off Care

COVID-19 Bonanza: Stimulus Hands Health Industry Billions Not Directly Related to Pandemic

$75B Relief Bill Provides ‘Much-Needed Lifeline’ to For-Profit Hospitals

7 Healthcare-Related Items You May Have Missed in the $2T Coronavirus Stimulus Package

Coronavirus Strains Cash-Strapped Hospitals, Could Cause Up to 100 to Close Within A Year

ACLA Statement on Expanding Access to Testing

ACLA Letter to HHS on PHSSEF Direct COVID19 Test Funding

Federal Government Is Sending Nearly $11 Billion to States for COVID-19 Clinical Laboratory Testing and Testing-Related Activities

Federal Judge Blocks New HHS Rule That Would Have Required Pharmaceutical Companies to Include Pricing in Television Ads

Drug companies claim HHS rule violates their first amendment rights, but added web links to drug prices in their TV ads anyway

Will American consumers ever see the prices of their prescription drugs? That almost happened this summer, when a Trump administration healthcare transparency initiative would have required pharmaceutical companies to include prices in drug advertisements. But that requirement was halted by a federal judge one day before it was scheduled to take effect.

The measure, which passed in May, was intended to provide healthcare consumers with price transparency for some prescription medications and help lower prescription costs. However, a federal judge placed the new law on hold citing government over-reach.

This is a significant development for clinical laboratory managers, pathologists, and others watching efforts that will enable patients to see the cost of their medical care in advance of service. Also, few were surprised to learn that this court case was filed by pharmaceutical companies with the goal of preventing prescription drug prices from being disclosed in these advertisements.

HHS Tells Big Pharma to ‘Level with People’ About Drug Costs

Reducing prescription drug prices is a critical issue for healthcare consumers. Therefore, any policy that helps lower costs should provide benefits for both patients as well as the healthcare industry overall. That’s why President Trump signed the initiative that required pharmaceutical companies to include drug prices in television advertisements.

“We are telling drug companies today: You’ve got to level with people [about] what your drugs cost,” Health and Human Services (HHS) Secretary Alex Azar (above) stated after Congress passed the President’s proposal, STATreported. “Put it in the TV ads. Patients have a right to know, and if you’re ashamed of your drug prices, change your drug prices. It’s that simple.” [Photo copyright: Washington Times.]

The controversial proposal, which would have applied to all prescription drugs that cost more than $35 for a one-month supply, was scheduled to go into effect over the summer until it was blocked by Federal Judge Amit Mehta of the US District Court for the District of Columbia.

Judge Mehta ruled that HHS does not have the regulatory power to force pharmaceutical companies to include the prices of prescription drugs in their TV ads and that the agency had violated laws passed by Congress.

“That policy very well could be an effective tool in halting the rising cost of prescription drugs. But no matter how vexing the problem of spiraling drug costs may be, HHS cannot do more than what Congress has authorized,” Mehta wrote in his decision, NPR reported.

Drug companies Amgen (NASDAQ:AMGN), Eli Lilly (NYSE:LLY) and Merck (NYSE:MRK) along with the Association of National Advertisers (ANA) filed lawsuits over the regulation stating it was a violation of their free speech rights. They won the reprieve on July 8, just one day before the regulation would have gone into effect.

Mehta stated in his opinion that the Social Security Act, which HHS used as its basis for the regulation, does not “empower HHS to issue a rule that compels drug manufacturers to disclose list prices,” Fierce Pharma reported.

In August, the Trump administration filed an appeal after the federal judge struck down the regulation. The exact basis for that appeal has not been disclosed. 

Drug Companies Decry New Law as Unconstitutional

Many drug makers are not happy with the rule. Drug industry trade group Pharmaceutical Research and Manufacturers of America (PhRMA) believes that mandating drug companies to disclose pricing in TV commercials is a violation of their First Amendment rights, STAT reported.

Nevertheless, PhRMA proposed that pharmaceutical companies provide a web link in their TV advertisements that directs consumers to pricing information online. And some companies also are experimenting with going a step further and voluntarily complying with the original regulation.

In a news release, PhRMA states, “To help patients make more informed healthcare decisions, [PhRMA] member companies today announced their commitment to providing more transparency about medicine costs. PhRMA member companies’ direct-to-consumer (DTC) television advertisements will soon direct patients to information about medicine costs, including the list price of the medicine, out-of-pocket costs, or other context about the potential cost of the medicine and available financial assistance. The biopharmaceutical industry will also launch a new platform that will provide patients, caregivers, and providers with cost and financial assistance information for brand-name medicines, as well as other patient support resources.”

