CEO SUMMARY: There are several surprises in The Dark Report’s list of the Top 10 Lab Stories for 2020. Despite the SARS-CoV-2 pandemic dominating every aspect of clinical care, social life, and economic activities since March, at least one major health insurer pushed ahead with two major policies governing how labs can submit claims. In another big story, for the first time in decades, the federal Anti-Kickback Statute and the Stark Law were revised with new final rules.
WITHOUT QUESTION, THE SINGLE BIGGEST CLINICAL LABORATORY STORY of 2020 is the COVID-19 pandemic. It is involved in five of The Dark Report’s Top 10 Lab Industry Stories for 2020. But lab administrators and pathologists would be well served to recognize the importance of the other five stories on this year’s list.
That’s because the non-COVID-19 stories on the list represent significant events that will influence how medical laboratories are organized, operated, and reimbursed for years to come. For example, federal officials finalized new rules that change the sales and marketing compliance risk for labs and pathology groups.
This is the 24th year that The Dark Report has used the last issue of the year to present its list of the top 10 lab industry stories for the year just passed. Much has happened during those 24 years—and the 26 years since The Dark Report begin publication in 1995. But in no single prior year did the clinical laboratory industry find itself disrupted in every aspect of diagnostics and lab testing as it has throughout 2020 because of the pandemic.
In presenting this year’s Top 10 Lab Industry stories, it is essential that the senior leadership of clinical labs, hospital/health network labs, and anatomic pathology groups understand the need to look beyond the COVID-19-related stories and pay attention to the non-COVID-19 stories. That is because the non-COVID-19 stories of 2020 will be shaping the clinical lab market for years into the future.
Of course, the number one story in this year’s list is the COVID-19 pandemic. Not only has it changed almost every aspect of healthcare, but federal, state, and local governments’ responses to the pandemic have been to constrain economic activity and restrict the movement and social interactions of people. (See story #1.)
The four other Top 10 Lab Stories in 2020 involving COVID-19 include:
• Actions and directives of federal, state, and local governments to the pandemic (story #2),
• The $6.8 billion in cash flow lost by clinical labs in the early months of the pandemic because of the collapse in physician referrals of routine lab test specimens (story #6),
• Disruptions to the clinical laboratory supply chain and new patterns in how labs select vendors, (story #7), and,
• Well-financed, new lab competitors are building lab facilities to do COVID-19 testing—facilities that can be shifted to routine, reference, and esoteric testing once the pandemic subsides. (Story #8.)
Top Non-COVID-19 Stories
There are other developments during 2020 that were significant for clinical laboratories and pathology groups, but probably did not get the attention they deserved because lab administrators and pathologists were engaged with the urgent demands to increase their labs’ daily production of SARS-CoV-2 tests.
One serious issue with immediate implications for the finances of clinical laboratories is story number five on the 2020 list. It is Medicare’s soaring spending on molecular and genetic tests. This story surfaced in September, after the federal Centers for Medicare and Medicaid Services (CMS) released Part B payment data for 2019. A nationally-known expert in genetic testing analyzed the data and discovered that, between 2017 and 2018, Medicare spending on molecular and genetic tests roughly doubled. Then, from 2018 to 2019, it doubled again.
More troubling for the lab industry, however, is that Medicare spending for one genetic test CPT code increased by 700% between 2017 and 2018 at just four Medicare Administrative Contractors (MACs). (See story #3.) This is relevant to labs and pathology groups for two reasons.
Focus on Genetic Test Claims
Firs, if Medicare’s spending on genetic test claims has doubled in each of the past two years, then the same thing is happening with private payers. It should be expected that government and private payers will take firm steps to reduce what they spend for genetic tests—whether by denying coverage or slashing the prices they pay for genetic tests.
Second, if one genetic test CPT code is being used by a handful of labs billing just four MACs and generating a 700% increase in monies paid for that CPT code, that is strong evidence of potential fraud and abuse.
Another managed care story in the 2020 Top 10 list involves two significant actions by UnitedHealthcare (UHC), the nation’s largest health insurer, to rein in how much it spends on lab tests. One new policy in 2020 is that a hospital lab cannot submit claims for outreach patients using its hospital’s inpatient fee schedule. The second new policy is a requirement that all UHC network labs submit every test and panel for which they bill to UHC’s new Laboratory Test Registry Protocol. After Jan. 1, 2022, UHC will not pay for claims of tests and panels that are unregistered. (See story #4.)
