NEW YORK – Like most everything, the clinical laboratory business in 2020 was dominated by concerns and considerations related to the COVID-19 pandemic as demand for SARS-CoV-2 testing put the industry in the public eye like perhaps never before.
Near term, the pandemic had a significant influence on labs' investments and bottom lines, as companies raced to expand their molecular testing capacities, and lockdown-driven declines in routine testing were countered by high volumes of SARS-CoV-2 assays.
The stage was set for longer term effects, as well, as the pandemic established new patterns of patient care and the federal government took legislative and regulatory actions that could impact clinical labs for years to come.
As 2020 began, downward pressures on pricing, not COVID-19, continued to be the most prominent issue for many in the industry. The American Clinical Laboratory Associations (ACLA) had several months before won a victory in its suit against the US Department of Health and Human Services regarding implementation of the Protecting Access to Medicare Act — a victory that some observers suggested could help put pressure on Congress to address issues with the law.
Congress had also the month before passed the Laboratory Access for Beneficiaries (LAB) Act, which delayed by one year the reporting of lab payment data required by PAMA, a major legislative priority of lab industry groups including ACLA.
Even with the delay, however, PAMA was set to exert downward pressure on lab pricing, while private payors like Anthem continued to roll out new, lower rate schedules for labs around the country. At the same time, some worried that looming developments like the Centers for Medicare & Medicaid Services' (CMS) planned hospital price transparency regulations could further cut into test reimbursement.
None of these concerns went away, exactly, but they largely moved to the background once the virus began spreading throughout the US in February and March.
As case numbers rose in the US and around the world, laboratories raced to get SARS-CoV-2 testing up and running, dealing with obstacles ranging from contaminated reagents to supply chain constraints to personnel shortages. At the same time, lockdowns across the US led to a collapse of labs' traditional testing businesses, with national outfits like Quest Diagnostics and Laboratory Corporation of America reporting in April as much as a 50 percent drop in volumes and some labs reporting volume declines of as much as 90 percent.
By May this situation had begun to turn around, with revenue cycle management and lab informatics firm Xifin reporting that test volumes had risen from around 40 percent of their normal baseline to 56 percent of baseline, and up to 91 percent of baseline if SARS-CoV-2 testing was included. This trend continued throughout the summer and fall, leading to what has ultimately turned out to be a blockbuster year for lab volumes and revenues.
According to Xifin, across the lab industry as a whole, as of Dec. 12, 2020, total testing volumes were 245 percent of baseline testing volumes, with around 55 percent of that volume SARS-CoV-2 molecular testing. On Dec. 16, 2020, Quest Diagnostics raised its full-year 2020 revenue guidance to at least $9.35 billion, up from a previous guidance of $8.8 billion to $9.1 billion and well above the company's full-year 2019 revenues of $7.73 billion. LabCorp hasn't released full year revenue projections, but in Q3 2020 the company posted revenues of $3.90 billion, up from $2.93 billion in Q3 2019.
Even with the rollout of COVID-19 vaccines starting, industry observers expect strong demand for SARS-Cov-2 testing to continue for another six months to a year.
"There are multiple large entities that will need testing at least for the next six months and possibly through the end of the of year," said Jon Cohen, executive chairman of Opko Health's BioReference Laboratories.
"We are still just pedal to the metal right now," agreed Jane Hermansen, manager of outreach and network development at Mayo Clinic Laboratories. "I honestly don't think we are going to see any taper for probably six months."
Even after the SARS-CoV-2 testing business tapers, though, the virus's impact on the lab industry will linger.
Among the more notable developments to emerge from the pandemic was HHS's determination in August that the Food and Drug Administration would not require premarket review of laboratory-developed tests without notice-and-comment rulemaking.
With the announcement, HHS resolved, at least for the time being, the role of the FDA in regulating LDTs, an issue that has occupied the lab business for almost three decades.
HHS said that the move was part of its "ongoing department-wide review of regulatory flexibilities enacted since the start of COVID-19," and the decision's most immediate impact was to remove the requirement that CLIA labs take SARS-CoV-2 LDTs through FDA's Emergency Use Authorization process. However, it also limits FDA's authority over LDTs generally.
The FDA has long argued that it has authority under the Federal Food, Drug, and Cosmetic Act to regulate LDTs, but it has largely practiced "enforcement discretion" over these tests, leaving CMS to oversee labs under CLIA regulations. The HHS decision means that if FDA wishes to require premarket review of LDTs, it must do so through the notice-and-comment rulemaking route, which would require a lengthy and expensive process that many observers think the agency is unlikely to take.
