CEO SUMMARY: For the first time in recent memory, a year has passed without major tumult or disruptive change in the laboratory industry. Our list of the Top Ten Most Important Stories of 2008 reflects a rather quiet year when compared to most years of this decade. However, events continue to unfold in healthcare and in the laboratory profession which require strategic responses by most clinical laboratories and pathology groups. Here’s a look at this year’s most interesting developments.
FOR AS EXCITING AND TUMULTUOUS as events of 2007 proved to be, the year 2008 passed by as a “yawner” for most laboratories and pathology group practices.
THE DARK REPORT’S annual list of the “Top Ten Lab Industry Stories of 2008” provides a revealing look at which breaking events and new developments were reshaping the lab industry over the course of the past 12 months.
By far the most notable story of 2008 was how the lab industry stopped the Medicare Part B Laboratory Competitive Bidding Demonstration Project dead in its tracks. The first breakthrough was a federal court ruling in favor of the plaintiff laboratories in San Diego in their lawsuit to prevent the competitive bidding demonstration project from going forward. That ruling was issued by the judge in April.
But the real prize was Congressional repeal of the legislative mandate for Medicare officials to conduct the demonstration project for the competitive bidding of Medicare Part B laboratory services. The 2008 Medicare funding bill passed by Congress in July included specific language which repealed the legislative mandate for competitive bidding of laboratory services that had been enacted earlier in the decade. (See TDRs, April 14 and June 16, 2008.)
No other story on the Top Ten list approaches the magnitude of importance and implications of Medicare competitive bidding repeal. However, that is a good thing because it means that, over the course of 2008, there were few events that represented disruptive or unwelcome change to the majority of laboratories and pathology group practices.
Ranked second on our Top Ten list is the way consumers triggered a near doubling in the volume of tests for Vitamin D deficiency over the past 12 months. This phenomenon is directly related to wide- spread media stories about: 1) the alarming increase in the number of people with Vitamin D deficiency; and, 2) the negative health consequences for individuals who are deficient in Vitamin D.
Consumers And Vitamin D
The explosion in Vitamin D testing demonstrates changes in several dimensions of healthcare and our society. First, the media has sustained this story at a high level of visibility because editors and reporters recognize the keen interest this topic generates among the public. Second, informed consumers are proactively listening and learning about new science which can affect their health—then using that new knowledge to proactively manage their health.
Third, health insurers rapidly responded to the regular cascade of studies about Vitamin D deficiency by keeping the issue in front of physicians and sending out information bulletins to their beneficiaries. In general, they have supported more intensive use of screening tests for Vitamin D deficiency and THE DARK REPORT has yet to hear news of payers pushing lower reimbursement onto labs because of greater utilization of Vitamin D tests by clinicians.
Government Lab Regulators
The third story on our Top Ten list for 2008 is the increased regulation of labs performing genetic testing. This has ongoing implications for the laboratory industry because government health regulators at the state and federal level took unprecedented steps during the year to assert their authority over certain aspects of genetic testing and molecular diagnostics.
For example, regulators in both New York and California sent notices to a number of Internet-based companies offering genetic tests directly to consumers. These state regulators insisted that the Internet- based genetic testing companies hold licenses to offer and perform laboratory tests. Another regulatory concern was whether a licensed physician was ordering the genetic test on behalf of the consumer. (See TDR, July 7, 2008.)
The FDA took steps to challenge Laboratory Corporation of America on its marketing of the company’s OvaSure test for ovarian cancer. In response to the FDA’s actions, LabCorp chose to withdraw the test while it resolves the issue. In both examples, lab regulators served notice that they intend to control activities in genetic testing and molecular diagnostics they deem contrary to existing laws and regulations.
ISO For Hospitals And Labs
Another notable development during 2008 involved ISO standards (stories number six and seven on the Top Ten list). In the hospital industry, it was big news when the Centers for Medicare and Medicaid Services (CMS) granted deeming status to Norway-based Det Norske Veritas (DNV) for hospital accreditation. DNV offers U.S. hospitals a program that combines the CMS “Conditions of Participation” with the ISO 9001 quality management system. DNV calls this program the “National Integrated Accreditation for Healthcare Organizations (NIAHO).”
In the laboratory profession, the College of American Pathologists initiated accreditation services to labs for ISO 15189 Medical Laboratories. Interested laboratories must maintain existing federal and state accreditation and licenses, which makes ISO 15189 accreditation an additional step. (See TDR, March 3, 2008.)
