CEO SUMMARY: There are valuable insights to be gleaned from The Dark Report’s “Top 10 Lab Industry Stories for 2022.” Several of this year’s story picks involve external forces reshaping healthcare in the United States in profound ways. Other story picks for 2022 illustrate the most difficult challenges confronting clinical laboratories and anatomic pathology groups. That includes medical technologist staffing shortages and the demand for pathologists that outstrips supply. Of note, 2022 may be the last year that former Theranos CEO Elizabeth Holmes makes our list of top stories.
For the first time since 2019, the SARS-CoV-2 pandemic did not take the top spot among The Dark Report’s “Top 10 Lab Industry Stories for 2022.” That is a positive development, both for the clinical laboratory industry and the American healthcare system.
Instead, one primary theme of 2022 was the overall financial difficulties confronting hospitals, health systems, governments, and consumers. Economic woes, supply chain problems, labor costs, and inflation were among the top issues during the previous 12 months.
COVID-19 continued as a factor during 2022. Circumstances indicate that the worst of the pandemic is over, even as healthcare providers and labs find themselves dealing with other respiratory viruses. For example, at this moment, a dramatic increase in the number of cases and hospitalizations of pediatric RSV is stressing the healthcare system.
In hindsight, 2022 may be recognized as the year that the long-predicted shortage of medical technologists (MTs), pathologists, and other types of laboratory scientists exploded across the entire spectrum of laboratories that operate in the United States in a way that finally attracted the attention—and news coverage—of major media organizations.
This is why The Dark Report’s “Top 10 Lab Industry Stories for 2022” ranks the shortage of MTs and other types of lab staff as the number two biggest story of the year. (See story 2, below.) Ranked three is the skyrocketing demand for pathologists—called by some experts as the biggest gap between open positions and the available supply of pathologists in the past 20 years. (See story 3, below.)
What will also be notable as pathologists and lab administrators look back on 2022 is how multiple factors were at work eroding the financial stability of hospitals, health systems, and many clinical laboratory organizations, as noted below:
During 2022, a substantial number of hospitals and health systems reported losses in the hundreds of millions, even billions of dollars, further depleting their cash on hand and eroding financial solvency. (See story 1,below.)
By mid-year, inflation dominated national news headlines. The consequence is much higher costs of supplies, labor, and services, even as clinical laboratories were already under substantial pressure to cut their budgets. (See story 9, page 9.)
In several different mergers, multi-hospital integrated delivery networks combined into bigger systems. This is market evidence that consolidation continues in the hospital industry. (See story 6, below.)
Good News/Bad News Bills
During 2022, in the legislative arena, there is what some would judge to be a good news/bad news story. Many lab professionals believe that the Verifying Accurate Leading-edge IVCT Development (VALID) Act—intended to give the Food and Drug Administration (FDA) oversight over laboratory-developed tests (LDTs)—would be an unwelcome burden for labs working to bring new diagnostics assays to market.
By contrast, the proposed Saving Access to Laboratory Services Act (SALSA) would reform parts of the previously enacted Protecting Access to Medicare Act, or PAMA. In particular, it would forestall implementation of the 15% price cuts to the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) that are scheduled to happen on Jan. 1., 2023. (See story 5, below.)
Another important story for the clinical laboratory industry in 2022 was the continuing climb in influence of consumers. Leading this charge are the Millennials, also known as Generation Y, who want speedy access to medical care. They are comfortable seeing their doctors via FaceTime, Zoom, and other virtual meeting platforms.
New Healthcare Consumer
This is also increasingly true of Generation X and the Baby Boomers. During the pandemic, they accepted telehealth services as a way to access their doctors.
More importantly for clinical labs, the pandemic taught many consumers how easy it was to order their own diagnostic tests. Consumers also were taught to collect their own COVID-19 test samples at home or work. Labs will be dealing with the implications of this trend for years to come. (See story 4, below.)
Some may be surprised at The Dark Report’s pick for the number 7 biggest lab industry story for 2022, titled, “Mergers in Anatomic Pathology Reflect Cash Flow and Technology Obstacles.” Independent pathology groups—both small and large regional pathology super practices—are choosing to merge themselves into larger pathology organizations.
