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Q&A Explores COVID's Impact on Lab Industry Testing Volumes and Dynamics

In a recent teleconference among XIFIN and UBS executives, XIFIN’s Chairman and CEO Lâle White and Chief Operating Officer Kyle Fetter discussed COVID-19's impact on lab industry testing volumes and dynamics.

The one-hour conference revealed:

  • Hospital volumes have come back stronger than any other sector
  • Molecular volumes are doing well
  • Genetic testing is continuing to increase with more testing in the clinical industry and hospital base

Here are 10 questions explored during the teleconference.

Question #1: Thank you for publishing all the volume tracking data over the past year. It's been an invaluable tool for the investment community as we've struggled to understand what has happening with the lab services industry, COVID-19, etc. Are you going to continue to publish that data into 2021?

(White) Yes, we are planning on publishing that data, and with the vaccine, there will be some changes in volumes and the type of testing.

(Fetter) The data will likely include some different specificities as antibody testing kicks in, and you get more panel testing.

Question #2: What did you see in December and January regarding any changes regarding COVID volume and other core traditional volumes?

(White) In December and January we continued to see an uptake in the overall volume of PCR COVID testing. The base volume is back for most of the industry. And we're seeing that base volume increasing as well. During flu season, the COVID and the flu panel increased. About 15% of the volume is a combination of COVID and flu, ordered together. So that held in December and January. We haven't seen an uptick in antibody, but we expect that as the vaccines are rolled out.

Question #3: Regarding the various subsets of non-COVID testing, has anything changed, or do you expect anything to change?

(White) The hospital volumes have come back stronger than any other sector. The molecular volumes are doing very well right now, and the genetic testing is continuing to increase. That’s not just in the specialty labs but also in the larger routine labs that do genetic testing. We see more genetic testing both in the clinical industry and in the hospital base.

Question #4: As people get vaccinated, do you anticipate any additional testing related to those people? Take us through how you think post-vaccination testing would look like just for those patients.

(Fetter) There's a heavy focus on doing all the genomic sequencing on COVID cases to identify some of the variants coming out of the UK and South Africa. You're going to find that they're doing more COVID PCR testing targeted toward specific variants that have mutated. You'll still have your standard COVID PCR testing, just to make sure that you know the immunities are holding. As we understand it, labs are quickly working on updating their PCR testing for the new variants. And there's likely going to be a lot of ongoing testing on that.

(White) Regarding PCR testing, the viral load issue is critical as well. Labs will be releasing the viral load information, which already exists, and that helps them with understanding disease progression and any uptick in disease in the community versus waiting for the percentage of positives. The viral load is also a good indicator of that. We do see more PCR testing because of that, even during the vaccine. Some say that antibody testing should be done before vaccines are given to determine who already has antibodies and could wait, therefore sparing the vaccine for other categories that don't have the antibodies. Obviously, we don't know how long the antibodies will last from the vaccine for different age groups. The clinical trials didn't look at all the age groups and how long the antibodies last. These are all issues that need to be discussed.

Question #5: How will COVID testing volumes progress through 2021?

(White) The industry expects a decrease in volume during the second half of the year when more vaccines are in play. Conservatively, the volume will likely be 30%-50% of what they are currently. There is a lot of point of care testing and other things that general COVID testing will shift to. There are reasons to do PCR because of the environment that we're in, which makes the PCR continue to be a significant test. We're talking about two mutations that are now coming across the United States, and more are expected. We do see the PCR having a long-term role, but not at the current volume. We expect to see a downtick, obviously, in the second half of this year. But we still think that there will be a reasonably good demand for PCR testing for a while. 

(Fetter) There are a couple of other factors to watch: the rollout of the vaccine, which would impact PCR-based testing, and cold weather, which had a significant effect in Q4 2020. People remaining indoors for prolonged periods had been associated with the latest uptick in COVID-19 cases. 

Question #6: What percentage of tests don't hit the two-day turnaround guideline?

(White) About 76% of the tests that we're seeing are meeting the two-day turnaround time. There are cases with contracts from various groups that don't have to complete a two-day turnaround time. So, in fairness, some of these are just employer-based testing that doesn't need to meet that standard. Also, 92% of all the labs that we're looking at in our database are meeting the two-day turnaround time.

Question #7: What do you see regarding non-COVID testing prices?
(White) PAMA pricing was postponed because of the Cares Act. So that's a positive. The 2% sequestration reduction has also been delayed until April due to the additional funding from the $2.3 billion spending bill signed in December. And as part of that bill, a cut was supposed to happen in the Medicare Physician Fee schedule. There was money put into that budget to offset that cut, so there is an increase in 2021 for the physician fee schedules. Pricing pressures have been relieved a bit because of the COVID scenario and the bills that have been signed. In 2021, we do not see cuts. And we do not see pair cuts at this point either, which we follow carefully because of PAMA reporting. So right now, 2021 is more of a stable year.
Question #8: What would your expectations be if we were to see another round of PAMA?
(White) The next collection period is Q1 2022, and the data is from 2019. At this point, MedPAC was given the assignment of reviewing the entire process as part of the Lab Act. Last September, MedPAC said to simplify the reporting process, only collect data from 50% of the industry, which would mean only the largest labs. They also wanted to reduce the median from the 50th percentile to the 30th percentile, which would be a rush to the lowest price. It would have nothing to do with a market-based exercise anymore. The industry has been fighting to get the entire universe of laboratories into the data set to get an average market price instead of the lowest prices seen with the larger commercial laboratories. So, that was not a welcome recommendation. The industry is pushing back on that. Frankly, the elimination of PAMA is what we'd like to see as an industry.
Question #9: As we come out of COVID and COVID testing slows, which vendors are likely to see some stickiness on their platforms because there have been a lot more boxes?

(Fetter) You've seen many newer platforms become available in the Q4 2020 and broader adoption of these newer platforms. There's a much more diverse usage of equipment in the industry. But we hear increasingly that some companies like Illumina, which specializes in genetic-based testing, have been more focused on higher specificity testing from a PCR standpoint or genetic standpoint for infectious disease. Likely, some of the companies that have been associated with genetic testing in the past will play a much larger role in the next year or two.

Question #10: How do you think hospital-based labs will evolve? In your conversations with hospital personnel, what do they think about the lab business?

(White) We deal mostly with the larger health systems, but I think they have new opinions of how the diagnostic lab plays into disease management within their organization. They want a much more robust lab that they control. They are focused more on their labs and intend to expand their laboratory menus and use the diagnostics much more dynamically. We expect that they will focus more on enhancing their laboratory operations and their menus.

The hour-long discussion explores other questions, so make sure to listen to the full audio conference now. 
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Published by XIFIN
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