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.
UPS’ program on
WakeMed Hospital’s Raleigh campus in N.C. is first drone delivery service
cleared by FAA for commercial purposes
UPS (NYSE:UPS) Chairman and CEO David Abney emphasizes patients, not packages, in the company’s new drive toward drone technology in medical laboratory specimen transport and logistics.
“Healthcare is a strategic imperative for us,” Abney said.
“We deliver a lot of important things, but lab [shipments] are critical, and
they’re very much a part of patient care.”
UPS entered the healthcare sector in 2000 with its acquisition of Livingston HealthCare. In 2016, the company acquired Marken, a move that Abney said, “sent a clear message to our customers that we were taking healthcare and clinical trials very seriously.”
UPS Chairman and CEO David Abney (above) explained the company’s new drive toward drone technology in medical laboratory specimen transport and logistics. Abney closed Day 1 sessions at the 24th Annual Executive War College on Lab and Pathology Management. (Photo copyright: DARK Daily.)
Clinical Laboratory
Specimens Delivered by Drone
With healthcare deliveries already a big part of UPS’ ground
business, the company now moves lab specimens by drone on WakeMed’s hospital campus in
Raleigh, N.C. The effort marks the first commercial daily drone service to be
cleared by the Federal Aviation Administration (FAA) for lab specimen
transport, and it is made possible through UPS’s new partnership with Menlo
Park, Calif.-based Matternet.
Matternet Founder and CEO Andreas Raptopoulos described how the new technology is impacting turnaround time, specimen stability, and viability. The “Future of Lab Logistics” session at EWC, featuring Raptopoulos and Shannon DeMar, Senior Marketing Manager Healthcare Strategy at UPS in Atlanta, Ga., brought questions about FAA regulations, risk mitigation, and more. Laboratory leaders are looking at how to take their logistics to the next level.
On-Demand/Same-Day
Delivery of Medical Lab Samples
The UPS/Matternet program represents a major milestone for
unmanned aviation in the United States, according to UPS, in a recent release.
Currently, the majority of medical samples and specimens are transported across
WakeMed’s expanding health system by courier cars. The addition of drone
transport provides an option for on-demand and same-day delivery, the ability
to avoid roadway delays, increase medical delivery efficiency, lower costs, and
improve the patient experience.
How drones, sensors, and new technologies are poised to
increase the quality and accuracy of specimen transport and logistics
represented just a slice of the first full day of sessions at Executive War
College. UPS is an official partner and sponsor.
Also speaking at the 24th Annual Executive War College on
Lab and Pathology Management:
Evolving market trends are creating both concern and
opportunities for the clinical laboratory industry. New sources of revenue are essential
at a time when fee-for-service prices for lab tests are decreasing.
Early registration is already open for 2020 Executive War College, happening April 28-29, in New Orleans.
Genetic testing, gene sequencing done by clinical laboratories and anatomic pathology groups underpin how first-mover hospitals, health networks are improving patient outcomes
In just a few weeks, an unprecedented gathering will bring together the nation’s most prominent first-mover health networks, hospitals, and companies operating programs that deliver precision medicine daily to patients in clinical care settings.
On Sept. 12-13, 2018, “Breakthroughs with Genetic and Precision Medicine: What All Health Network CEOs Need to Know,” will take place at the Hutton Hotel in Nashville, Tenn. “What differentiates these sessions is the emphasis on each organization’s strategy, how it launched its precision medicine programs, what is improving in patient outcomes, and how payers are reimbursing for these services,” stated Robert L. Michel, Executive Director of the Precision Medicine Institute in Austin, Texas. “This is not about the science of precision medicine. Rather, it is about the practical elements required for any hospital, health system, or physician group to actually set up and deliver a precision medicine service to patients on a daily basis.”
Precision Medicine’s First-Mover Hospitals and Providers to Speak
Health systems and hospitals headlining this special conference are:
Exhibitors include the above, plus: Thermo Fisher, Philips, Sunquest, and MyGenetx.
