New Clinical Lab Opens on March 23 and Prospers

Pathology group’s launch of new clinical lab upended by the pandemic, recovers with COVID tests

CEO SUMMARY: Timing is everything when launching a new clinical laboratory business. The March 23 grand opening of Incyte Pathology’s clinical lab came in the midst of the collapse of daily routine specimen referrals. But once the lab was operational, Incyte had the capability, the expertise, and the facilities to validate and perform COVID-19 testing. Cash flow from SARS-CoV-2 tests is sustaining the operations of both Incyte’s clinical laboratory business and its anatomic pathology group.

IN THE EARLY WEEKS OF THE PANDEMIC, Incyte Diagnostics of Spokane, Wash., opened a new clinical laboratory business.

It was the worst possible timing for such a venture because, nationally, the inflow of both clinical lab and anatomic pathology specimens was falling by as much as 70%. Thus, when the clinical laboratory began operating on March 23, it opened to a flood of red ink.

About a year earlier, the pathologist partners at Incyte had made a bold strategic decision that is often the subject of rigorous debate among private pathology groups, but seldom implemented: by operating a clinical laboratory, the pathology group would be able to provide referring physicians with the full range of diagnostic testing services.

However, while SARS-CoV-2 infection rates rose in Washington state and throughout the nation, the flow of routine lab specimens collapsed, causing Incyte’s new clinical lab venture to operate at a loss. The pathologist-owners had every reason to shut down the new business.

But at the same time, there was an¬†unexpected opportunity to bring up¬†molecular COVID-19 testing to meet the¬†rising demand for these tests. As Louis¬†Pasteur said, ‚ÄúFortune favors the prepared¬†mind‚ÄĚ and Incyte‚Äôs pathologist-partners¬†were prepared to serve this new demand.

Thus, if chapter one in this story is that pathologists opened a clinical laboratory business at the worst possible time, then chapter two is that the savvy business strategy of the pathologists to build a new clinical laboratory created the opportunity to serve the needs of physician clients for molecular SARS-CoV-2 testing.

Cash Flow from COVID Tests

Another positive element to this story came in the form of increased cash flow as the clinical lab operation began processing growing volumes of molecular COVID-19 tests, helping Incyte Diagnostics support its anatomic pathology operations during the months when routine tissue specimen volume had fallen dramatically.

‚ÄúOur pathology group took what you¬†might call an unusual approach to surviving¬†the COVID-19 pandemic by opening¬†a clinical laboratory in the middle¬†of March,‚ÄĚ stated Patty Sipes, Incyte‚Äôs¬†CEO. She explained the strategy during¬†a presentation at The Dark Report‚Äôs

Executive War College, a virtual event that began this summer and concluded at the end of October.

‚ÄúHaving a grand opening for a new¬†clinical laboratory business on March 23¬†wasn‚Äôt the best timing, but we had planned¬†it for over a year,‚ÄĚ she explained. ‚ÄúLooking¬†back, our pathologists have come to see¬†that the clinical lab was a two-fold opportunity.¬†It builds revenue from routine testing,¬†while it became an important source¬†of COVID-19 testing revenue that helped¬†both the clinical lab and the anatomic¬†pathology (AP) operations survive those¬†early months of the pandemic.

‚ÄúFrom an AP perspective, Incyte experienced¬†reductions in case volume that¬†probably were similar to that of other¬†pathology practices,‚ÄĚ she reported. ‚ÄúWe¬†had, for example, a 62% decrease in biopsies¬†in March. That included a 65% reduction¬†in gynecology biopsies that were¬†related to our core business of women‚Äôs¬†health, and a 45% reduction in biopsies¬†that were not related to gynecology.

Reduced Specimen Referrals

‚ÄúThese reductions all occurred within the¬†first few weeks of the pandemic,‚ÄĚ she¬†noted. ‚ÄúIn March, we had cash projections¬†showing a decrease of about 65% over the¬†next two to three months.

‚ÄúThat projection told us that we¬†needed to move quickly because Incyte is¬†similar to many other pathology groups¬†in that our business model doesn‚Äôt call¬†for us to carry over a significant amount¬†of cash from one year to the next,‚ÄĚ she¬†commented. ‚ÄúWe needed to ensure the¬†long-term financial viability of the practice.¬†That meant that our number one goal¬†was to keep the company operating.

‚ÄúOur strategy for April and May was to¬†ensure that the business remained intact,‚Ä̬†Sipes reported. ‚ÄúWe wanted to avoid layoffs¬†and planned to use furloughs instead. We¬†also instituted pay cuts for shareholders and¬†eliminated merit raises for staff.

‚ÄúAt the same time, we decided to pay¬†health insurance and benefit premiums¬†for all employees and made no changes to¬†the 401k match program that we offer,‚Ä̬†she noted. ‚ÄúAs we responded to the deep¬†drop in cash flow, we saw the importance¬†of bringing in new funding. That‚Äôs when¬†we saw that the clinical lab operation¬†could become a source of revenue.‚ÄĚ

Clinical Lab’s Opening

Coronavirus infections began rising in late February and early March even as the staff at Incyte worked to keep the scheduled March 23 opening date for the new clinical laboratory business. During this time, Sipes and the administrative team noted that the lack of normal AP volume freed up staff who would normally be devoted to reviewing AP cases each day, so that they could work on making the clinical lab operational.

