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Labs Contend With Ongoing Trends in 2022 as Major Legislative Efforts Fizzle


NEW YORK — As 2022 began it looked like a potentially eventful year for the lab business with Congress poised to take up legislation of significant interest to the industry.

Twelve months later, the status quo remains largely in place as efforts to reform both the regulation of laboratory-developed tests and the Protecting Access to Medicare Act fizzled.

In the meantime, the industry felt the impact of a number of preexisting trends as labs contended with the continuing decline of COVID-19 testing volumes and staffing challenges while continuing to move into emerging areas like home and direct-to-consumer testing.

Hospital and outreach labs remained prime acquisition targets, with Quest Diagnostics and Laboratory Corporation of America inking a number of deals for such assets over the course of the year.

And labs felt the impact of surprise billing legislation passed by Congress at the end of 2020, as insurers started to use the bill's provisions to pressure some to accept lower reimbursement rates.

The year's biggest story, though, was what didn't happen. Despite early momentum, neither the Verifying Accurate Leading-edge IVCT Development (VALID) Act — which would have given the US Food and Drug Administration authority over laboratory-developed tests (LDTs) — nor the Saving Access to Laboratory Service Act, or SALSA — which would have reformed and lessened the impact of the Protecting Access to Medicare Act (PAMA) — made it through Congress, as both were excluded from the end-of-year spending bill that is set to pass this week.

By and large, the lab industry isn't shedding any tears over VALID's failure. While the College of American Pathologists (CAP) backed the bill and the American Clinical Lab Association (ACLA) tried to influence its direction, though neither explicitly supported or opposed it, many labs were strongly against it, as they feared it would subject them to a new layer of regulation and potentially undermine their ability to develop tests required for patient care.

Academic medical centers were particularly vocal in their opposition, even after the bill was rewritten to include a carve-out for such facilities, and their advocacy was largely seen as a key factor in its defeat.

What the future holds for VALID specifically and the question of LDT regulation generally is unclear. The bill was a major priority for Sen. Richard Burr, R-N.C., who is retiring when his term ends at the beginning of 2023. Meanwhile, the bill's Senate co-sponsor, HELP Chair Patty Murray, D-Wash., is looking to take over as chair of the Senate Appropriations Committee.

If the question of LDT regulation isn't addressed legislatively, there is the possibility that the FDA will act on its own to assert authority over these tests. In October, FDA Commissioner Robert Califf said the agency would consider regulating LDTs through its rulemaking process if Congress failed to pass VALID.

If VALID's demise came as a relief to many labs, Congress' failure to pass SALSA was a disappointment. At the end of 2021, a number of lab organizations told 360Dx that permanent PAMA reform was a high priority for 2022.

Introduced in July, SALSA gave the lab industry much of what it had asked for in terms of PAMA reform. The bill would have instituted a statistical sampling-based approach to collecting lab test pricing data under PAMA, which proponents said would both alleviate the administrative burden on labs and ensure that price data is collected from a more representative slice of the industry.

It would also have stopped price cuts scheduled to go into effect at the start of 2023, extended the time between price reporting periods from three years to four, and placed caps of 5 percent on both the annual cuts and increases a given test could see under PAMA.

Throughout the fall, lab companies and industry representatives pushed to get the bill included in the end-of-year spending package. The bill faced a challenge, though, in that a preliminary score from the Congressional Budget Office projected it to cost $6 billion over 10 years, meaning legislators would have to make cuts elsewhere to fit it into the spending package. Meanwhile, the CBO analysis projected that simply delaying the scheduled PAMA cuts by one year would save $730 million over 10 years, making that a potentially attractive option for lawmakers.

In the end, that is what happened. Congress included a provision in the end-of-year omnibus delaying both PAMA cuts and the scheduled price data reporting period for a year, making it the fourth year in a row it has put off PAMA implementation.

The omnibus package also included a measure that reduced a planned overall 4.5 percent Medicare cut to a 2 percent cut in 2023 and a 3 percent cut in 2024. According to CAP, this brings an anticipated 3.6 percent reduction in pathology spending in 2023 down to a 1.1 percent reduction.

COVID-19 testing on the decline

Outside Congress, labs adjusted — with varying degrees of disruption — to the continued decline of COVID-19 testing volumes. According to numbers from lab data and revenue management firm Xifin, routine testing volumes for the lab industry as a whole were back at the pre-pandemic baseline while COVID-19 testing fell from a January 2022 peak, when it comprised more than half of all testing, to November, when it made up just roughly 7 percent of lab test volumes.

This drop led to closures and lay-offs in the industry. For instance, PerkinElmer laid off 75 employees this spring following the end of its COVID-19 testing contract with the California Department of Public Health and the halt of its testing operations at the CDPH's Valencia laboratory.

