AI transcript
0:00:02 – Hi, and welcome to the A16Z podcast.
0:00:03 I’m Hannah.
0:00:05 A lot’s going on in the world of healthcare right now,
0:00:07 and one topic that’s especially relevant
0:00:10 is how diagnostic labs work.
0:00:11 The conversation that follows,
0:00:12 which was actually recorded
0:00:15 at our A16Z Innovation Summit in November,
0:00:18 covers everything from the evolution of the modern lab
0:00:20 over the past 50 years,
0:00:23 especially as new technologies and new tests are added,
0:00:25 how tests go from being specialized
0:00:27 to mainstream and widely available,
0:00:31 to who pays, how, and how reimbursement works.
0:00:34 We also discuss where information from the lab flows
0:00:36 in electronic health records or elsewhere
0:00:37 in the healthcare system,
0:00:40 a topic we’ve covered before on this podcast,
0:00:42 so be sure to check out those past episodes
0:00:43 with General Partner Julie Yu,
0:00:47 and touch on what the lab of the future might be like.
0:00:48 Joining this conversation with me
0:00:51 and General Partner Jorge Conde is Dave King,
0:00:55 Executive Chairman and previous CEO and President at LabCorp,
0:00:57 one of the largest clinical laboratory networks
0:00:59 in the world.
0:01:00 – So where should we begin
0:01:03 when we talk about the evolution of the modern lab?
0:01:05 What’s the history and what do you think of as the timeline
0:01:07 of where we began to what brought us
0:01:08 to the modern lab today?
0:01:10 – Our original founder, Dr. Jim Powell,
0:01:13 was talking about why he came up with the idea
0:01:16 of a reference lab, and he’s a pathologist,
0:01:17 and one of the things he pointed out
0:01:21 is that in the day in 1969,
0:01:23 when a test was sent to a laboratory,
0:01:25 sometimes it would be five, six days
0:01:26 before a response came back
0:01:28 and the patient either had progressed
0:01:30 or as he said, progressed, released or died.
0:01:31 – Too slow.
0:01:35 – Too slow, not super reliable or reproducible
0:01:37 in terms of overall quality.
0:01:40 A lot of work was done in hospitals or small laboratories.
0:01:44 Jim’s idea was, let’s put the instruments in one place
0:01:45 and bring the specimens,
0:01:47 instead of sending the specimen somewhere
0:01:49 and waiting for the answer to come back.
0:01:52 And obviously that’s evolved over the course of time
0:01:55 into reference laboratories that look like warehouses.
0:01:57 I mean, look, manufacturing facilities.
0:02:00 You know, large numbers of very high throughput instruments,
0:02:04 very IT and tech connected.
0:02:06 We have a robotic sorting machine
0:02:07 that we’re putting into all of our laboratories,
0:02:10 which basically replaces all of what we used to do
0:02:12 at the front end manually, you know,
0:02:14 uncapping, shaking, pouring off.
0:02:17 And so the business has not changed a lot
0:02:19 over the 50 years, what we do,
0:02:21 but the way in which we do it and the quality
0:02:23 and the scope and the, you know,
0:02:26 the breadth of our business has changed quite dramatically.
0:02:27 – What is the sort of, like,
0:02:29 the spectrum of diagnostics for each lab?
0:02:31 How do you specialize in different labs or not?
0:02:33 Like, what does that look like, that lay of the land?
0:02:37 – So we perform about 4,400 different tests.
0:02:39 Not all labs have a menu as big as ours.
0:02:41 There are also some highly specialized labs
0:02:43 that do, for example, oncology testing
0:02:46 or do coagulation testing for blood cancers
0:02:48 or do thyroid testing.
0:02:50 We think of an SHR test as anything
0:02:53 that is performed by a sort of non-standard methodology.
0:02:56 So if you come to our laboratories,
0:02:59 there’s a huge set of chemistry instruments
0:03:00 that just, they run chemistry tests,
0:03:02 all day long, glucose, potassium.
0:03:05 There’s a huge set of hematology instruments
0:03:06 that run CBCs.
0:03:08 We look for infections in high white blood cell counts.
0:03:11 And then there are DNA tests,
0:03:13 which are in the SHR category.
0:03:15 There are specialized thyroid testing.
0:03:16 There’s allergy.
0:03:19 All things kind of outside what we would consider
0:03:21 the norm of basic wellness testing.
0:03:23 – And so over time, you would imagine
0:03:27 the definition of a test will move from esoteric
0:03:31 to non-esoteric as it becomes more commonly used.
0:03:32 – Absolutely, yeah.
0:03:34 There’s definitely an arc when you introduce,
0:03:39 you know, when ACOG dictated that within their guidelines
0:03:43 all pregnant couples should be tested for cystic fibrosis.
0:03:45 I mean, we had offered cystic fibrosis for years.
0:03:46 Nobody ever ordered it.
0:03:47 Now all of a sudden it exploded.
0:03:49 And so it really went from being
0:03:53 a pretty esoteric test that was not commonly ordered
0:03:57 to very much a routine part of prenatal screening and care.