It is our recommendation that laboratories and pathology groups use these Top Ten Lab Industry Stories for 2008” as the basis for a strategic planning session. The list provides a good foundation to evaluate current business plans against changes in the laboratory marketplace.
Top Ten of 2008
No. 1 – Medicare Lab Competitive Bidding Stopped by Courts and by Congress
Probably No Single Event during 2008 had the drama of news that the Medicare Part B Laboratory Services Competitive Bidding Demonstration Project would not take place due to new Congressional legislation mandating that CMS cease implementation of the lab competitive bidding demo. (See TDR, Monday, June 16, 2008.)
Equally dramatic was the court victory in April, in which a federal judge ruled that CMS could not proceed with the lab competitive bidding demonstration project unfolding in San Diego, California. Several laboratories in the region had sued CMS to enjoin it from implementation what they characterized as a poorly-designed and biased competitive bidding scheme. (See TDR, April 14, 2008)
Both the court decision and the Congressional repeal of authorization of the Medicare Laboratory Competitive Bidding Demonstration Project were major victories for the laboratory industry. It was widely-recognized that the demonstration program unveiled by CMS officials at a bidders’ meeting in December was flawed in ways that meant it could never achieve CMS’ goals for the demo even as the demo triggered disruption of efficient laboratory testing services to physicians and Medicare beneficiaries in the San Diego-Carlsbad-San Marcos metropolitan statistical area (MSA).
The importance of these two successes should not go unappreciated. It demonstrates that the laboratory industry can prevail when it educates and lobbies in effective ways.
Top Ten of 2008
No. 2 – Consumers Show How Quickly They Can Move the Lab Testing Needle
MAYBE THE PUBLIC DIDN’T MAKE DIRECT ACCESS TESTING (DAT) a financial success, as predicted by many, including THE DARK REPORT. But the public can move the laboratory testing needle by huge amounts.
That was proven this summer when the nation’s largest laboratories acknowledged that the volume of Vitamin D testing had more than doubled in the previous 12 months. ARUP Laboratories reported a 102% jump in Vitamin D testing. At Mayo Medical Laboratories, Vitamin D test volume was up by 135% in 24 months. (See TDR, July 28, 2008.)
This story is important for several reasons. First, it shows how quickly consumers will respond to recommendations about testing for specific health conditions. Vitamin D deficiency has been a regularly-reported story by media in this country.
Second, the sheer volume of increased testing for a condition like Vitamin D deficiency has significant financial consequences. For payers, it is an unplanned expense. For laboratories, it is the source of substantial additional revenue—but only if payers maintain reimbursement at an adequate level.
Third, attention to Vitamin D deficiency during the past two years shows how speedily a new clinical guideline can become accepted, particularly when it is something that is easy for consumers to understand.
Top Ten of 2008
No. 3 – State and Federal Regulators Act To Curb Genetic Testing Activities
DURING 2008, STATE AND FEDERAL REGULATORS TOOK UNPRECEDENTED ACTIONS to declare their right and intent to regulate genetic and molecular testing.
At the state level, regulators in New York and California served notices to a host of companies offering genetic testing directly to consumers. New York targeted 31 companies and California sent letters to 13 firms.
State regulators wanted these companies to have required licenses and certifications under appropriate state and federal laws. California regulators also demanded proof that these 13 Internet companies were only performing tests ordered by physicians, as required by California state laws. (See TDR, July 7, 2008.)
It was a similar story at the Food and Drug Administration (FDA). Late in the year, FDA officials sent two letters to Laboratory Corporation of America regarding the marketing its Ovasure test for ovarian cancer. LabCorp decided to pull the Ovasure test from the marketplace as it worked to respond to the FDA’s concerns. (See TDR, October 20, 2008.)
Collectively, these actions to regulate genetic testing by the FDA and lab regulators in New York and California are an umistakeable sign that officials intend to scrutinize, challenge, and control how genetic tests are brought to market and offered to both physicians and patients. More restrictive regulatory actions are likely in the future.
Top Ten of 2008
No. 4 – Prime Time For Rapid Molecular Tests of Infectious Diseased
IT’S BEEN OFT-PREDICTED that genetic and molecular testing will give labs powerful new tools for detecting disease and guiding therapy. That was certainly proven during 2008, a year when rapid molecular testing for infectious diseases contributed to remarkable improvements in patient outcomes.