“This meeting will give you the insider’s understanding about delivering precision medicine in real patient care settings that cannot be accessed at other venues,” noted Michel. “The goal is to have first-mover providers share their experiences, thus providing a road map that other hospitals, physician practices, and other providers at this conference can take back and follow with confidence.”
Michel said that sessions will be dedicated to precision medicine strategies, how it is being used in oncology, primary care, the role of pharmacogenomics, and use of healthcare big data. Speakers will describe the clever ways innovative health networks and hospitals are using healthcare big data to inform physicians in ways that improve outcomes, lower the cost of care and, in two real-world case studies, are generating seven-figure reimbursement from shared savings programs with certain health plans.
This year’s keynote address is by Jeffrey R. Balser, MD, PhD (above), President and CEO, Vanderbilt University Medical Center and Dean of the Vanderbilt University School of Medicine, one of the most progressive and innovative health systems in the country. (Photo copyright: Vanderbilt University.)
Using Healthcare Big Data to Achieve Precision Medicine Success, Shared Savings
“Shared savings successes will be one of the breakthrough achievements reported at the Nashville event,” he explained. “We’ve invited two prominent provider organizations to share how they are using healthcare big data to support physicians in achieving improved patient outcomes while at the same time impressively reducing the overall cost of care. To my knowledge, this is the first time these precision medicine case studies have been presented at a national meeting.”
One such presentation will be delivered by Philip Chen, MD, PhD, Chief Healthcare Informatics Officer at Sonic Healthcare USA Austin, Texas. Their precision medicine goal was to use healthcare big data to help physicians better manage diabetes and other chronic conditions in their practices. This program involved a large primary care practice and a major health insurer. Now in its fourth year, Sonic Healthcare USA is earning six- and seven-figure payments as part of a shared savings arrangement with the insurer.
“Shared savings is definitely a Holy Grail for all large health networks and physician groups as payers drop fee-for-service and switch providers to value-based payments,” said Michel. “The experience of Sonic Healthcare in this innovative three-way collaboration with an insurer and a very large physician group demonstrates that a strong data analytics capability and engagement with physicians can simultaneously bend the cost-of-care-curve downward while improving patient outcomes, as measured year-by-year. This is a presentation every C-Suite executive should attend.
Strategic, Business, Operational, and Financial Aspects of Precision Medicine
“This conference—centered upon the strategic, business, operational, and financial aspects of a precision medicine program—came to be because it is the unmet need of every health network CEO and C-Suite administrator,” observed Michel. “Every healthcare leader tasked with developing an effective clinical and financial strategy for his or her institution knows that the real challenge in launching a precision medicine program for patient care is not the science.
“Rather, the true challenges come from how to support clinical needs with the availability of capital, recruiting experienced clinicians, and putting the right informatics capabilities in place,” he stated. “Most hospital and health network administrators recognize the risk of launching a precision medicine program too early. They know such programs can suck up huge amounts of resources without producing significant improvements in patient care. What adds to the risk is that payers may be slow to reimburse for precision medicine.”
Register by September 1 and save $300 on tuition! Plus, take advantage of our special Team Discount Program, so you and your key team members can get the most out of the conference by attending together.
“Breakthroughs with Genetic and Precision Medicine: What All Health Network CEOs Need to Know” is the gold-standard summit for everyone active or interested in succeeding with precision medicine programs. Don’t miss out—register today!
Pathologists and clinical laboratory managers can tap into this highly skilled pool of medical lab technicians as servicemen and women reenter the U.S. workforce
Returning veterans who are experienced medical lab technicians are having trouble finding employers that recognize and credit their military training and experience. Clinical laboratories now actively recruiting lab technicians will want to learn more about the availability of these qualified candidates in their communities.
In the deal, LabCorp will take over and operate 26 MuirLab Patient Service Centers (PSCs) in parts of Northern California, including Contra Costa, Alameda, and Solano counties. In addition, LabCorp is purchasing the client list of office-based physicians and hospitals serve by MuirLab. LabCorp will also be the preferred provider of reference lab services for John Muir Health and its affiliates.
John Muir Health will retain its two hospital-based labs in Walnut Creek and Concord. Terms were not announced and the sale is due to close in November.