0:03:59 And there are many examples like that over time.
0:04:00 – So how does that happen?
0:04:03 How does a new test get integrated into this system?
0:04:05 Is it partially about whether you have the tools available
0:04:07 or whether the demand for the test is there?
0:04:08 What is the driving factor?
0:04:10 – We always start with what’s the unmet clinical need.
0:04:12 I mean, obviously market size matters
0:04:14 ’cause there has to be enough market demand
0:04:16 to justify bringing up a test.
0:04:18 But, you know, what is an unmet clinical need?
0:04:21 So if you look at non-invasive prenatal testing,
0:04:24 for example, the unmet medical need was
0:04:29 that invasive prenatal testing, whether Amnio or CVS,
0:04:32 you know, pose risk to both mother and the fetus.
0:04:35 And as the technology improved
0:04:37 to where this could be done through blood testing,
0:04:38 it clearly made sense to integrate that
0:04:41 into the sort of the more standard test menu.
0:04:43 When you do it through blood,
0:04:45 it’s a simple, relatively painless process.
0:04:49 There’s literally no risk to the mother or the fetus.
0:04:50 The results come back faster
0:04:52 and the reliability is very much concordant
0:04:54 with the more invasive procedure.
0:04:55 So that’s a good example
0:04:57 of where there was a clear clinical need
0:05:01 for a better way of doing what we’re doing.
0:05:03 Other tests like companion diagnostics,
0:05:06 where a drug comes out and we’re able to demonstrate
0:05:08 either in the clinical trial
0:05:10 or through use in the marketplace,
0:05:13 that there’s a diagnostic test that can tell you
0:05:16 whether this drug is gonna be efficacious
0:05:17 for this patient with this condition.
0:05:20 There, the clinical need is almost always very compelling
0:05:23 because you’re talking about potentially
0:05:26 a very expensive drug and you wanna know,
0:05:27 is it gonna work for this patient
0:05:29 or is it just gonna be, you know,
0:05:32 more healthcare resources that are not gonna be well spent?
0:05:34 – So how about the information flow?
0:05:36 In some ways, the lab is sort of the ground truth, you know,
0:05:38 and that it doesn’t mean anything
0:05:41 if that information doesn’t go somewhere and have an effect.
0:05:42 So can you describe to us,
0:05:44 is it more complicated than we think
0:05:46 or is it just lab to provider?
0:05:48 What is the kind of information flow at the moment?
0:05:50 How does that work in the system?
0:05:52 – That’s one of the big changes that’s occurred
0:05:54 when I started a lab core.
0:05:57 We still used to drive around with paper reports
0:05:59 in the courier vans and drop them off
0:06:00 at the doctor’s offices.
0:06:03 In most cases, you know, we drop them the next day
0:06:05 and those were the days when the doctor would have
0:06:08 the folder out, a test would go in the chart and the, you know,
0:06:12 so now I think upwards of 85% of what we return
0:06:14 is returned in some electronic fashion
0:06:17 and it may flow directly back into the doctor’s medical record,
0:06:19 you know, electronic health record.
0:06:21 It may go back in some other electronic fashion
0:06:23 where it goes to the doctor’s office
0:06:26 but it doesn’t directly integrate into the health record.
0:06:29 And this, in my opinion, is actually one of the big obstacles
0:06:34 to a more seamless coordination of care system for patients
0:06:36 because I agree with you, the lab is the ground truth.
0:06:40 I mean, you know, 70% of clinical diagnoses
0:06:42 start with a laboratory result
0:06:45 and doctors always, you come into the doctor
0:06:46 and you say, I’m not feeling well.
0:06:47 The first question is, well, you know,
0:06:49 let’s look at the labs and see what they say.
0:06:51 Do you have an infection?
0:06:53 If you’re overtired, is it your thyroid?
0:06:56 The problem is we have many participants in the system
0:06:59 who don’t facilitate the exchange of information.
0:07:02 And so, you know, we have local hospitals
0:07:04 near our headquarters that won’t allow us
0:07:06 to return information electronically
0:07:07 into the medical record.
0:07:08 – Is that still happening?
0:07:11 – Oh yeah, and if the doctor wants to order from LabCorp,
0:07:13 like my physician works at a local hospital,
0:07:16 you know, he receives the reports back as a PDF.
0:07:19 – Those hospitals want to use their own labs, essentially.
0:07:21 – Very much so, because this is where the interest
0:07:23 in the system are not well aligned.
0:07:25 The hospital labs are able to command
0:07:28 much higher pricing from the payers than we are,
0:07:30 so they have a vested interest in using their own labs.
0:07:33 And, you know, I think this will evolve
0:07:35 as we, two things happen.
0:07:37 One, we move into the value-based care environment
0:07:41 where the dollar cost of services is less relevant
0:07:45 than the overall kind of bundle of care and outcomes.
0:07:49 And number two, healthcare is a truly unique ecosystem
0:07:52 because we don’t have pricing transparency.
