CEO SUMMARY: With the SARS-CoV-2 pandemic about to enter its eighth month in the United States, it remains difficult to predict whether the pandemic will strengthen with the fall influenza season or steadily diminish. What is clear to most pathologists and clinical laboratory executives is that the COVID-19 pandemic has already changed several aspects of how laboratories select suppliers, purchase supplies, interact with physicians and patients, and utilize digital pathology.
WHENEVER THE COVID-19 PANDEMIC ENDS, what comes next for the clinical laboratory industry? This important question is being asked in boardrooms across the country, as pathologists and clinical lab managers review clinical and business plans for their labs and pathology groups.
The SARS-CoV-2 outbreak washed across all medical laboratories in the United States like the 2004 Indonesian Tsunami devastated coastlines from Indonesia to Thailand and India. This tsunami killed an estimated 230,000 people.
Similarly, the onset of the COVID-19 tsunami hit the nation’s clinical laboratories and pathology groups with a comparably devastating blow. This blow was the near-total collapse in the daily volume of routine lab specimen referrals and the cash flow associated with these specimens.
Routine test referrals fell by 70% or more during the months of March, April, and May as shelter-in-place directives took effect in nearly all states. Concurrently, and in response to the pandemic, every medical laboratory in this country went into a crisis response mode. During those months, a large number of the nation’s independent clinical laboratories used furloughs, lay-offs, and terminations to reduce staff. As the daily volume of routine lab test specimens began recovering in late spring, many labs began returning these employees to work.
It was a different story at the clinical labs of hospitals and health networks. These institutions saw a deep drop in emergency room visits for routine conditions at the same time that they ceased admitting patients for elective services. But the need to admit and treat COVID-19 patients meant that hospital labs found themselves on the front lines as the earliest waves of COVID-19 patients began flooding into hospitals, particularly in states such as New York, California, Florida, and Louisiana.
The urgent need for accurate, timely molecular COVID-19 tests at hospitals meant their labs were truly the essential clinical service. Hospital labs immediately put all existing staff into that effort. Hospital labs provided significant numbers of staff to collect COVID-19 specimens at drive-through sites in their communities, for example.
Those hospital and health system labs that had molecular testing capabilities typically were developing SARS-CoV-2 tests in late February and began performing these tests early in March.
Yet the pandemic proved relentless. As the winter gave way to spring and spring yielded to summer, both independent labs and hospital labs continued to perform increasing numbers of molecular COVID-19 tests as the number of newly-diagnosed cases in this country pushed over 70,000 per day in mid-July.
Patients Again Visiting Docs
If there was some good news during this time, it was how the easing of shelter-in-place directives in May and June encouraged patients to again visit their physicians and allowed hospitals to begin scheduling elective services.
The Dark Report has data from multiple companies that—because of these two developments—show the daily volume of routine specimen referrals originating in the outpatient/outreach sector is back to between 80% and 90% of pre-pandemic levels.
However, that three-month collapse in cash flow from routine testing left many labs with a financial deficit that these labs will never make up from othersources (such as COVID-19 molecular testing). By its calculations, The Dark Report estimates that in the first 10 weeks of the pandemic (from March 14 through May 15), the collapse in cash flow from reduced routine lab testing totaled $6.8 billion.
$6.8 Billion in Lost Cash Flow
To give perspective to this collective loss of $6.8 billion in cash flow, the Office of the Inspector General reported that Medicare Part B clinical lab test reimbursement totaled $7.1 billion during 2017. In the first 10 weeks of the pandemic, the nation’s labs were starved of cash flow that nearly equaled what they are paid by Medicare during a full year! (See “From Mid-March, Labs Saw Big Drop in Revenue,” TDR, April 20, 2020.)
Simultaneous with this crash in routine test referrals and associated cash flow was the immediate need for large volumes of molecular COVID-19 tests. Any independent lab company or hospital lab with existing instruments and staff trained in molecular and genetic testing rushed to bring up COVID-19 tests. The CDC’s SARS-CoV-2 test was the first authorized test that labs were allowed to perform.
Throughout March, April, May, and into June, government officials and the news media closely tracked the increase in the number of molecular COVID-19 tests that labs in this country could perform. Throughout these same months, local, state, and federal governments took a big role in organizing drive-through COVID-19 specimen collection sites.
Testing at Nursing Homes
The next major effort took shape in May and June. It involved nursing homes and long-term care (LTC) facilities. Particularly at the state level, governments organized programs designed to regularly test all nursing home patients and their staffs. Much of the funding for this SARS-CoV-2 testing came from the federal government.
It was in May-June that the clinical lab industry split into two groups. One group of labs was capable of performing molecular COVID-19 testing that also generated much-needed revenue to offset the decline in cash flow from routine testing. The other group of labs were not performing molecular COVID-tests. Thus, that source of revenue was denied to them.
These are the labs with the most desperate finances. Having lost more than half their cash flow in March, April, and May—and with outpatient/outreach testing still at just 80% to 90% of pre-pandemic levels—they face an uncertain future, particularly if the pandemic continues for months into the future.
The COVID-19 pandemic of 2020 has caused fundamental changes across almost every aspect of our society. Who imagined, at the start of 2020, that movie theaters would be closed, amateur and professional sports would be canceled, concerts of all types and church services would be forbidden, and that restaurants, bars, and nightclubs would be closed for months at a time?
Healthcare and the profession of laboratory medicine were similarly impacted. The COVID-19 pandemic continues to reshape the delivery of medical services and how clinical lab testing is provided.
With clinical labs and pathology groups preparing their clinical and financial plans for 2020, it is timely to offer insights as to the more obvious ways that the clinical laboratory marketplace will be different going forward.
The easy predictions involve how labs buy instruments, tests, and consumables. That’s because supply chain problems became the number one management issue at every lab in the U.S., as well as globally. Several things will probably be true for the laboratory supply chain of the future.
First, pre-pandemic, it was common for many labs to select one in vitro diagnostics (IVD) company to be their major source for instruments and tests. But from the onset of the pandemic, most labs could not get additional instruments and adequate volumes of supplies from their major IVD source. In the future, labs can be expected to spread their purchases of instruments, tests, and consumables across multiple IVD firms. (See “Is Covid-19 Pandemic Creating New IVD Winners and Losers?” in this issue.)
Bring Manufacturing to U.S.
Second, IVD companies and lab vendors will be rethinking their own manufacturing and supply chain. The days of manufacturing in a least-cost country, then importing either parts or finished product into this country for final assembly and delivery to lab customers, may be over.
This will probably be true for the United States. It is the world’s largest single market for healthcare, spending almost $4.0 trillion in 2018. Thus, the global IVD giants have a motive to manufacture here.
That shortens and simplifies the supply chain for U.S. labs and still allows the IVD firms to send products manufactured here to overseas lab customers.
More Use of Telehealth
Third, the pandemic has caused both consumers and healthcare providers to rethink the value of telehealth and virtual doctor’s visits. News stories throughout the pandemic have trumpeted the increased use of telehealth. At the same time, federal and state regulation of telehealth services was temporarily eased and many expect authorities to make those changes permanent.
Telehealth is an issue for clinical laboratories because, if the patient never visits a traditional physician’s office, where and how will the lab access the patient to collect the specimens to perform the lab tests that were ordered by the patient’s physician?
Fourth, use of digital pathology, whole-slide images, and telepathology will increase and probably become the norm. Many pathologists required to work from home during the pandemic now recognize the benefits of a digital pathology system that can allow them to read images and diagnose from any location away from the pathology laboratory.