Menlo Park, California-based COVID-19 testing firm SummerBio laid off all its employees and shut down its operations this summer.

During Opko Health's Q2 2022 earnings call in August, Jon Cohen, senior VP and executive chairman at Opko subsidiary BioReference Laboratories, said the company in June and July had cut roughly 700 positions associated with its COVID-19 testing program. Overall, BioReference had reduced its employee headcount to around 3,600, down from nearly 8,000 at the peak of the pandemic, he added.

Similarly, Adam Schechter, chairman and CEO of Labcorp, said during that company's Q2 2022 call in July that it had cut "a significant number of people" from its COVID-19 business.

Staffing challenges intensify

Yet, even as these COVID-19-related layoffs were going on, labs struggled to find workers to staff other parts of their businesses. Worker shortages have been a chronic issue for labs for years, but the problem grew even more severe coming out of the pandemic.

According to Maggie Morrissey, director of recruiting and staffing services at lab consulting firm Lighthouse Lab Services, many of the laid-off workers didn't represent new personnel drawn into the lab business during the pandemic but, rather, existing employees who had been retrained or repositioned to handle the demand for COVID-19 testing.

The hiring during the COVID-19 pandemic of additional microbiology and molecular lab staff did not, in other words, significantly expand the overall lab labor pool.

During Quest's Q2 2022 earnings call in July, then-CEO-elect Jim Davis acknowledged this problem, noting that the company was "seeing a much higher increase in turnover."

An unwelcome surprise

2022 also saw the rollout of the No Surprises Act, federal legislation passed at the end of 2020 that prohibits surprise billing by healthcare providers. The law is still in the initial stages of implementation, but early returns suggest that, as some in the industry feared, insurers will use it to push reimbursement rates lower.

The No Surprises Act prevents out-of-network providers from balance billing patients for emergency and non-emergency services provided at an in-network provider unless the patient voluntarily chooses to use an out-of-network provider. (With balance billing, a provider sends any portion of the bill unpaid by the payor directly to the patient.) Instead, the patient's insurer and the out-of-network provider must negotiate between themselves a fee for the service. If they are unable to come to an agreement, they can take the dispute to arbitration, with the loser paying the costs of arbitration, which currently run $500.

In the run-up to the bill's passage, labs and other providers expressed concerns that it would give too much power to payors in negotiations over reimbursement given that one of the major sources of leverage a provider has with insurers is the ability to remain out-of-network and balance bill the insurer's members at higher, out-of-network prices.

Indeed, some insurers have used the bill to cut rates, said Joe Seale, director of pathology billing at lab revenue cycle management firm MSN Healthcare Solutions, who added he saw several of his clients' fees cut significantly "directly because of the No Surprises Act."

Acquisitions continue apace

Such cuts are part of broader downward pressures on lab reimbursement coming from private and government payors, a trend that in previous years large national labs — Quest and Labcorp most prominently — have used to expand their networks by either acquiring or inking service deals with hospital and outreach labs.

That trend continued this year, as Quest acquired outreach lab assets of Ohio-based healthcare system Summa Health. It also signed a deal to acquire the outreach lab business of Maine healthcare system Northern Light Health and to provide management services for a number of the system's hospital labs.

Labcorp, meanwhile, purchased the outreach businesses of healthcare systems including New Jersey-based RWJBarnabas Health, St. Louis-based Ascension, and South Carolina-based Prisma Health.

Both lab companies said that they have robust acquisition pipelines and that the pace of deals could accelerate in the wake of the COVID-19 pandemic. Jeff Myers, VP of consulting services at Scottsdale, Arizona-based lab consulting firm Accumen concurred with this assessment, noting that the national labs' acquisition strategies are in part a defensive response to the ongoing consolidation of health systems and physician practices.

Home and DTC testing

Lab testing continued its move beyond traditional venues in 2022, as well, following the shift toward home and direct-to-consumer trends that the COVID-19 pandemic accelerated. Quest, for instance, announced at the beginning of the year that it had entered a collaboration with Walmart through which it would offer more than 50 tests, including those for general health, digestive health, allergy, heart health, women's health, and infectious disease, available at through its QuestDirect service.

Labcorp, meanwhile, partnered with mobile phlebotomy provider Getlabs on a service called Getlabs for Labcorp, which enables home sample collection for the company's full testing menu in 50 US markets covering more than 50 percent of the US population. Labcorp also participated in Miami-based Getlabs' $20 million Series A funding round in February.

BioReference Laboratories also continued to build out its own concierge phlebotomy service, Scarlet Health, with Cohen saying the company aims to grow the proportion of its sample collection done via the service.

The company has also been approached by other labs interested in using the Scarlet service and, Cohen said, plans to pursue that opportunity.

"We won't keep it only to BioReference, it looks like, because there is a lot of demand," he said.