Two forces are contributing to this ongoing consolidation of pathology groups. In no order of priority they are:
Retirement of pathologists and inability to recruit young new pathologists into the group.
The need for investment capital to acquire the histology automation, digital scanners, and digital pathology systems needed to remain competitive. (See story 7, below.)
Clinical laboratory leaders many want to incorporate these 10 top lab stories for 2022 into their strategic planning. Doing so could help sustain clinical quality and financial stability.
THERE WAS NO GREATER THREAT IN 2022 to the bottom line of clinical laboratories and pathology practices serving hospitals in the U.S. than the poor financial performance of these acute care institutions.
Several reasons are to blame, including lower inpatient volumes compared to before the pandemic, increased labor costs, and sky-high expenses. Consulting firm Kaufman Hall predicted more than half of the country’s hospitals would report a financial loss in 2022. (See TDR, “U.S. Hospitals Will Lose Billions of Dollars in 2022,” Oct. 31, 2022.)
As a result, lab administrators and pathologists faced constant pressure to cut lab costs. Proven methods such as Lean Six Sigma provided one way to reduce costs in laboratories while sustaining quality. (See TDR, “Lean is Smart Approach to Major Lab Cost Savings,” Sept. 19, 2022.)
Meanwhile, some health systems—wanting to raise cash to offset losses—put their hospital laboratory outreach businesses up for sale. The billion-dollar lab corporations bought sizeable lab outreach programs from at least four hospital chains in 2022, which no doubt caught the attention of other struggling systems. (See TDR, “Public Laboratory Companies Eye More Lab Outreach Acquisitions,” Aug. 29, 2022.)
Predictions are that many hospitals will continue to lose money during 2023. If that proves true, there may be more sales of hospital lab outreach programs.
WORKFORCE SHORTAGES in the clinical laboratory industry have been a reality for years, but 2022 triggered a new peak with the staffing crisis. A pathology director told The Dark Report earlier this year that he worries each night about whether he’ll have enough bench staff available to fill the shifts the next day, a scenario that other lab leaders often ponder.
The Great Resignation, less interest in lab careers, and a declining number of training schools are reasons behind the ongoing shortage of MTs and other lab scientists. Even though the SARS-CoV-2 pandemic raised the profile of laboratory professionals and what they do, it also created a pressure cooker in which large volumes of diagnostic tests had to be turned around quickly, leading to long hours, much overtime, and staff burnout.
Lab salaries have risen in many places with mixed success at filling open positions. It is also suggested that labs establish early relationships with math and science students in local high schools; audit work processes to allow lab professionals to work to their highest potential; and create non-traditional educational paths for future lab scientists, such as apprenticeships. (See TDR, “Insights and Advice about the Lab Staffing Crisis,” Oct. 10. 2022.)
Because the volume of lab testing will continue to grow, achieving full staffing in most laboratories may become the number one management issue for 2023.
WANT TO HIRE A NEW ANATOMIC PATHOLOGIST? Best of luck. Experts say the pathologist job market is the hottest it has been in 20 years and there are many more job openings than qualified pathologists to fill them.
A recent search on the job board at PathologyOutlines.com revealed that as of early December, there were 731 open positions for pathologists in the U.S. That number has remained fairly constant throughout 2022 and it is more than double the figure from July 2020.
As current pathologists retire or otherwise leave the industry, the supply of up-and-comers cannot meet the demand. As well, most new pathologists have specialized training, so it takes them longer once they graduate to gain experience in other diagnostic areas. (See TDR, “‘Lab Workforce Crisis Takes Top Spot,’ Says CAP Today,” April 25, 2022.)
Clinical laboratories and practice groups may need to reset their approaches to recruiting, hiring, and retaining pathologists given the current huge gap in the demand versus the supply.
For example, laboratory hiring managers should anticipate emphasizing different points to Millennial candidates as opposed to Generation X job seekers. (See TDR, “How to Better Recruit Millennial Pathologists,” June 27, 2022.)
No future developments are projected to close the current supply/demand gap for pathologists. That will cause forward-looking pathology leaders to consider adopting digital pathology systems and whole slide images as a way to automate workflow and increase their pathologists’ productivity.
MORE CONSUMERS ARE CHANGING how they access and use healthcare services. This is particularly true of consumers’ use of telehealth services and that has major implications for clinical laboratories.
