Employers, Others Looking to Build New Clinical Labs

Existing labs may see competition from a range of unlikely entrants into COVID-19 test marketplace

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CEO SUMMARY: Employers, universities, municipalities, and other large organizations are interested in building their own clinical laboratories. In addition, entrepreneurs—many with no prior experience in laboratory medicine—want to make money providing COVID-19 testing. Many of these entities seek to provide a safe work environment and limit their legal liability associated with COVID-19, and they want their own clinical laboratories to ensure adequate supplies of timely and low-cost COVID-19 tests for their workers and students.

IF THE COVID-19 PANDEMIC CONTINUES INTO 2021, then clinical laboratories can expect many new competitors for SARS-CoV-2 testing. A significant and growing number of organizations are building new lab facilities specifically to provide COVID-19 tests.

Two dynamics are fueling this trend. First, entrepreneurs see that the demand for COVID-19 testing exceeds the current capacity of the nation’s labs. Therefore, they may be able to profit from building new labs to serve that demand.

Second, many employers and larger organizations recognize the need to test their employees and others in their organizations for COVID-19 as a way to ensure a safe workplace and limit their liability risks.

Amazon is an example of a large employer building multiple clinical laboratories to provide COVID-19 testing for its 840,000 employees in its warehouses and distribution centers. (See “Amazon Building Labs to Do COVID-19 Testing.”)

Organizations wanting to build their own clinical labs to provide COVID-19 testing for their employees generally have three goals.

One is to access ample COVID-19 testing capacity. A second is to ensure fast turnaround time for test results—thus avoiding the lengthy delays reported widely in the news. Third, by operating their own clinical labs, these organizations might pay less than if they bought the same number of COVID-19 tests from existing clinical laboratories.

Ground Zero

One person at ground level in the trend to build new clinical laboratories is Jon Harol, President and founder of Lighthouse Lab Services in Apex, N.C. Lighthouse consults with clinical laboratories and provides recruiting and staffing services for labs.

Almost every day, Harol’s firm gets calls from interested parties wanting to build clinical laboratories or seeking advice and assistance designing and accrediting proposed labs.

“The daily pace of incoming calls has increased over the past five months,” stated Harol. “We’ve been contacted by entrepreneurs, companies, and others who want to build new clinical laboratory facilities.”

In some cases, the goal is simply to build a lab to perform only COVID-19 tests. But other callers intend to build labs to do both COVID-19 and other clinical lab tests.

Build New Clinical Labs

“We get about one or two inquiries a day and average around 60 leads a month,” noted Harol. “Not all of those inquiries turn into actual contracts to build new clinical labs, but many do.

“About half of the inquiries are COVID-related, meaning they want to test exclusively for the new coronavirus,” explained Harol. “The other inquiries are for standard clinical lab testing, including testing for COVID-19.

“About one third of these inquiries are from companies that have not been in this industry before,” he added. “That’s good and bad. It’s good because they bring fresh eyes to the clinical laboratory industry and want to do innovative things.

“But it’s bad because it’s about half the time. I need to explain that—even though their ideas about lab testing make good common sense—federal and state regulations govern clinical lab operations,” he added. “I have to tell them, ‘You can’t do that.’

Unaware of CLIA

“Much of the time, I have to explain that clinical labs need CLIA certificates and that Medicare has rules governing the operation of a CLIA-certified lab,” he commented. “It is surprising how many business people and entities preparing to build clinical laboratories are unaware of CLIA and state laws governing the operation of clinical laboratories.

“People who contact us from outside of the clinical lab industry are interested almost exclusively in COVID-19 testing for asymptomatic populations,” he said. “For example, employers want to test their employees. In some cases, the employers themselves want to build their own labs to do COVID-19 testing.

“We’ve had interest from companies that run sporting events or other big gatherings and want to test participants and possibly fans too,” Harol reported. “Another category of inquiries comes from clinical trial groups that want to test potential participants in their clinical trials,” he explained. “They don’t want the symptoms of COVID-19 to show up as side effects of their drugs or therapeutics.

“Those people are already in the healthcare business in some fashion but have little or no experience with clinical diagnostic labs,” noted Harol. “They are involved in the research and development side of healthcare and now they’re looking for guidance on how they can get a CLIA certificate for the clinical lab they want to perform COVID-19 tests.

“Another group of callers are individuals representing colleges and universities that want to do COVID-19 testing for students, faculty, and staff,” he said. “They want to know how they can reopen safely. To reopen safely, they want to avoid the legal liability that could come from infections that spread among students.

“In addition, municipalities have asked us about starting their own clinical labs because their workers have to go back to work,” Harol commented. “Many of those workers need to interact with the public. “One way that municipalities can keep their employees safe is to conduct COVID-19 coronavirus testing,” he noted. “Therefore, these cities want their own clinical laboratories.”

One city making such inquiries is in a Mid-Atlantic state. Harol could not be more specific. Under non-disclosure agreements Lighthouse has with its clients, Harol cannot name the companies or other entities making these inquiries.

“We’ve had federal agencies inquire about how we could build labs for them,” he offered. “One government agency wants us to give them a proposal to build a lab to do mobile COVID-19 testing for federal employees.”

Lab Industry Interest

Some clinical lab companies also are asking about adding their own new facilities, Harol noted. “Clinical lab companies working with employers, cities, or universities have asked about building labs so that they can test employees and students for COVID-19.

“Our biggest lab project involves a company building a clinical laboratory in the San Francisco Bay Area. They want to test 200,000 COVID-19 samples a day,” he said. “This new lab company will specialize in COVID-19 testing and will build what could be the biggest COVID-testing lab in the world.

“Often, we get calls from people within the clinical laboratory industry,” stated Harol. “They may want to add additional lines of testing into their existing labs, or they may want to start new lab companies and need to build new labs,” Harol explained.

“They already know the industry because they may have been lab executives, or they were sales reps who want to start their own labs, or lab managers who want to break out on their own. These people are focused on all forms of clinical laboratory testing, including testing for the COVID-19 coronavirus,” he noted.

Lab Developer Offers Subscription Model

While interest is high among employers, universities, and municipalities for building new clinical laboratories, many of these organizations are not committing to doing so, said Jon Harol, CEO and Founder of Lighthouse Lab Services.

“One issue that causes many of them to reconsider plans to build their own clinical labs is that they consider the price of COVID-19 tests to be too high,” explained Harol.

“To serve this market for COVID-19 testing, our team put together subscription models,” he noted. “For example, we offer to test all employees every month for $100 per employee. Or, we’ll test all employees twice a month for $150 a month per employee. Employers are interested, but most have not yet committed to those rates.

“From what I’ve heard, our subscription model would be competitive with the prices charged by larger clinical labs, which is in the range of $75 per COVID-19 test or more,” he said. “The market’s response has been that this is not reasonable for large scale asymptomatic testing.

“Sample pooling for COVID-19 testing could lower that price to a more attractive level, say below $50 per test per employee each month,” he observed. “If we can get to that level, then we may see a lot more companies testing their employees.

I believe under $50 could be an amount they might be more willing to pay. “At that price point, COVID-19 testing is more like an employee or workplace safety benefit,” he commented.

“Employers don’t want the loss of productivity that results when workers are out sick with COVID-19. They also don’t want the liability either. These are among the reasons why employers are exploring their COVID-19 testing options, at least for now.”

Contact Jon Harol at 860-833-0489 or jon@lighthouselabservices.com.

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