California Builds Its Own COVID Lab: $25 Million or $1.7 Billion?

In first week of operation, news outlets reported the lab produced inconclusive SARS-CoV-2 results

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CEO SUMMARY: California dropped a bomb on the state’s existing network of hospital labs and independent clinical labs when, on Oct. 30, it announced it had built and opened a new laboratory facility in Valencia designed to perform 150,000 COVID-19 tests per day. Now, existing labs in the Golden State must compete against their state government for an already inadequate quantity of supplies, COVID-19 test kits, and even clinical laboratory scientists needed to do COVID-19 PCR tests.

CAN GOVERNMENT DO THINGS BETTER THAN PRIVATE ENTERPRISE? That’s one question being asked after it was learned that the state of California had built and opened a brand-new clinical laboratory to perform COVID-19 testing. 

Less than two weeks after California Gov. Gavin Newsom cut the ribbon for the new COVID-19 testing lab in Valencia, the lab was reporting inconclusive testing results, according to published reports.

It was on Oct. 30 when Newsom announced that the new lab would return COVID-19 test results within 48 hours, and that by March, the lab would run 150,000 tests for the SARS-CoV-2 coronavirus every day. Not only were state officials aiming to increase COVID-19 testing statewide, but also, Newsom said he hoped that by increasing testing, the state could ease off of strict social-distancing rules. 

At a time when established clinical laboratories across the United States and throughout the world are scrambling to get enough collection supplies and SARS-CoV-2 tests, somehow the state of California used its power to divert the in vitro diagnostics (IVD) supply chain in ways that enabled it to build and equip this large new laboratory facility. 

Further, the state of California now competes against hospital and independent laboratories for the limited number of qualified and experienced PhDs and clinical laboratory scientists required to perform the complex COVID-19 tests. This will have major consequences for existing labs in California as they struggle to recruit the additional staff they require to support the increased volumes of SARS-CoV-2 tests needed by hospitals, physicians, and businesses in the Golden State. 

Initially, the state had paid $25 million to get the laboratory operating, but Newsweek reported that state officials were concerned about the potential for the cost of the new lab to rise to $1.7 billion under the no-bid contract state officials signed with PerkinElmer, a diagnostics and life-research company in Waltham, Mass. 

PerkinElmer did not respond to a request for comment from The Dark Report in time to be included in this article. (See sidebar, “Cost for New California Lab May Total $1.7 Billion Under No-Competitive Bid Contract with PerkinElmer,” below.)

‘Inconclusive Results’

Despite making such a heavy financial commitment, the lab was reporting “a higher number than expected” of bad test results by Nov. 10 and leaving patients waiting days for results, according to reporting in Newsweek magazine.

Not only were patients waiting longer than expected for results, but Mark Ghaly, MD, MPH, California’s Secretary of Health and Human Services, told reporters last week that the lab was reporting a higher number of inconclusive tests than officials had predicted. The inconclusive test results were the result of a failure of a chemical reaction during some tests, Newsweek reported. 

As a result of understanding the reason for the inconclusive results, Ghaly said the lab director in Valencia was confident that the staff had identified and corrected the problems behind the number of inconclusive test results, Newsweek reported.

Lab’s Medical Director

The lab director was reported to be Haleh Farzanmehr, MD, a molecular genetic pathologist and laboratory medical director who previously served a similar role at GeneX Laboratory PC in Irvine, Calif. The Dark Report was unable to confirm that Farzanmehr is in fact the medical director at the Valencia lab. 

In an Oct. 30 press release about the opening of the new laboratory, state officials said, “the per-test cost would be $30.78 at 150,000 [COVID-19] tests per day. For context, Medicare and Medicaid both reimburse at roughly $100 per test, while the average consumer price for a COVID-19 test ranges from $150 to $200 per test. To support this contract at the lowest cost to taxpayers, the state will enter into a contract for third-party billing services to recoup costs from health insurance companies or other payers.” There was no reporting on how much patients were paying for these tests. 

