News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel

News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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COVID-19 Triggers a Cash Flow Crash at Clinical Labs Totaling US $5.2 Billion in Past Seven Weeks; Many Labs Are at Brink of Financial Collapse

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.

Examples of “have” labs would range from public lab companies like LabCorp, Quest Diagnostics, Sonic Healthcare USA, and BioReference Laboratories to the labs of healthcare organizations such as Mayo Clinic, Cleveland Clinic, Geisinger Health, Advocate Aurora Health, and ARUP Laboratories.

The “have nots” will be:

  • clinical laboratories that are privately-owned;
  • 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: 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.

Quality Issues Your Clinical Laboratory Should Know Before You Buy or Select COVID-19 Serology Tests,” will take place on Thursday, May 21, at 1:00 PM EDT. For details and to register, copy and paste this URL into your browser:

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.

—Robert L. Michel

Related Information:

Quality Issues Your Clinical Laboratory Should Know Before You Buy or Select COVID-19 Serology Tests

COVID-19 STAT Intelligence Service: Resources and Help for Labs During the SARS-CoV-2 Pandemic

COVID-19 Disruptions of Supply Chains Are One More Challenge for Clinical Laboratories to Bring Value to Hospitals and Healthcare Networks

FDA Issues First Approval for At-Home COVID-19 Test to LabCorp’s Pixel; Other Clinical Laboratory-Developed At-Home Test Kits May Soon Be Available to General Public

Serological Antibody Tests a ‘Potential Game Changer’ and Next Phase in Efforts to Combat the Spread of COVID-19 That Give Clinical Laboratories an Essential Role

A Tale of Two Countries: As the US Ramps Up Medical Laboratory Tests for COVID-19, the United Kingdom Falls Short

Medical Laboratories Need to Prepare as Public Health Officials Deal with Latest Coronavirus Outbreak

Antibody Tests Were Supposed to Help Guide Reopening Plans. They’ve Brought More Confusion than Clarity

Is the Coronavirus Antibody Test a Magic Bullet—Or False Hope?

Prices of Clinical Pathology Laboratories Are Rising Due to Buyer Demand

Conference on May 5 about clinical laboratory and pathology mergers and acquisitions

For owners and sellers of clinical laboratories and anatomic pathology groups in the United States, the past six months have been rosy times. That’s because buyers have stepped up and paid strong prices for the medical laboratory companies and pathology testing firms that came to market during this time.

Experts predict that merger and acquisition (M&A) activity in the clinical laboratory industry will continue to be robust. Several factors reinforce this optimistic prediction.


LabCorp to Acquire Genzyme’s Genetics Pathology Laboratory Testing Business for $925 Million

Price of 2.5 times revenue makes this a high price for a clinical laboratory

Monday, Laboratory Corporation of America (NYSE: LH) agreed to purchase Genzyme Genetics Corp’s. (NASDAQ: GENZ) fetal genetics and oncology testing division for $925 million in cash. Genzyme has shopped its neo-natal genetic testing business since last year.

LabCorp is paying a purchase price that is 2.5 times Genzyme’s $371 million in annual revenue. This is one of the highest prices paid for a clinical pathology laboratory company since Quest Diagnostics Incorporated (NYSE: DGX), paid about 2.5 times revenue for Ameripath, Inc. in March 2007. In that transaction, Quest Diagnostics paid about $2 billion for Ameripath, which had annual revenues approaching $800 million at the time of sale.


Seattle’s PACLAB Network Wins Market Share From Blood Brothers

In Seattle, Washington, the two blood brothers are dealing with an upstart competitor—one that they cannot acquire nor make go away. Since it became operational in 1997, PACLAB Network Laboratories has directly challenged the national laboratories on what can be considered their “home turf,” since both national labs operate regional testing laboratories in Seattle. Not only has it made steady gains in market share, but PACLAB is poised to become the market leader in Seattle.

Since the year 2000, a growing number of community hospitals have launched laboratory outreach programs. The most successful of these lab outreach programs—with effective sales reps and a commitment to top service—are posting impressive gains in specimen volume and net revenue. These “best of class” lab outreach programs are fully competitive and, in the communities they serve, they are steadily eroding the market share of the national lab companies. PACLAB Network Laboratories should be included in this “best of class” list.