However, Azar said that action is not in compliance with the rule. “They put $4 billion a year into television advertising because the television ad is where people are getting their information, and to point them to the internet would be the equivalent of saying that they should simply be putting their ads on the internet and not running them on TV,” he told the press, STAT reported.

Opponents of the rule noted that actual drug costs for consumers can vary widely depending on coverage and that patients might forgo their medications if they are concerned about the costs, reported Politico following passage of the measure in May.

Critics also claimed that that there were no enforcement mechanisms outlined for companies that did not comply with the ruling, and that it relied on the pharmaceutical industry to police itself. If a particular company failed to include the required information in its TV ads, competitors could file suit against it under the deceptive and unfair trade practice provisions of the Lanham Act, Politico noted.

Solutions to the public’s demand for price transparency in healthcare may be forthcoming. However, at press time, no further information concerning the status of this HHS regulation was available. Dark Daily will continue to monitor the situation and inform readers of any developments.

Meanwhile executives and pathologists at the nation’s clinical laboratories should continue to develop strategies to serve patients who want to know the prices of their medical laboratory tests before they arrive to have their specimens collected.

This summer, several pharma companies may have succeeded in getting a federal court to stop this particular rule to disclose prescription drug prices. But the trend toward price transparency has deep roots and will continue forward.

—JP Schlingman

Related Information:

Drug Makers Will Have to Include Prices in TV Ads as Soon as This Summer

Judge Blocks Trump Rule Requiring Pharma Companies to Disclose Drug Prices in TV Ads

Appeal Shows Trump’s HHS Isn’t Giving Up on Putting Drug Prices in TV Ads

Trump Finalizes Rule to Require Drug Prices in TV Ads

Johnson and Johnson Will List Drug Prices in TV Commercials

PhRMA Members Take New Approach to DTC Television Advertising

What You Need to Know about Putting Drug Prices in TV Ads

Why Putting List Prices in Drug Ads Matters

Medicare Clinical Laboratory Price Cuts and Cost-cutting Predicted to be 2018’s Two Biggest Trends for Medical Laboratories in the United States

To offset the loss of revenue from the price cuts to Medicare Part B clinical laboratory tests, labs will need to aggressively—but wisely—slash costs to balance their budgets

Any day now, Medicare officials will announce the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) for 2018. Both the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) have issued reports indicating that these fee cuts will total $400 million just during 2018, which Dark Daily reported on in July.

Many experienced industry executives expect this to be the single most financially disruptive event to hit the clinical laboratory profession in more than 20 years. This will not only have a substantial negative financial impact on all labs—large and small—but two sectors of the clinical lab industry are considered to be so financially vulnerable they could cease to exist.

At Greatest Risk of Financial Failure are Community Laboratories

The first sector is comprised of smaller community lab companies that operate in towns and rural areas. These labs are at the greatest risk because they are the primary providers of lab testing services to the nursing homes and skilled nursing facilities in their neighborhoods. And because they have a high proportion of Medicare Part B revenue.

Thus, the expected Medicare price cuts to the high-volume automated lab tests—such as chemistry panels and CBCs (complete blood count) that are the bread-and-butter tests for these labs—will swiftly move them from minimal profit margins to substantial losses. Since these labs have a cost-per-test that is significantly higher than the nation’s largest public lab companies, they will be unable to financially survive the 2018 Medicare fee cuts.

The second sector at risk is comprised of rural hospitals and modest-sized community hospitals. What officials at CMS and their consulting companies overlooked when they created the PAMA (Protecting Access to Medicare Act) private payer market price reporting rule is that these hospitals provide lab testing services to nursing homes and office-based physicians in their service areas.

Because of the low volumes of testing in these hospital labs, they also have a larger average cost-per-test than the big public labs. Thus, the 2018 cuts to Medicare Part B lab test prices will erode or erase any extra margin from this testing that now accrues to these hospitals.