Strategic Planning at Labs
It is recommended that labs and pathology groups use The Dark Report’s list of the Top 10 Lab Stories as the basis for strategic planning. Such planning should acknowledge that COVID-19 will continue into 2021, creating the need to plan for appropriate contingencies. But strategic planning should also address how 2020’s other developments in 2020 will affect lab operations and finances in 2021 and beyond.
Coronavirus Strikes the World, Puts Clinical Lab Testing on Center Stage
FROM THE EARLIEST DAYS OF THE PANDEMIC, clinical laboratory testing has been a national news story. The SARS-CoV-2 outbreak created an opening for the entire clinical laboratory profession to gain widespread awareness and recognition for the essential role it plays in supporting diagnosis, treatment, and patient monitoring.
As it turned out, the pandemic did elevate the nation’s awareness of the vital role that clinical lab testing plays in managing disease. From the earliest days of the SARS-CoV-2 outbreak, national and local news outlets produced detailed stories about every aspect of diagnostic testing for COVID-19 and how labs operate.
This was the opportunity of a lifetime for the House of Laboratory Medicine. It could take center stage and tell the story about state-of-the-art technologies and dedicated lab professionals that make the U.S. clinical laboratory profession the envy of the world.
Unfortunately, it did not work out that way. Yes, numerous positive news stories were published or broadcast about the remarkable accomplishments of many clinical labs at developing and running COVID-19 tests in volumes unheard of in past epidemics. (See TDRs, Mar. 30 and Apr. 20, 2020.)
Negative Press Coverage
But more of the national and local press coverage was negative, focusing on the range of problems bedeviling federal regulators and clinical laboratories awaiting direction from the government. In the earliest months of the pandemic, national news outlets ran a non-stop stream of stories about how long it was taking to get molecular SARS-CoV-2 tests developed and into clinical use.
Then, once the FDA was dealing with a flood of emergency use applications (EUAs) for molecular COVID-19 assays, the press corps turned its focus to other aspects of COVID-19 lab testing. That started a steady stream of news stories about inadequate volumes of SARS-CoV-2 tests and the lengthy delays in reporting these test results. Attention then shifted to the huge problem of inadequate supplies to collect, transport, and test SARS-CoV-2 specimens at the very moment when the need for unprecedented volumes of COVID-19 tests were required to respond to the pandemic.
Issues with Serological Tests
As spring arrived, attention next turned to serological testing for COVID-19. Journalists quickly learned the long-established fact that testing for antigens and antibodies is a complex diagnostic challenge, making the potential for false positives and false negatives much greater in this field of diagnostics than, for example, with basic chemistry tests.
For all the reasons above, few lab professionals would disagree with The Dark Report’s choice of the COVID-19 pandemic as the number one story of 2020’s Top 10 Lab Industry stories.
It is now nine months since the onset of the pandemic. The continuous news coverage about lab testing raises an interesting question: in what ways will the COVID-19 pandemic permanently alter the clinical laboratory industry?
At least there is good news on one front. What continues to be unquestioned in all the news coverage of clinical laboratories during the pandemic is the dedication of all clinical lab professionals to step up and do everything possible to respond to the nation’s needs for COVID-19 tests.
FDA, CDC, CMS: Fed Agencies Flunk Regulatory Responses to COVID-19
THIS IS THE YEAR THAT PRESIDENT RONALD REAGAN’S FAMOUS STATEMENT about government proved accurate as a description of the numerous ways that federal agencies and state officials often took steps that worked against the best intentions of the nation’s clinical laboratory scientists and pathologists.
Reagan said, “The most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’”
Dealing with Bureaucrats
There are many clinical laboratory professionals who understand the intent of Reagan’s wordplay. They have first-hand experience with the bureaucratic mind so aptly described in many of the works of the German author, Franz Kafka (himself a minor bureaucrat during his life). Since the onset of the pandemic, laboratory leaders have been forced to interact with federal, state, county, and city officials.
