What’s Ahead for Labs? It’ll Be Quite Different

Is a ‘perfect storm’ of unwelcome factors gathering that will confront all laboratories in serious ways?

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CEO SUMMARY: In many ways, the nation’s clinical laboratories performed magnificently in response to the SARS-CoV-2 outbreak last winter. But that magnificent performance has taken its toll on the infrastructure and personnel within these labs. The Dark Report provides insights into four key factors common to all clinical laboratories, particularly those that currently perform large numbers of COVID-19 tests. The following analysis looks at staffing, finances, equipment, and management in labs today.

IS IT NOW THE BEST OF TIMES OR THE WORST OF TIMES FOR THE CLINICAL LABORATORY INDUSTRY? That converts the famous opening sentence of Charles Dickens’ novel, “A Tale of Two Cities” into a question of keen interest to pathologists and lab executives.

The answer is yes to both elements of this question. Yes! It is the best of times for those clinical laboratories performing large volumes of SARS-CoV-2 tests and enjoying the economies of scale that allow them to generate worthwhile profits from that line of testing.

Yes! It is the worst of times for those labs that either do not do COVID-19 testing or do not do enough volume of such tests to generate the cash flow needed to offset the revenue they lost during the March-April collapse of routine test referrals last year.

Some of these clinical laboratories have already closed their doors for good. Others may have been acquired by financially stronger labs that wanted the clients, but closed the acquired lab’s facilities and laid off their staffs.

For both classes of clinical labs, 2020 was a year like no other. It brought an unusual “duality” to lab management. Lab administrators and pathologists found themselves confronted with the need to do two major things simultaneously.

The first aspect of this duality was the laboratory management responsibility to react to the pandemic and do so in a crisis mode. That meant bringing up—and sustaining—a robust capability to perform large volumes of COVID-19 tests and support city, county, state, and federal programs to operate drive-in specimen collection sites.

All of these activities were high stress for the entire lab staff and have lasted for weeks and months with little relief. Supply chain problems only brought more stress and continue to this day.

Second Aspect

The second aspect of this duality occurred during early spring of 2020. As patients returned to hospitals and physician offices, labs had to maintain the expected level of ongoing COVID-19 testing as daily volume of regular specimen referrals climbed back to pre-pandemic levels.

Clinical laboratory executives and pathologists should step back and recognize this duality. They are actually managing two major lab testing operations simultaneously under the same roof, typically using the same lab staff.

Never before have large clinical lab facilities been asked to maintain a “normal” daily volume of routine testing, while at the same time performing a volume of SARS-CoV-2 testing that may equal or double the number of routine tests already performed daily in that facility.

Stated differently, labs are cramming double or even triple the number of tests into their existing facilities, compared to pre-pandemic volumes.

Factors for Consideration

The consequences of this situation will be with the entire House of Laboratory Medicine for many years in the future. Strategic planning and operational execution need to consider several factors.

First, across the entire laboratory, staff are experiencing high stress and burnout. Back in March, lab professionals rose to the challenges created by the pandemic with enthusiasm and much success. Lab staff spent long hours manning outdoor, drive-through specimen collection sites—often in inclement weather. Other staff did home collections.

Staff within the laboratory worked long hours to validate SARS-CoV-2 assays and new instruments used to run those tests. The same staff then worked extended hours to keep testing lines going, often on a 24/7 schedule. New accessioning staff was recruited as fast as feasible to process increased numbers of COVID-19 tests. More medical technologists and clinical laboratory scientists were added to the technical staff to perform each increased wave of SARS-CoV-2 tests.

It should not be overlooked that lab management also is mentally and physically taxed. From the onset of the pandemic, they have been in their labs every day of the week and for long hours each day. Often, it has been the senior lab administrators and managers who invested hours daily fighting an uncertain supply chain. They put much effort into securing necessary clinical laboratory supplies, test kits, and instruments required for the lab to not only meet the demand for COVID-19 tests, but also to handle the daily volume of test referrals for the lab’s normal services.

Analyzers Are ‘Used Up’

Second, clinical laboratories throughout the United States are using up their analyzers, automation, and testing equipment. This is an unrecognized consequence of the pandemic.

All laboratories have a capital equipment replacement cycle. The analyzers and automated systems have an expected service life that is based, in part, on the number of tests run on the machine from time of purchase until replacement. Depending on the type of instrument, the replacement cycle is commonly three years, five years, or even seven years.