“Currently, we estimate that PACLAB holds a 30% share of the Seattle market for testing referred by office-based physicians,” stated Stewart Adelman, General Manager of PACLAB. “That makes us about equal to each of the two blood brothers, since we estimate that, in the Seattle metro, Laboratory Corporation of America (NYSE: LH) has about 30% and Quest Diagnostics Incorporated (NYSE: DGX) has about 30%. The remaining 10% of the market is shared among several other lab companies.”

Adelman made his remarks at PACLAB’s annual strategic retreat, conducted last week in Spokane. Dark Daily Editor Robert Michel was there to participate. “On several of the medical campuses of PACLAB member hospitals, we currently hold market shares of 80% and 90%,” observed Adelman. “It is powerful evidence that physicians will support their community hospital’s lab outreach program when it offers service levels that match or exceed that of competing laboratories.”

As a phenomenon, the mushrooming number of hospital laboratory networks is a natural market response to the lack of local independent laboratory companies in many cities across the United States. During the past 15 years, Laboratory Corporation of America and Quest Diagnostics Incorporated have regularly acquired any local or regional laboratory that achieved size and scale. Thus, it is not surprising that many community hospital administrators recognized the void in local laboratory services and organized a laboratory outreach program to provide more lab testing choices in the local community.

That is certainly one of the reasons why PACLAB Network Laboratories was organized. When it became operational in 1997, PACLAB’s equity members included eight hospital laboratories, with PAML, Inc. of Spokane as a partner and the manager of the regional laboratory network. During the past decade, it has grown to include 11 member hospital laboratories and serve all of the Seattle metro region, from Centralia in the south to Everett in the north.

PACLAB is also noteworthy for one other impressive achievement. It is living proof that hospital laboratories can band together and collaborate to their mutual benefit over the long term. In addition to paying for all expenses associated with the outreach business, each quarter, PACLAB distributes a sizeable dividend check to the CFO of each member hospital. Laboratory administrators and pathologists in other regions should study PACLAB as a business model that could advance the clinical and economic success of their own laboratory organizations.

P.S.: Dark Daily readers with knowledge of other successful, innovative and thriving laboratory outreach programs are invited to contact us with that information: and/or

LabCorp to Acquire DSI Laboratories of Fort Meyers, Florida

It’s a deal that is likely to trigger significant changes in the relationship between the laboratory outreach programs of major health systems and the two national laboratories. It was announced yesterday that Laboratory Corporation of America (NYSE: LH) will acquire DSI Laboratories, Inc. of Fort Meyers, Florida.

The parent of DSI Laboratories is NCH Healthcare System. It owns two hospitals in the Naples area, along Florida’s west coast. DSI was founded in 1984 as a stand-alone enterprise owned by NCH. DSI Laboratories manages the consolidated laboratory services for NCH. It also is a major provider of laboratory testing services to office-based physicians and has enjoyed steady growth in specimen volume and revenue in recent years.

What makes LabCorp’s pending acquisition of DSI Laboratories significant is that the parent health system is willing to “take the money and run” by selling the outreach component of its business. NCH will “retain internal, patient laboratory testing at its Downtown Naples and North Naples campuses, with LabCorp assuming the remainder of the operation.”

If, in fact, if NCH is motivated to sell its lab outreach testing business primarily to realize the capital value of that business, then it is the third health system nationally to take this step in recent years. In 2005, the health system owners of Spectrum Laboratory Network, in Greensboro, North Carolina, sold a majority interest in this laboratory company and its outreach testing business, to Apax Partners, LP. Dark Daily estimates that the health system owners realized more than $100 million cash in that sale. (See The Dark Report, November 14, 2005.) Another similar transaction was the sale by Cincinnati, Ohio-based Health Alliance of its laboratory outreach business to LabOne, Inc. (now part of Quest Diagnostics Incorporated). The sale, which occurred in early 2004, brought the selling hospital organization $43.9 million in cash. (See The Dark Report, February 23, 2004.)

In the upcoming issue of The Dark Report, which goes to press next Monday, we will provide more detailed analysis of LabCorp’s acquisition of DSI Laboratories. This unfolding story should be of keen interest to laboratory administrators and pathologists who are currently leading laboratory outreach programs in different regions across the country.

Related articles:

Laboratory Corporation of America(R) Holdings Agrees to Acquire DSI Laboratories from NCH Healthcare System