Reports of inconsistent guidance, confusing directives, and outright obfustication by government officials at all levels have been common anecdotes since the first evidence of a novel coronavirus surfaced in news stories in this country.
Major government missteps started in the earliest days of the pandemic. Guidance from the federal government prohibited the large number of clinical laboratories with molecular testing capabilities from creating their own laboratory-developed test (LDT) for the novel coronavirus, now classified as SARS-CoV-2.
Contemporary with that, the federal Centers for Disease Control and Prevention (CDC) delivered a SARS-CoV-2 test kit to public health laboratories which proved to be flawed. That took weeks to sort out.
The federal Food and Drug Administration (FDA) has come under criticism for the series of decisions and directives it issued to address diagnostic test kits for the novel coronavirus. Its requirements for how companies were to file emergency use applications (EUAs) for molecular SARS-CoV-2 tests were changed multiple times.
In January and February, as the first news stories about the novel coronavirus were published, FDA actions restricted academic center labs and others from developing and validating laboratory-developed tests (LDTs). During that time, the CDC was the only source for a COVID-19 test. (See TDR, Mar. 30, 2020.)
In March, the rules the FDA issued for COVID-19 serological tests had minimal requirements. That triggered a flood of at least 200 serological tests applying for an EUA, and the accuracy of some of these tests was questionable. Thus, on May 4, the FDA issued a more rigorous set of rules for serological COVID-19 tests to obtain an EUA. (See TDR, May 11, 2020.)
EUA Requirement Dropped
Months later, on Aug. 19, the Department of Health and Human Services (HHS) issued a directive that said clinical labs would no longer be required to obtain EUAs from the FDA for their COVID-19 LDTs. (See TDR, Sept. 14, 2020.)
To these examples can be added government control of the supply chain for lab collection supplies, instruments, and COVID-19 test kits. This is an ongoing issue for all labs across the nation. (See story #7.)
These examples demonstrate how government decisions and control of the lab testing market is often counterproductive to what would be in the public interest.
Staggering Growth of Molecular Claims Causes Spike in Medicare Spending
ONE IMPORTANT STORY FOR THE ENTIRE CLINICAL LABORATORY INDUSTRY emerged in October, but has not become widely known to many pathologists and lab executives. It involves a dramatic escalation in Medicare payments for molecular and genetic tests in 2018 and 2019.
Using 2019 Medicare data released in September and subsequent months, Bruce Quinn, MD, PhD, an expert on health policy, payment, and clinical lab strategies and a former MAC medical director, determined that Medicare payments for the genetic test claims in several states exploded by as much as 700% between 2018 and 2019.
Digging further, Quinn also determined that genetic test CPT code 81408 was the “fraudomatic” and “most unbelievable” code in terms of increased payment in 2017, 2018, and 2019. Quinn reported these findings:
• In 2017, CMS paid $9.55 million for 5,817 claims filed.
• In 2018, CMS paid $123 million for 62,000 claims.
• In 2019, CMS paid $290 million for 146,000 claims.
The fact that all the PAMA fee cuts enacted on clinical lab tests are being offset by skyrocketing increases in payments for genetic tests may make this one of 2020’s significant lab industry stories. That’s because it will have major consequences for all clinical labs in the United States that submit lab test claims to Medicare. (See TDRs, Oct. 5 and Dec. 7, 2020.)
UnitedHealthcare Digs In to Control Spending on Clinical Laboratory Tests
THERE MAY BE NO BETTER EXAMPLE of “business as usual” by a health insurer during the COVID-19 outbreak than the actions taken by UnitedHealthcare throughout 2020 to control what it spends on clinical laboratory testing.
During 2020, UnitedHealthcare (UHC) continued its push on several fronts in attempts to attack what it sees as ways that some laboratory testing companies game the system and file claims for tests that the payer considers to be inappropriate, medically unnecessary, or even fraudulent.
One example is the policy UHC implemented to clamp down on hospital laboratories that submit lab test claims for outpatients and outreach patients using their hospital’s inpatient fee schedule. That policy became effective on May 1. (See TDR, Mar. 9, 2020.)
Contemporary with that policy change, UnitedHealth announced its plans to implement its new Laboratory Test-Registry Protocol. This program requires every in-network clinical laboratory and anatomic pathology group to register almost every type of test and panel before claims can be submitted to the health insurer for payment.