Neither the state HHS agency nor Newsom’s office responded to requests from Newsweek to provide the exact number of COVID tests that were inconclusive, the magazine reported. 

KCRA TV news in Sacramento reported that state health officials expect the new clinical laboratory to more than double testing capacity in the state when the lab is running 150,000 tests per day in March. As of one day last week, California’s clinical and molecular laboratories were averaging about 134,000 tests per day, KCRA reported. 

Disrupting Lab Supplies?

California officials did not provide details about how they are obtaining the supplies required for their new lab facility to perform more COVID-19 tests daily than the combined total of all other labs in the state. Officials did recognize that they intended to be disruptive to the existing laboratory supply chain. In the press release, they wrote:

This first-of-its-kind agreement aims to disrupt the testing marketplace, help break supply chain logjams, and drive down the costs for tests for every Californian. It will greatly expand California’s ability to track and prevent COVID-19 infections across the state and create additional testing capacity that will allow the state to increase testing in communities at high risk for contracting COVID-19, like essential workers, those in congregate settings, and communities of color.

“California is using its market power to combat global supply chain challenges and protect Californians in the fight against COVID-19. Supply chains across the country have slowed as demand for COVID-19 tests has increased, and flu season will only exacerbate the problem,” said Governor Newsom. “So, we are building our own laboratory capabilities right here on California soil with a stable supply chain to fight the disease, lower the prices of testing for everyone, and protect Californians most at risk from COVID-19.”

Since the state’s lab in Valencia has only recently begun performing COVID-19 testing, it is too early to determine how the state’s diversion of collection supplies, transport media, primers, COVID-19 tests, and other laboratory products is impacting hospital and independent clinical laboratories throughout the Golden State. 

Recruiting Clinical Lab Scientists

Another question of interest to the state’s existing clinical labs is how the state is recruiting and paying the limited number of pathologists, PhDs, and clinical laboratory scientists who have the training and experience to perform these complex COVID-19 PCR tests. For existing labs to expand their COVID-19 lab test volumes, they need more of these lab professionals. 

The pathologists and administrators at existing hospitals and labs in California now must compete against their state government, which is using its power to divert the supply chain and suck skilled lab scientists out of the existing labor pool. 

Cost for New California Lab May Total $1.7 BillionUnder No-Bid Contract with PerkinElmer

ONE ISSUE THAT DOMINATED NEWS COVERAGE IN CALIFORNIA about the state government’s new COVID-19 testing lab in Valencia was the cost of the contract state officials signed with PerkinElmer. The Sacramento television station KCRA reported that the clinical laboratory and associated costs of COVID-19 testing could total as much as $1.7 billion. “The no-bid contract will cost millions before the first test is even completed,” the station reported. 

However, when Gov. Gavin Newsom announced the new COVID-19 testing center, he said the facility would cost $25 million. “While talk centered around the cost of the facility and increased testing capacity for the state, KCRA 3 Investigates has been looking at the contract signed with the lab company and what it could cost in total,” the news station reported. 

The contract state officials signed in August with PerkinElmer calls for the state to pay the Waltham, Mass., diagnostics and life-science technology company three startup payments. The contract was signed under an order that Newsom issued. “As such, there is no competitive bidding,” the news station reported.

“If PerkinElmer meets a series of benchmarks—from ordering equipment, hiring personnel, to getting necessary accreditations through the first reported results of testing—the company can rake in more than $270 million,” KCRA reported. “Added to that, the state of California will pay for the facilities, electricity, water, storage, refrigeration, and the phone and internet service.”

Even so, the state could pay anywhere from $700 million to $1.6 billion by the end of the contract. The maximum cost of the contract is set at $1.7 billion.

The term of the contract is 14 months. At the end, the contract can be renewed annually for two years, KCRA reported.

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