COVID-19 forever altered how people receive diagnostic tests. It opened up different ways to choose appointment locations, and evolved the public’s understanding of infectious diseases. These factors all present new opportunities for entrepreneurial lab leaders to explore as potential revenue sources.
One important development is the changing nature of phlebotomy draws. Both Getlabs and Teladoc Health grew their services to collect blood samples at home or at the workplace, providing more convenience for busy customers wanting to avoid the time and hassle of traveling to a blood draw center. (See TDR, “Telemedicine Firms Offer At-Home Phlebotomy Service,” Sept. 19, 2022.)
Another forces for change is how retail pharmacies continue to place themselves at the forefront of diagnostic testing. In 2022, Walmart and Quest Diagnostics announced an expanded partnership to serve customers interested in ordering their own lab tests. Why? Quest estimates the consumer-initiated testing market could be worth $2 billion. (See TDR, “Quest and Walmart to Expand Consumer-Initiated Test Options,” Feb. 22, 2022.)
NOT IN RECENT MEMORY HAVE SO MANY LEGISLATIVE BILLS with implications for clinical laboratories and pathology groups been circulating around Congress.
This situation may be an extension of how the SARS-CoV-2 pandemic made people—including lawmakers—more aware of clinical diagnostic services.
Of top importance to laboratory professionals is the proposed SALSA, which seeks to reform parts of the previously enacted PAMA.
If passed soon, SALSA will prevent PAMA decreases to laboratory test payments scheduled to go into effect on Jan. 1. Up to 800 tests could face reimbursement cuts of 15% otherwise. (See TDR, “VALID and SALSA Acts Still Pending in Congress,” Dec. 21, 2022.)
A separate bill, the VALID Act, seeks to move oversight of laboratory-developed tests to the FDA. It is still in play, despite some ups and downs with lawmakers’ support during 2022.
Another, newer proposed bill is the Supporting Medicare Providers Act, which would temporarily reduce cuts to the Physician Fee Schedule, including to pathology services, that will go into effect in 2023.
Debate on these bills may still happen before year’s end. Any of these proposals could be attached to an expected “must pass” spending bill needed to keep other aspects of the government funded and that must be passed in coming weeks.
INTEGRATED DELIVERY NETWORKS (IDNs) continued to consolidate in the U.S. in 2022, which presented opportunities for clinical laboratories to run with new efficiencies across larger systems.
In May, a mega-merger between Atrium Health and Advocate Aurora Health resulted in a new system of 67 hospitals and more than 1,000 ambulatory clinics across several states in the Upper Midwest and Southeast. (See TDR, “Atrium, Advocate Aurora Merge into $27b System,” June 6, 2022.)
Earlier this year, Beaumont Health and Spectrum Health merged in Michigan, creating a larger IDN with 22 hospitals and more than 300 outpatient clinics. Also, two small West Virginia systems merged to create a new IDN called Vandalia Health.
The Atrium/Advocate-Aurora deal signals that health systems in different regions are likely to find mergers attractive because of economies of scale, managed care contract clout, and shared staff.
After such deals are announced, an early priority for the clinical labs is to standardize instruments, tests, and processes across the combined integrated delivering network. This brings economies of scale, supports performing more assays in-house to cut turnaround times for inpatients, and makes it easier to move staff to different labs as needed.
THIS YEAR PROVED TO BE AN ACTIVE ONE for anatomic pathology consolidation as smaller private practices struggled to compete in the areas of technology and recruitment while also needing funds.
In January, PathGroup in Nashville announced it had acquired Pathology Consultants of South Carolina, bringing its total pathologists on staff to 255.
An equally large merger occurred at the very end of 2021. That’s when Australia-based Sonic Healthcare bought Dallas-based ProPath, adding to its previous series of U.S. acquisitions that included Aurora Diagnostics and CBL Path. (See TDR, “Sonic Healthcare Acquires ProPath, PathGroup Buys Path Consultants,” Jan. 31, 2022.)
In both acquisitions, a successful regional practice decided to sell to a larger one, indicating that the smaller groups were finding it increasingly challenging to stay financial stable.