At Washington Hospital Center in Washington, DC, use of the AdvanDx PNA FISH test—combined with an important change in how the lab reported results from this rapid molecular test—enabled the hospital to achieve an overall 53% reduction in deaths associated with Staphylococcus aureus bloodstream infections and an 82% reduction in mortality of intensive care patients. (See TDR, July 28, 2008.)
At William Beaumont Hospital in Royal Oak, Michigan, the lab launched clinical use of Luminex Corporation’s xTag Respiratory Viral Panel. The noninvasive test screens for 12 viruses and viral subtypes that are responsible for 85% of respiratory viral infections.
Beaumont is using this panel to screen patients arriving at the emergency department with severe respiratory disorders, as well as other settings within the hospital. The rapid molecular assay delivers an answer in eight hours. (See TDR, January 21, 2008.)
Collectively, rapid molecular tests such as the two described above are actively changing the face of laboratory medicine by allowing labs to give faster and more accurate answers to clinicians.
Top Ten of 2008
No. 5 – Digital Pathology Systems: Coming Soon to a Laboratory Near You!
AFTER YEARS OF LAGGING THE RADIOLOGY PROFESSION IN DIGITAL IMAGING, the pathology profession is making swift strides toward use of fully-digital pathology systems in daily practice.
The signs were everywhere during 2008. Both Aperio Technologies, Inc., and BioImagene, Inc., reported accelerating sales of their digital pathology systems to pathology groups and laboratories here and abroad.
On June 5, 2008, GE Healthcare and the University of Pittsburgh Medical Center (UPMC) announced a joint venture to develop a digital pathology system capable of supporting primary diagnosis. Executives at the newly-formed Omnyx, LLC, believe the annual market for digital pathology systems worldwide may be as much as $2 billion. (See TDR, June 16, 2008.)
In this country, the ideal of a pathologist making a primary diagnosis from a digital image on a computer screen will require products that have been cleared for market by the Food and Drug Administration (FDA). There is progress on this goal. During 2008, for example, Aperio gained FDA approval for two specific clinical uses of its digital pathology system.
Of course, the entry of GE Healthcare into the digital pathology systems marketplace was an exciting development. It is powerful evidence that technology is ready to serve the growing demand by pathologists for digital solutions.
Top Ten of 2008
No. 6 – “System of Prevention” Management Gains Wider Acceptance in Healthcare
DURING 2008, “SYSTEM OF PREVENTION” MANAGEMENT SYSTEMS made important inroads into both the American healthcare system and the clinical lab industry.
In September, the Centers for Medicare and Medicaid Services (CMS) announced that Det Norske Veritas (DNV) had been approved to be the nation’s first new hospital accreditation program in 40 years. What made this decision particularly significant is the fact that DNV’s hospital accreditation program incorporates the CMS “Conditions of Participation” with the ISO 9001 quality management system. (See Dark Daily, October 15, 2008.)
Earlier in 2008, the College of American Pathologists (CAP) had launched a new laboratory accreditation service for ISO 15189 Medical Laboratories. (See TDR, March 3, 2008.)
Both events show that healthcare in the United States is solidly on the path to adoption of W. Edwards Deming-based management philosophies. Health policy makers are recognizing how the same manufacturing methods used to deliver high quality–low cost electronics and similar high-tech products can also be used in hospitals and clinical laboratories to improve patient outcomes, reduce medical errors, and control costs.
Labs and pathology groups would be well-served to establish their own quality management programs. Adopting Lean and Six Sigma methods offer an effective starting point.
Top Ten of 2008
No. 7 – It’s ISO 15189 for 2008 as U.S. Labs Can Now Pursue this QMS Accreditation
QUALITY MANAGEMENT SYSTEMS (QMS) in clinical laboratory operations came of age in 2008 with the arrival of ISO 15189: Medical Laboratories.
The year began with the College of American Pathologists (CAP) announcing its accreditation program for ISO 15189. (See TDR, March 3, 2008.) At least three American laboratories decided to pursue accreditation.
The year ended with two of those laboratories having completed all steps for ISO 15189 accreditation and awaiting news that accreditation had been granted. They are Piedmont Medical Laboratory of Winchester, Virginia, and Avera McKennan Laboratories of Sioux Falls, South Dakota. (See TDR, September 8, 2008.)