Rural and Small Community Hospitals Rely on Lab Outreach Revenue

The financial disruption these Medicare lab test price cuts will cause to rural and community hospitals is a real thing. These hospitals rely on outreach lab test revenues to subsidize many other clinical services within the hospital. One rural hospital CEO confirmed the importance of lab outreach revenue to her organization. Michelle McEwen, FACHE, CEO of Speare Memorial Hospital in Plymouth, N.H., spoke to The Dark Report in 2012 about the financial disruption that was happening when a major health insurer excluded her hospital’s laboratory from its network.

Speare Memorial is a 25-bed critical access hospital in the central part of the state between the lakes region and the White Mountain National Forest. McEwen was blunt in her assessment of the importance of clinical laboratory outreach revenues to her hospital. “The funds generated by performing these [outreach] lab tests are used to support the cost of providing laboratory services to all patients 24/7, including stat labs for emergency patients and inpatients,” McEwen explained. “These funds also help support other services in the hospital where losses are typically incurred, such as the emergency room and obstetric programs.” (See “Critical Access Hospitals Losing Lab Test Work,” The Dark Report, April 2, 2012.)

For the second consecutive year, Lab Quality Confab (LQC) is offering an extended session on clinical laboratory accreditation and certification in New Orleans on October 24-25. CMS has indicated it will participate in this year’s session. It was an historic first for the clinical laboratory industry when last year’s Lab Quality Confab convened a panel that included experts in CLIA laboratory inspection and compliance from the four deeming organizations. From left to right: Moderator Nora L. Hess, MBA, MT(ASCP), PMP, Senior Consultant, Operations Management, Chi Solutions, Inc., Ann Arbor, Mich.; Kathy Nucifora, MPH, MT(ASCP), Director of Accreditation, COLA, Columbia, Md.; Stacy Olea, MBA, MT(ASCP), FACHE, Executive Director of Laboratory Accreditation Program, The Joint Commission, Oakbrook Terrace, Ill.; Randall Querry, Accreditation Manager, Clinical, American Association for Laboratory Accreditation (A2LA), Frederick, Md.; Robert L. Michel, Editor-in-Chief, The Dark Report, Spicewood, Texas; and Denise Driscoll, MS, MT(ASCP)SBB, Senior Director, Laboratory Accreditation and Regulatory Affairs, College of American Pathologists, Northfield, IL. (Photo by Linda Reineke of Riverview Photography. Copyright: The Dark Report.)

All Medical Laboratories Will Suffer Financial Pain from Medicare Price Cuts

But it is not just community lab companies and rural hospitals that are at risk of financial failure as the Medicare Part B cuts are implemented by CMS on Jan. 1, 2018. Any clinical laboratory serving Medicare patients will experience a meaningful drop in revenue. Many larger hospital and health system laboratories are recasting their financial projections for 2018 to identify how big a drop in revenue they will experience and what cost-cutting strategies will be needed to at least break even on their lab outreach business.

This explains why the first big trend of 2018 will be substantial revenue cuts from the Medicare program. It also explains why the second big trend of 2018 will be smart cost-cutting as labs attempt to balance their books and lower spending proportional to the reduced income they project.

Labs Have a Decade of Successful Cost-Cutting, More Cuts are Difficult

Aggressive cost-cutting, however, puts the nation’s medical laboratories at risk for a different reason. For the past decade, most well-run labs have already harvested the low-hanging fruit from obvious sources of cost reduction. They installed latest-generation automation. They re-engineered workflows using the techniques of Lean, Six Sigma, and process improvement.

During these same years, most medical laboratories also reduced technical staff and trimmed management ranks. That has created two new problems:

  1. First, there are not enough managers in many labs to both handle the daily flow of work while also tackling specific projects to cut costs and boost productivity. Basically, these labs are already at their management limit, with no excess capacity for their lab managers to initiate and implement cost-cutting projects.
  2. Second, technical staffs are already working at near peak capacity. Increased use of automation at these labs has reduced lab costs because labs were able to do the same volume of testing with fewer staff. However, the reduced staffs that oversee the lab automation are now working at their own peak capacity. Not only are they highly stressed from the daily routine, they also do not have spare time to devote to new projects designed to further cut costs.

Each Year Will Bring Additional Cuts to Medicare Part B Lab Prices

This is why all clinical laboratories in the United States will find it difficult to deal with the Medicare Part lab test fee cuts that will total $400 million during 2018. And what must be remembered is that, in 2019 and beyond, CMS officials will use the PAMA private payer market price reporting rule to make additional fee cuts. Over 10 years, CMS expects these cuts will reduce spending by $5.4 billion from the current spending level.