UHC initially scheduled the Laboratory Test-Registry Protocol to begin on Oct. 1, 2020. But because of disruptions caused by the COVID-19 pandemic, UHC moved that date back several times. The current implementation date is Jan. 1, 2022. (See TDRs, Aug. 3, Oct. 5, and Nov. 16, 2020.)
OIG, CMS Issue New Rules That Revise Anti-Kickback Statute, Stark Law
FOR DECADES, THE FEDERAL ANTI-KICKBACK STATUTE AND THE STARK LAW have loomed large over all clinical labs and anatomic pathology groups. Now, in the final weeks of 2020, federal regulators have issued new rules to change both laws.
On Dec. 2, the federal Office of the Inspector General (OIG) issued the final rule, “Revisions to the Safe Harbors Under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements.”
The same day, the federal Centers for Medicare and Medicaid Services (CMS) issued the final rule, “Modernizing and Clarifying the Physician Self-Referral Regulations.” The physician-self-referral law is commonly known as the Stark Law.
Issuance of these two new federal rules will create new compliance headaches for clinical laboratories, particularly in the way they market and sell their services. For example, the OIG excluded clinical laboratories from the safe harbors in the rule it published. But labs can qualify for the safe harbors in the new Stark Law rule issued by CMS. (See TDR, Dec. 7, 2020.)
The new rules were issued by the two federal agencies because the Anti-Kickback Statute and the Stark Law, as written and interpreted, were impeding efforts of federal health officials and providers to implement new care models with new forms of reimbursement. All labs and pathology groups are advised to review the new rules with their legal and compliance advisors.
In 10 Weeks, Labs Lose Revenue Equal to Full Year of Medicare Payments
WHAT WOULD HAPPEN IF THE MEDICARE PART B PROGRAM simply stopped paying for clinical lab tests? That would deprive labs in this nation of about $7 billion per year in cash flow. The resulting red ink would put many labs into dire financial straits.
Something like that happened during the first 10 to 12 weeks of the pandemic. During that time, routine specimen referrals fell off by 60% to 70%, causing a comparable collapse in cash flow to labs. The Dark Report was the only source to publish a credible figure for the drop in specimens and claims—and then quantify those lost revenues.
Working with multiple lab industry vendors, the TDR team used its data to estimate that between Mar. 8 and May 28, the cumulative cash flow lost to the nation’s labs was $6.8 billion. By comparison, the Medicare Part B spend in clinical laboratory testing was $7.1 billion in 2017. (See TDRs, Apr. 20 and June 1, 2020.)
Most of the clinical laboratories performing molecular COVID-19 tests have been able to offset the loss of revenue from routine testing. Also, by the summer, routine specimen referrals were almost back to pre-pandemic levels.
But for many clinical labs—particularly those not directly performing molecular COVID-19 tests—that 10-week collapse in routine specimen referrals, and the cash flow normally generated by those tests, has left them in a precarious financial position.
COVID-19 Causing Major Changes in How Labs Buy Instruments, Supplies
IF THE SARS-CoV-2 PANDEMIC LEAVES ONE LASTING CHANGE to the clinical laboratory industry, it will be that lab managers have a new attitude toward buying supplies and cozying up to a single primary in vitro diagnostics (IVD) vendor that provides from half to 80% of a lab’s instrumentation, automation, and tests.
Starting in March, as the number of COVID-19 infections ramped up, nearly every lab in this country found it impossible to get needed supplies, instruments, kits, and more. Not surprisingly, the major IVD manufacturers were themselves overwhelmed.
Adding to the chaos was how federal and state officials commandeered supplies and redirected them away from labs expecting shipments—generally without much notice. Suddenly, having one major IVD manufacturer provide half or more of a lab’s supply chain went from a cost-saving benefit to a major liability. (See TDRs, Jun. 1 and 22, Jul. 13, Aug. 3, and Oct. 26, 2020.)
For the past nine months, the leadership of most clinical laboratories and pathology groups have spent much of their time locating adequate quantities of the supplies, instruments, and tests they need to perform COVID-19 tests, while maintaining standard laboratory testing for their parent hospitals and physician-clients.