This was welcome news for many in the lab industry who have long contended with the threat of FDA regulation of LDTs even if the agency largely adopted a hands-off approach to the matter. It could prove particularly significant for some sectors like direct-to-consumer genetic testing and pharmacogenetics where FDA has in the past exercised oversight of LDTs.
It remains unclear, though, how the decision may influence lab's decisions around taking tests through the FDA regulatory process. On the one hand, going to market as an LDT is typically less expensive and faster than going through FDA and may become an even more attractive proposition following the HHS decision. On the other hand, FDA approval is seen by many as a mark of quality, which can help drive adoption and reimbursement.
There also remains considerable uncertainty as to what kinds of tests will fall into the LDT category. HHS issued its decision in a brief document that provided little detail on how such tests will be defined or what FDA's role in regulating such tests post-market will be.
The HHS decision could also inspire movement in Congress on existing legislation that would bring LDTs under FDA's authority. In March, a bipartisan-backed bill called the Verifying Accurate, Leading-edge IVCT Development (VALID) Act was introduced in the Senate and House of Representatives. The VALID Act would create a new risk-based oversight framework for so-called in vitro clinical tests, a category comprising lab-developed tests and test kits, and bring them all under FDA's aegis.
As Gail Javitt, a director at law firm Hyman, Phelps & McNamara, told 360Dx in August, "this is an inherently unstable situation and we don't know where it's going to go."
The pandemic also led to legislation that will have an ongoing impact on lab reimbursement. Most straightforwardly, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law in March gave labs a one-year break from price reporting requirements under the Protecting Access to Medicare Act as well as a one-year delay on the rate cuts planned to take place under the law in 2021.
More recently, the appropriations bill passed in December included in addition to various forms of COVID-19 relief a law, The No Surprises Act, banning surprise billing for out-of-network medical services. While lab services have not been at the forefront of most surprise billing discussions, labs stand to be impacted by surprise billing legislation. For instance, a 2019 analysis by the Health Care Cost Institute, a non-profit funded in part by major insurers including Aetna, Humana, and Kaiser Permanente that studies drivers of healthcare costs, found that of specialty claims billed as out of network during an in-network hospital admission, 22 percent were for independent lab testing. In a 2018 survey, researchers at the National Opinion Research Center at the University of Chicago found that of patients who received surprise bills, 51 percent of them received surprise bills for lab testing.
Some in the lab industry have in the past expressed concern that surprise billing legislation could hurt their negotiating positions with insurers by eliminating their ability to bill patients at out-of-network rates, putting further downward pressure on reimbursement.
A key sticking point for lab industry representatives like the College of American Pathologists has been that surprise billing legislation establish an arbitration process for settling surprise billing disputes as opposed to basing payments on median reimbursement rates, which providers believe could give payors too much leverage over the rate setting process. Under the No Surprises Act, disputes will be settled by negotiation between providers and insurers followed by an arbitration process if those negotiations are not successful.
Looking ahead, there are also questions about how changes in patterns of patient care may impact the industry going forward. In particular, the COVID-19 pandemic has driven increased uptake of approaches like remote sampling and direct-to-consumer and drive-through testing that could accelerate a pre-existing trend toward increased patient convenience. In particular, it could lead to increased adoption of such approaches among smaller independent and hospital outreach labs, which moved more slowly into areas like DTC lab testing and non-traditional collection sites than large national outfits like Quest and LabCorp.
Demand for SARS-CoV-2 testing has led some labs to set up workflows that could in the future be put toward DTC test offerings. For instance, Bellingham, Washington-based Northwest Pathology has been using e-commerce and informatics tools built with LIS developer LigoLab to run hundreds of thousands of SARS-CoV-2 tests under a contract the lab inked with the state of Florida. Jennifer Bull, chief operating officer at Northwest, said the lab plans to use the same system to build out a DTC business focused on women's health.
Mayo's Hermansen said that she expected hospitals that had set up remote testing locations for COVID-19 to continue to operate such facilities for routine testing, allowing them to offer the kind of patient convenience their national lab competitors provide.
"I know an organization that is leasing a vacant K-Mart building and they built eight lanes of specimen collection [spots] for cars to drive through," she said. "Now that you have this capacity for COVID, how else can you use this more convenient, patient-focused experience?"
She added that in some cases hospital labs have been giving SARS-CoV-2 testing customers flyers with information on test availability and insurance coverage to encourage them to continue using drive-up sampling centers they have established for future testing.
"Laboratories are now actually offering drive-up phlebotomy," Hermansen. "You come in, you park, the phlebotomist will come… and it’s a whole lot easier than going to the hospital, going through registration, waiting for half-an-hour to get blood drawn."
"I think convenience is a big differentiator," she said. "Patients are starting to understand the value of their time."