The Dark Report noted that three factors are guiding this wave of pathology practice consolidations in recent years. Included is the need for cash to buy out the equity retiring partners; required capital to purchase advanced technology, including digital pathology tools; and the need to put more resources behind recruitment of younger pathologists.
As acquisition-minded pathology practices continue to grow, they will gain market clout and wield more purchasing power and contract influence.
CONTINUING ON A DECADES-LONG ROLL, in vitro diagnostics (IVD) mergers occurred at a brisk pace in 2022, while simultaneously, laboratory informatics deals included one of the heaviest hitters in the high tech world.
Technology giant Oracle stepped into the lab informatics industry at the tail end of 2021 with its purchase of Cerner, long known for its electronic health record and laboratory information system (LIS) software. Just weeks later, U.K.-based CliniSys (owner of recently renamed Sunquest Information Systems) acquired Horizon Lab Systems in North Carolina. (See TDR, “LIS Market Will Change after Oracle, CliniSys Deals,” Jan 31, 2022.) CliniSys next acquired Nashville-base ApolloLIMS in May.
Motivations behind the deals were different. In CliniSys’ case, it intends to expand its product suite beyond clinical labs, such as in environmental testing. For Oracle, its deal gave it a stronger foothold in healthcare, particularly in patient data.
In the IVD arena, Quidel closed on its $6 billion acquisition of Ortho Clinical Diagnostics at the end of May, becoming QuidelOrtho. By the end of 2022, the deal will rearrange the list of top global IVD companies by sales.
As The Dark Report noted, Ortho and Quidel were numbers 12 and 13 in revenue. (See TDR, “2021 Rankings of the World’s Top 12 IVD Companies,” Aug. 29, 2022.) The combined company is likely to crack the top seven IVD firms in future rankings.
INFLATION IS A CONTINUING ELEMENT in several of this year’s list of top 10 lab industry stories.
Start with the fact that inflation hit a 40-year high in 2022. Faced with rising costs, consumers are cutting back their spending and that includes visits to doctors. Similarly, hospitals, clinical labs, and pathology groups are dealing with major increases in the cost of doing business.
Maybe 2022 was a “perfect storm” for rising prices. Excessive federal spending and an unusually low Federal Reserve interest rate were the direct causes of current inflation. But supply chain disruptions caused by the pandemic, and the disruption to the international flow of goods, including manufactured products, exacerbated continuing price increases.
Further, inflation drives up labor costs at a time when there is already too few lab scientists and pathologists to fully staff the nation’s laboratories. (See TDR, “Tough Times Ahead for Hospitals and Their Labs,” Aug. 8, 2022.)
With clinical lab budgets already shrinking, inflation had an insidious effect of forcing labs to spend more money for instruments, reagents, and workers. As 2022 ends and the New Year approaches, there are few signs that inflation will ease in the short term.
What made inflation a surprise story for the clinical laboratory profession during 2022 is that, early in the year, there was little advance notice that rising prices would become a headline by mid-year.
ELIZABETH HOLMES’ DOWNFALL IS NOW COMPLETE, SEVERAL years after her company, Theranos, collapsed amid scandal. In January, the former CEO was convicted on four counts of conspiracy and wire fraud after a months-long trial in 2021.
Then in June, former Theranos Chief Operating Officer Ramesh “Sunny” Balwani also was convicted, this time on 12 counts of conspiracy and wire fraud.
Holmes and Balwani spent the next few months trying to avoid what may have been inevitable: prison time. They both requested new trials, which were denied. When government witness and former Theranos Laboratory Director Adam Rosendorff attempted to speak with Holmes at her residence, the lab industry’s attention was again captured.
However, in the end, a judge decided these fraudsters had behaved so badly towards Theranos investors that both will report to authorities in 2023 to begin lengthy sentences. Holmes will serve 11 years, three months behind bars, while Balwani will be in prison for 12 years, 11 months. (See the story here for more details.)
Will lawyers file appeals of their convictions? Of course. But in all likelihood, it is the end of the road for Balwani and Holmes. Beyond their professional disgrace, each will soon pay a high personal price because of the fraud for which they were convicted. Balwani will be nearly 70 when he is freed, if he serves his full sentence. And Holmes—currently pregnant with her second child—will miss out on a decade of her two young kids’ lives.