But since the advent of the COVID-19 outbreak in the winter of 2020, normal replacement of testing instruments and automated systems has become difficult. Additionally, in vitro diagnostics manufacturers had to direct their current production of analyzers and automation to labs that were capable of expanding the daily volume of SARS-CoV-2 tests they could perform. This was particularly true in the early months of the pandemic.

Because of these developments, there are many clinical laboratories operating today that were forced to delay scheduled replacement of their analyzers, automation, and other systems. Similarly, many labs are pushing larger numbers of tests through their existing diagnostic machines and lab analyzers than was originally planned. So, even if the scheduled replacement date for these instruments is still a few years away, these machines will have exhausted much of their engineered service life well in advance of the currently scheduled date for replacement.

Third, lab budgets became nearly irrelevant once the pandemic began last winter. Labs spent whatever money was needed to get the job done. Sometimes there was funding from a government agency for things like staffing drive-through specimen collection centers or similar responses to the pandemic.

At the same time, because of stay-at-home directives and patients’ reluctance to visit doctors’ offices or hospitals, the collapse in routine specimen referrals in March, April, and May blew big financial holes in lab budgets.

Passage of the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) by Congress in late March opened the door for financial assistance to all medical providers, including relief for Medicare providers. Of course, the Paycheck Protection Program loans authorized by the CARES Act were an important source of cash for clinical labs and pathology groups as well.

Blowing Up Lab Budgets

The key point with this factor is that few labs were able to stay within their budgets after the onset of the pandemic. Unexpected things kept happening with lab expenditures, the need to fund larger payrolls as more workers and medical technologists were hired, and the uncertainty of reimbursement by payers as labs submitted claims, particularly claims for SARS-CoV-2 tests.

For all these reasons, most labs found it impossible to manage according to their original 2020 budget plan. Instead, lab CFOs and managers scrambled to buy necessary supplies at the lowest prices possible while working to bring in money from any source of funding.

Going forward into 2021 and beyond, the financial fitness of labs can be expected to be an issue. This will be true even after the pandemic subsides and some semblance of pre-pandemic business and social activity is able to return.

The fourth factor to consider involves the managers and administrators of labs, particularly those of hospitals and health systems. It is not only the line staff in the laboratory who have worked long hours and coped with the non-stop stresses of meeting challenge after challenge since the onset of the pandemic. As noted earlier, this is equally true of all the managers and administrators.

Management Burnout

Like their lab teams, these individuals have been on the job for long hours each day, often six to seven days per week. In certain ways, they faced even more intense tension and stress. When cash flow crashed in March and April, it was they who had to decide if workers would need to be laid off or terminated.

It should be recognized that the management and administrative teams at labs have reached deep for the energy and concentration to manage in a crisis mode for nearly a full year.

Collectively, these four factors—unique in the past 100 years of modern laboratory medicine—can be considered a perfect storm. The entire clinical laboratory industry has been stretched to the limit by the duality of managing the response to a global pandemic, while simultaneously managing the full daily flow of routine specimen referrals.

Are Labs Overstretched?

One conclusion to draw from these factors is that the nation’s clinical laboratories have performed admirably in response to the pandemic. But they operate today upon a shaky foundation. For the reasons listed above, it would be prudent for pathologists and clinical laboratory leaders to update the strategic, clinical, and business plans for their labs.

More challenges are ahead, regardless of whether the pandemic ends quickly or continues for months or years into the future.

How Pandemic Triggered a Divergence in the Financial Fortunes of Different Clinical Labs

laboratory-volume-index

SINCE THE OUTBREAK OF COVID-19 IN FEBRUARY AND MARCH, the cash flow of many clinical laboratories has been like a roller coaster ride. As the chart above shows, in the first months of the pandemic, revenue from routine lab testing dropped by as much as 60% per week. It was not until August that revenues from routine testing were consistently back to pre-pandemic levels.

Meanwhile, this chart also shows how revenue from molecular SARS-CoV-2 testing began ramping up in the early months of the pandemic. Currently, weekly revenue from molecular COVID-19 testing is equal to about 130% of revenue from routine testing. For labs doing large volumes of COVID-19 testing, this is welcome cash flow. For labs doing few or no COVID-19 tests, revenue from this line of testing is not enough to offset the diminished cash flow from the early months of the pandemic.

This chart was provided by XIFIN,Inc., of San Diego. It is based on the actual revenue performance of XIFIN’s several hundred laboratory clients, most of which are independent commercial lab companies, but also includes a few large hospital lab outreach programs.

This chart is updated weekly on www.Covid19briefings.com.

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