‚ÄúHaving lower than normal AP volume¬†gave us time to work out the kinks¬†we had early on with the clinical lab,‚ÄĚ she¬†recounted. ‚ÄúOur newly-installed LIS, a¬†new billing system, and the need to interface¬†with EMRs all required time to bring¬†them into smooth operation.

‚ÄúIn addition to fixing problems with¬†our new systems, we assigned a project¬†manager to lead the clinical lab project,‚Ä̬†she noted. ‚ÄúThat‚Äôs one tip I would suggest¬†to anyone else doing something like this.

‚ÄúHaving a project manager made a big¬†difference because now one person was¬†in charge of every aspect of the venture,‚Ä̬†Sipes commented. ‚ÄúIt sounds basic to¬†assign a project manager, but we didn‚Äôt¬†have one during the first three weeks.¬†Once we had a project manager, I wished¬†we had done that from day one.

‚ÄúDuring those three weeks without¬†a project manager, there were so many¬†items to track every day that the volume¬†of detail became overwhelming,‚ÄĚ she¬†reported. ‚ÄúNot having someone in charge¬†created a lot of stress for everyone.

‚ÄúThe project manager helped us to add¬†structure, organization, and improved¬†communication among those of who were¬†working on the project,‚ÄĚ she said. ‚ÄúThe¬†project manager instituted daily huddles,¬†for example, and those made a huge difference¬†in terms of what we needed to do¬†each day.

‚ÄúAnother decision we made during¬†this period was to hire additional staff for¬†the clinical lab operation as we hit certain¬†milestones in terms of rising volume,‚ÄĚ she¬†said. ‚ÄúAt first, we looked for regular clinical¬†lab clients, but the result of our sales¬†and marketing efforts was a growing flow¬†of COVID-19 test orders from physicians¬†and hospitals. This was a welcome development¬†because it meant our clinical lab¬†business was generating revenue.

‚ÄúOur clinical lab also benefited from¬†the fact that most of the clinical lab companies¬†in our region had not yet geared¬†up for molecular COVID-19 testing, yet¬†the demand was huge and urgent for these¬†tests,‚ÄĚ added Sipes. ‚ÄúTherefore, a number¬†of those providers sent specimens to us¬†because we were already doing COVID-19 testing. We had a window of opportunity¬†to capture market share as these other¬†labs worked to get their own COVID-19¬†tests validated and into production.

Staffing to Meet Demand

‚ÄúFor us to handle the growing number¬†of COVID-19 specimens, we eventually¬†hired about 80 new staff members,‚ÄĚ noted¬†Sipes. ‚ÄúThese positions were filled as the¬†demand for testing grew over time.

‚ÄúAnother lesson we learned was that¬†we should have taken more risk with¬†supply orders by not relying on just one¬†or two vendors,‚ÄĚ recounted Sipes. ‚ÄúWe¬†should have identified alternative sources¬†for supplies faster than we did.‚ÄĚ

Since those early days, Incyte‚Äôs clinical¬†lab operation has done COVID-19 testing¬†almost exclusively and ran 111,000¬†COVID-19 tests since March, she reported.¬†‚ÄúOur pathologists have watched the¬†progress of the pandemic to identify¬†the point at which we can begin switching¬†over to regular clinical lab testing,‚Ä̬†commented Sipes. ‚ÄúThe result of doing¬†COVID-19 testing is that it strengthened¬†Incyte‚Äôs cash position.

“If we compare¬†year-over-year through August, our¬†financial performance was better than at¬†the same time last year. In fact, we had a¬†record month for Incyte in July. By that,¬†I mean we had our highest billed charges¬†and highest level of collected revenue.

‚ÄúOur pathology group is financially stable¬†today because we have a strong cash¬†position, and our total volume this year¬†has increased over last year,‚ÄĚ she added.¬†‚ÄúThings are still not normal, of course.¬†Some client accounts are down over the¬†entire year by about 7%. But overall, our¬†group is in much better shape than we¬†thought we would be last spring.‚ÄĚ

One Reason for Success: Getting Bankers’ Support

AMONG THE FIRST STEPS THAT INCYTE DIAGNOSTICS TOOK IN FEBRUARY when the coronavirus pandemic hit was to have the administrative team meet with officials at their bank.

‚ÄúAt that time, we were doing what¬†we called ‚Äėworst-case-scenario‚Äô planning,‚Ä̬†said Incyte CEO Patty Sipes.¬†‚ÄúWe wanted to know if the bank could¬†be flexible with our credit line. We also¬†wanted to know about our federal funding¬†options and how long it would take¬†for the feds or the bank to process our¬†request for a loan through the federal¬†Paycheck Protection Program.

‚ÄúFor many years, we had worked¬†with that same bank,‚ÄĚ she noted. ‚ÄúIt¬†helped the banking relationship that¬†we were creating a new source of revenue¬†by starting a clinical lab. Having¬†that strong banking relationship was a¬†significant benefit. During these meetings¬†early in the pandemic, our bankers¬†assured us that we didn‚Äôt need to¬†worry about our credit line and existing¬†debt covenants.‚ÄĚ

Contact Patty Sipes at or 509-892-2700.



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