Taken collectively, all these factors indicate that many medical laboratories in the United States will not survive these Medicare fee cuts. The basic economics of operating a clinical laboratory say that less volume equals a higher average cost per test and higher volume equals a lower average cost per test.

Medical Labs with Highest Costs Most at Risk of Failure from Price Cuts

What this means in the marketplace is that labs with the highest average cost per test make the least profit margin on a fee-for-service payment. The opposite is true for labs with the lowest average cost per test. They will make a greater profit margin on that same fee-for-service payment.

Carry this fundamental economic principle of medical laboratory operations forward as Medicare Part B lab test fee cuts happen in 2018. Labs with the highest average cost per test will be first to go from a modest profit or break-even to a loss. As noted earlier, the clinical lab sectors that have the highest average cost per test are smaller community labs, along with rural and community hospitals. That is why they will be first to go out of business—whether by sale, bankruptcy, or by simply closing their doors.

Learning How to Cut Lab Costs While Protecting Quality

Every pathologist and lab administrator seeking the right strategies to further cut costs in their lab, while protecting quality and enhancing patient services, will want to consider sending a team from their laboratory to the 11th Annual Lab Quality Confab that takes place in New Orleans on October 24-25, 2018.

Anticipating the greater need for shrewd cost-cutting that also protects the quality of the lab’s testing services, this year’s Lab Quality Confab has lined up more than 51 speakers and 39 sessions. Of particular interest are these extended workshops that come with certifications:

Sessions will address proven ways to:

  • Use real-time analytics to improve workflow in molecular laboratories;
  • Introduce automation in microbiology; as well as
  • New breakthroughs in core lab automation; and
  • Success stories in reducing lab test utilization.

Lab Quality Confab is recognized for its use of lab case studies—taught by the nation’s early adopter lab organizations. Certification classes are available to gain proficiency in the use of Lean methods and Six Sigma tools, such as:

Given the strong interest in smart ways to cut costs, boost productivity, and balance revenue-versus-cost, registrations for this year’s Lab Quality Confab is running at a record pace. The full agenda can be viewed at this link (or copy this URL and paste into your browser: http://www.labqualityconfab.com/agenda).

Of special interest to lab leaders preparing to stay ahead of the financial impact of the Medicare Part B fee cuts, Lab Quality Confab offers deep discounts for four or more attendees from the same lab organization. This allows your lab’s most effective cost-cutters to see, hear, and learn together, so that when they return they can get a flying start helping you align your lab’s costs to the expected declines in revenue that will happen on Jan. 1, 2018.

Reserve your place today and register now http://www.labqualityconfab.com/register.

—Robert L. Michel, Editor-in-Chief

Related Information:

Information, Agenda, and to Register for Lab Quality Confab Taking Place on October 24-25, 2017

In 2017, to Offset Declining Reimbursement and Shrinking Budgets, Savvy Clinical Laboratories Are Using LEAN to Improve Service and Intelligently Cut Costs

Lean-Six Sigma Medical Laboratories Begin to Innovate in Ways That Add Value to Physicians, Payers, and Patients

An Interview with Robert Michel, Editor-in-Chief of The Dark Report

At Lab Quality Confab in New Orleans this Week, Speakers Addressed Major Issues Faced by Medical Laboratories, including the Need for Labs to Deliver More Diagnostic Value to Physicians

Recent Study Confirms that Clinical Laboratories and Pathologists Have an Opportunity to Help Educate Consumers in Key Health Information, such as Cholesterol, and Blood Glucose Levels

Reviewing medical laboratory test results online is a popular resource among consumers, says a different study by Kaiser Permanente

More than half of patients and consumers have trouble understanding their health information, along with the steps needed to further improve their health, according to a recent study conducted by HealthMine. This gap in consumer understanding represents a great opportunity for clinical laboratories and pathology groups that want to forge stronger bonds with patients and consumers.

In its survey of more than 7,200 healthcare consumers about their health knowledge, HealthMine determined that about 52% of consumers find it difficult to understand their health information and/or what is required of them to maintain or improve their health.

Knowledge of one’s health, or the health of a loved one, is critical to the management of chronic diseases and other health conditions. In this Internet age of patient portals and mobile health devices, the assumption is that most folks would be comfortable using the new technologies. Apparently, this is not the case. At least not among those HealthMine polled. (more…)

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