By Gary Tufel
Reference and specialty labs face a number of challenges in today’s competitive climate, including government regulations and financial constraints. However, there are bright spots in the future of this $30 billion-plus industry.
The Challenges
Gary Samuels, vice president of external communications for Quest Diagnostics, says regulations and the government’s focus on deficit reduction are major challenges for the reference and specialty lab industry. “We don’t know how these challenges will impact us in managing health care costs and enabling doctors to keep up with technology. There are new markers being discovered practically every day, and we are working with researchers in academia and biotech companies to find new ways of testing,” he says.
Paul Billings, MD, PhD, senior geneticist and vice president of biotechnology and healthcare strategy for LabCorp‚ agrees that a big concern is the uncertainty about meeting regulatory challenges—a costly and complicated task.
Samuels feels that Quest’s ability to comply with the heavy burden of regulations reassures patients and doctors about the quality of its services. Quest is committed to virtual perfection, and the company has a large infrastructure devoted to Six Sigma quality, something smaller labs may find more difficult, he says.
Billings says, “Some want more regulation of the diagnostics industry; but we believe we’re doing a high-quality job, and we don’t need further aggressive federal legislation. The industry is partly self-regulating and has created a very good-quality infrastructure.”
In particular, federal regulations are addressing the increase of new tests; much of the new computer analysis of data and new technologies are still not widely understood. Most current tests would not likely require further regulatory oversight, but the government is considering whether it should take a bigger role in assessing certain new technologies, much as it does with new drugs, Samuels says.
Quest sees a substantial market in offering consumer-directed, low-cost testing for HIV, pregnancy, diabetes, and other conditions at its patient service centers, which serve 40 million people per year. These centers offer opportunities to patients who want to be tested more often than their HMO covers and are willing to pay for it themselves. At the centers, patients can request such tests as a PSA for $45 and a thyroid health screen for $40. No doctor’s visit is required, although customers say that they intend to share the results with their physicians.
The Competitive Picture
Competition is affected by reimbursement issues, according to Aaron Shechter, practice administrator, The Dermatology Group. With increasing regulations and decreasing reimbursement, major and regional labs are increasing their volume. “What drives much of the industry is insurance, because of ties between certain health plans and labs,” Shechter says. Dermatology is a very interesting marketplace, where many specialty labs have popped up, he says.
Currently, less than 10% of physicians have their own labs, largely due to the rigorous testing and licensing requirements, says Shechter. And Billings notes that POLs are a small part of LabCorp’s business. At the same time, at-home testing is growing as a result of the growing consumerism in health care, an increasing awareness of health care issues, and an increasing number of patients taking more control. But the lab landscape has always been highly competitive, with new players constantly entering the marketplace, especially in the esoteric area, says Samuels. Hospitals make up 61% of the lab industry; and according to Samuels, Quest has about 12% of the total pie, with 2004 revenues at $5.1 billion.
Ronald A. Blum, PhD, assistant vice president, marketing, Specialty Laboratories, says POLs are an important and growing part of the overall industry, making up approximately 7% of all revenue generated by labs in the United States.
Tests performed in POLs are useful in rapidly identifying possible problems. If those initial test results suggest a particular condition, follow-up testing can be ordered by the physician, and performed by an esoteric reference laboratory. In this way, POLs performing simpler, routine assays can rapidly screen patients, and free up the esoteric labs to use their resources more efficiently to develop and perform more complex confirmatory and monitoring assays.
For example, a patient with a positive HIV result would likely have confirmatory testing performed by an esoteric reference laboratory, followed by more elaborate evaluation (such as viral load, immune status, and genotyping), monitoring tests (such as viral load and therapeutic drug monitoring), and resistance tests (such as genotyping and phenotyping) should the patient turn out to be HIV positive and undergo antiretroviral therapy.
Because group members were dissatisfied with the quality of service they received from national labs, Shechter says his group has taken a unique approach with its lab, which was launched last November. The lab is part of a 13-year-old private practice group; so, strictly speaking, it’s a POL. But its testing is done only for dermatology patients; it has six dermatologists and a board-certified dermatopathologist to read skin samples. The lab services its own doctors, but it also does some consulting with other pathologists who ask for a second opinion.