Equally significant, the pandemic is causing global IVD companies to rethink their own manufacturing sites and supply chain arrangements.
Coronavirus Pandemic Is Opportunity for New Clinical Lab Competitors
LIKE BEES TO THE HONEYPOT, newcomers are flocking into the clinical laboratory market to get their share of the tens of billions of dollars that federal and state governments are paying for COVID-19 tests. Certainly some of the new entrants will want to direct their clinical lab facilities toward regular clinical lab tests whenever the pandemic passes.
The Dark Report considers Amazon to be among the most credible of the new players in clinical laboratory testing. In the spring, it announced plans to build and operate its own labs to provide SARS-CoV-2 testing for its 1.1 million employees. It is unlikely that Amazon would close those expensive laboratory facilities once the pandemic ends. (See TDR, Aug. 3, 2020.)
Since the outbreak of SARS-CoV-2, The Dark Report has identified and described other new entrants into the lab testing marketplace. These include eTrue North of Mansfield, Texas, and SafeSite of Calabasas, Calif. (See TDRs, Sept. 14, and Oct. 5, 2020.)
Even governments are getting into the COVID-19 testing business. The Dark Report was first to report that the State of California had built a lab facility in Newhall, Calif., and that it planned to perform 150,000 molecular SARS-CoV-2 tests per day by April. (See TDR, Nov. 16, 2020.)
Expect that a number of these competitors will want to redirect their fully-equipped laboratories toward routine and reference testing once the COVID-19 pandemic subsides.
Digital Pathology Gets Major Boost from Pathologists Working at Home
WHEN THE PANDEMIC EXPLODED IN THE UNITED STATES IN MARCH, who could predict that many, many pathologists—restricted by state and local directives to work only from home—would quickly recognize the benefits of using digital pathology (DP) and whole-slide imaging (WSI)?
As lockdown orders were issued in cities and states across the nation, private practice pathology groups with digital pathology systems already installed simply fed the digital images to pathologists working from home.
This helped to maintain diagnostic workflow. Of equal importance, it helped to generate revenue in March and April when the volume of tissue referrals (and associated cash flow) dropped by 60% to 90%. Not surprisingly, during these early months of the pandemic, even the many baby boomer pathologists who had been reluctant to abandon their light microscopes quickly appreciated the clinical, operational, and financial benefits of using digital pathology and WSI. (See TDRs, Mar. 30, and Dec. 7, 2020.)
Probably the biggest boost to digital pathology adoption is the project at the federal Joint Pathology Center. The JPC just signed an agreement with Proscia to digitize the world’s largest archive of pathology glass slides. (See TDR, Oct. 26, 2020.)
In these unexpected ways, the pandemic is accelerating adoption of digital pathology for use in primary diagnosis. This will trigger fundamental changes to pathology as it has been practiced for decades.
Federal Judge Schedules Trial for Ex-Theranos CEO Elizabeth Holmes
ANY NEWS ABOUT ELIZABETH HOLMES, the discredited founder and former CEO of Theranos, Inc., is of continuing interest to many clinical laboratory professionals. In 2020, the big story involving Holmes is that the judge handling the federal case against against her and Ramesh “Sunny” Balwani, former COO of Theranos and Holmes’ former boyfriend, has ruled against most of the defendants’ motions. The judge ended the year setting a trial date for 2021.
On Dec. 20, U.S. District Court Judge Edward J. Davila, established July 2021, as the date when the trial will begin. It will start with selection of the jury. Judge Davila further described the specific precautions that will be taken during the trial in response to the SARS-CoV-2 pandemic, including wearing of masks and an air filtration system over the witness stand.
Several weeks earlier, federal prosecutors filed a third superseding criminal indictment. The newest charge involves claims associated with a patient’s blood test. Holmes now faces 12 criminal counts.
Holmes and Balwani entered “not guilty” pleas to all charges. If convicted, they could each face maximum penalties of 20 years in prison, a $2.75 million fine and possible restitution, the Department of Justice said. (See TDR, Feb. 17, 2020.)
The fate of Theranos and its disgraced founder, Elizabeth Holmes, continues to be of high interest to many in the clinical laboratory industry.