Clients and regular readers of THE DARK REPORT know that ISO 15189 is gaining acceptance in many countries across the globe as a standard for laboratory accreditation and reimbursement. That is not the case in the United States and several other developed countries, where prior government accreditation requirements were in place for decades before ISO 15189 first appeared in 2003.
THE DARK REPORT believes that market forces will encourage more laboratories to implement some type of quality management system like ISO 15189. It is a standard recognized by corporations purchasing healthcare. It is also a standard recognized by patients who work in companies accredited as ISO-compliant in their own industry.
Top Ten of 2008
No. 8 – Feds Announce a Date for ICD-10 Providers Face Up to the Inevitable
BECAUSE OF MEDICARE MANDATES regarding ICD-9 diagnosis codes on laboratory testing claims, the financial fortunes of clinical laboratories in the United States are inextricably linked to the diagnosis codes physicians provide when submitting laboratory test requisitions to the Medicare program.
Thus, earlier this summer, when federal officials published a proposed implementation date of October 1, 2011, for use of ICD-10 diagnosis codes, it immediately created a new management challenge for the nation’s laboratories. Not only must laboratories prepare their own internal systems to accommodate ICD-10 coding requirements, but they must also work interactively with their referring physicians to ensure that laboratory test requisitions are submitted with the proper ICD-10 codes. That’s because, whenever use of ICD-10 codes becomes mandatory, Medicare claims submitted after that date without an accurate and appropriate ICD-10 code will be rejected. (See TDR, October 20, 2008.)
Thus, laboratories will have double the costs to implement ICD-10 compared to physician groups or hospitals. A delay in ICD-10 implementation is unlikely, since ICD-10 codes have used by many developed countries around the world since 1992. That is one reason why the United States is not expected to allow further lengthy delays in the implementation of ICD-10 codes.
Top Ten of 2008
No. 9 – Cracks in the Lab Service Façade Reveal Underfunding Consequences
IN EVERY DEVELOPED NATION ACROSS THE GLOBE, laboratory medicine faces a serious threat from the long term consequences of underfunding and understaffing. Events in Canada during 2008 revealed visible cracks in the quality foundation of laboratory medicine.
Hospital laboratories in Canada were described as “unraveling at the seams” in an opinion piece published in the Canadian Medical Association Journal (CMAJ) in June. Co-author Jagdish Butany, MBBS, MS, President of the Canadian Association of Pathologists (CAP), wrote that labs in his country faced a “host of problems.” Familiar to most laboratory professionals, these problems included the need to deal with increasingly complex and expensive medical tests, growing demands for faster results, and a critical shortage of pathologists and lab workers.
In recent years, failures by certain labs and individual pathologists to provide accurate results made headlines in Canada. Inadequate funding for lab testing services is frequently mentioned as a contributing cause.
In New Zealand, an absolute shortage of pathologists means positions go unfilled. Lack of funding for medical education is a major factor. Canada and New Zealand may be first to see inadequacies in lab testing services due to underfunding, but experts believe lab deficiencies in other developed countries will become visible in the next few years.
Top Ten of 2008
No. 10 – 2008-Not a Year for Big Lab Deals As Relative Calm Rules Lab Market
SOMETIMES A BIG STORY IS THE FACT that something didn’t happen! When it comes to laboratory merger and acquistion activity, that is certainly true of 2008. Relatively few lab M&A deals happened during the year, changing a trend that stretches back more than two decades in the laboratory industry.
Yes, there were modest-sized laboratory acquisitions. For example, Sonic Healthcare bought Clinical Laboratories of Hawaii for about $121 million. Laboratory Corporation of America bought the outreach business of Stanford University this summer. Deliberately avoiding the public spotlight, Aurora Diagnostics discreetly purchased a handful of anatomic pathology group practices over the course of this year.
But no blockbuster laboratory deals emerged in 2008. Bostwick Laboratories, which had filed preliminary documents for an initial public offering (IPO), chose not to proceed. There were no deals in 2008 comparable to Quest Diagnostic Incorporated’s takeover of Ameripath, Inc. in 2007 for a price of $2 billion.
Lack of truly disruptive dealmaking in the laboratory industry meant that 2008 was one of the quietest years since the mid-1980s. It is too early to declare this a multiyear trend, however. That’s because dealmaking in molecular testing and in vitro diagnostics remains relatively vigorous, with Wall Street generally supporting strong values for companies involved in molecular testing.