The system works well because a patient’s entire history is close at hand; and diagnosis, testing, and treatment are integrated in one office, Shechter says. That’s not the case with most national or regional labs with dermatologists, he says. The clinical pathologic correlation isn’t there. With The Dermatology Group’s lab, the advantage is that the pathologist has access to patients’ clinical histories, and the treating dermatologist can correlate the pathologic findings with the clinical findings, allowing for a more complete clinical picture. Shechter is concerned about the quality of service at national labs because of the pressures caused by the large volume of testing they do. One such pressure is the desire to obtain maximum levels of reimbursement.
“We’ve tried different labs, and we still have to send out to some labs because certain insurance requires the use of those. But we have issues with the level of detail of their reports,” says Shechter.
The Dermatology Group’s lab is very high-tech, according to Shechter. All charts are electronic, and the system interfaces with other providers such as other specialty labs.
A Glimpse Into the Future
Blum sees a big future for pharmacogenomics, which looks at an individual’s genetic ability to metabolize drugs so that optimal drug selection and dosing can be determined. Because there is genetic variation in the enzymes responsible for metabolizing the numerous classes of drugs, some individuals metabolize certain drugs poorly, which can lead to adverse reactions. Being able to avoid drug toxicity and select the best class of drug at the optimal dose is the direction medicine is moving, and it is the beginning of true personalized medicine. Pharmacogenomics is gaining attention because of recent issues with some pain medications. The idea is to treat each patient as a unique individual, rather than as a member of a large population. Several pharmacogenomic assays exist and are being utilized, and the number is expected to increase.
Some expect new FDA guidance soon, setting forth procedures for incorporating genetic markers into clinical development of new drugs, and giving physicians more information to make more informed prescribing decisions, according to Genaissance Pharmaceuticals Inc.
What will happen with respect to reimbursement is hard to predict because it is dependent on so many variables, says Blum. One similar area of testing that may give insight into what could happen is HIV-resistance testing. Although it took many years, HIV genotyping is now reimbursed by Medicare in every state except Texas and Mississippi. It will take time, he says, but pharmacogenomics will likely continue to grow in importance and acceptance.
According to Billings, the problems with some arthritis and acute pain medications also have possible ramifications for the diagnostic industry, because there are tests in the pipeline to determine the complications of these drugs. Labs may work with pharmaceutical companies to develop therapeutic alternatives to these drugs, and that could be a growth area for the industry. Labs also may find a large opportunity in addressing issues of quality in medical care. For example, lab testing may be able to predict the side effects of cardiac surgery on patients. Also, lab tests can help measure the quality of certain kinds of treatments, such as those for AIDS, hepatitis, and liver disease.
Another trend is for large labs, such as Quest Diagnostics, to take space in physicians’ offices and set up POLs there, according to Shechter. “It’s a POL, but the doctor doesn’t own and staff it. It’s a convenience for patients.”
Samuels expects consolidation and industry growth—organic and acquired—to continue. “However, there are not many acquisition opportunities that could make a significant difference for our company,” Samuels says. “There aren’t many large acquisitions left.”
With the trend in managed care toward providing physicians and patients with more choices, Quest wants to offer new and compelling reasons for them to choose Quest. As such, the company is focusing on sales and service, Samuels says. Quest offers access for members of most major health plans, and has relationships with most of them, offering plan members negotiated discounts, he says.
Samuels also sees consumerism coming to managed care, as individuals routinely turn first to the Internet for health information. In addition, health savings accounts will encourage people to be more careful than ever in managing their health. This will emphasize the need for early detection, he says.
The industry is definitely growing, says Blum, both for routine and esoteric testing; and in general, there’s a big trend toward automation and consolidation.
“All tests go through a life cycle,” he adds. That is, tests that begin as esoteric become more routine and accessible, so that more labs are able to perform the assays that they once had to send out.
A big driver of this growth is platform automation and consolidation. Manufacturers are designing lab instruments that can perform an ever-increasing number of unique assays on a single automated platform. This lowers the cost per result, while adding the convenience of fewer vendors with whom to work. The manufacturer who develops the instrument that performs the most efficiently and reliably is going to gain market share, Blum says.
Gary Tufel is a contributing writer for Clinical Lab Products.