0:07:53 You don’t know what it’s gonna cost you
0:07:55 to have a service done.
0:07:57 We have our phones, we can tell exactly what we’re gonna pay
0:07:59 for this service or for this product,
0:08:01 we can comparison shop.
0:08:02 We don’t have that in healthcare,
0:08:04 and all of the pricing transparency work
0:08:07 that’s being done now is more about list price
0:08:10 than it is what is gonna cost the patients.
0:08:11 You know, the consumer is smart.
0:08:15 They can make sound, both economic and quality decisions
0:08:16 about their lab services.
0:08:19 – But it does feel like, I hate when I get a test result
0:08:21 back directly through my medical chart, you know,
0:08:24 without it having been seen by the doctor
0:08:28 because it feels like so often there’s this context
0:08:29 that I don’t have.
0:08:31 So like, something will come up and I’ll like Google,
0:08:33 okay, there’s some range here and this looks a little weird,
0:08:35 you know, and then the doctor will be like, well, X, Y,
0:08:36 and Z, that’s why it’s totally fine.
0:08:39 You know, in that information flow,
0:08:40 how do you think about both the translation
0:08:43 and the context when it’s going direct to consumer like that?
0:08:45 – I think some test results are binary, right?
0:08:47 I mean, you tell the consumer you have or you don’t have
0:08:49 and that’s fairly simple.
0:08:51 Things that are much more nuanced, you know,
0:08:53 thyroid stimulating hormone.
0:08:57 The difference between 0.3 and 0.4 is probably
0:09:00 pretty much irrelevant, but the difference between, you know,
0:09:02 0.3 and 1.3 can be quite relevant.
0:09:04 And I think two things are critical there.
0:09:08 One is, you know, as we move more into direct consumer,
0:09:12 we need to figure out in a more comprehensive way
0:09:13 how we provide context.
0:09:16 So one of the things I’ve always thought is,
0:09:19 it would be great to be able to provide a link
0:09:21 on the report that goes to the patient kind of.
0:09:23 – So I don’t just go to Dr. Google,
0:09:25 who’s terrifying always.
0:09:27 – Everybody goes to Google and when you’ll find a lot
0:09:29 of chat groups where people say, oh yeah, you know,
0:09:32 I had a 1.3 and the next thing I knew I was in the hospital
0:09:35 for two months, oh, so I think that’s really important.
0:09:37 And again, part of that runs up against the current
0:09:40 regulatory environment and what you can do in terms of claims
0:09:43 for the testing or how you can interpret the testing
0:09:45 when you’re not a physician in the practice of medicine.
0:09:48 But it’s an area that we need to get our arms around
0:09:51 because it’s only gonna grow and consumers are only getting
0:09:52 more and more interested in.
0:09:53 – Yeah, that’s the direction.
0:09:54 – Absolutely.
0:09:57 – One of the things you mentioned was physicians themselves
0:10:00 being well positioned to interpret tests.
0:10:03 When you look at something like genetic testing,
0:10:06 the vast majority of physicians can’t go very, very deep
0:10:08 on interpreting those results.
0:10:12 And so as a result, there’s a need for genetic counselors
0:10:13 and the like.
0:10:15 So actually on the topic of the consumer,
0:10:19 what’s your view in terms of what consumers should be able
0:10:20 to order directly?
0:10:22 ‘Cause there’s been a rise of direct to consumer diagnostics
0:10:26 type services and you know, the pro argument is
0:10:29 consumers should have control over their own information.
0:10:30 It is their healthcare data.
0:10:32 They are the ultimate decision makers.
0:10:35 The con argument is that consumers may not be equipped
0:10:39 to fully comprehend what a diagnostic test is telling them.
0:10:41 Where would you come out on that?
0:10:45 – I am not a believer in the sort of paternalistic
0:10:47 healthcare system of, you know, everything has to go
0:10:50 through some learned third party who’s gonna interpret it.
0:10:55 The truth is with the explosion of genetic information,
0:10:58 for example, there are many physicians who practice
0:11:01 in the community who are not fully informed about
0:11:03 what these tests mean or how they should be ordered
0:11:04 or interpreted.
0:11:07 So it’s really in my view a little short-sighted to say,
0:11:10 well, the consumers, you know, quote unquote,
0:11:12 doesn’t have the information to be responsible
0:11:14 for the consequences of the testing.
0:11:17 The other side of that, which I, you know, fully respect
0:11:20 the regulators position is consumers need to understand
0:11:22 and we need to help the consumer understand.
0:11:26 Like a lot of these tests are complicated.
0:11:30 And so if you get a result that says that you have
0:11:33 sensitivity, for example, to warfarin or you’re a
0:11:37 fast metabolizer, gosh, the consumer can’t go out
0:11:39 and adjust their own dose with that information.
0:11:43 And so there’s a fine balance, health and wellness,
0:11:45 sexually transmitted diseases, things that I would say
0:11:49 are more kind of in the mainstream of what the consumer
0:11:50 would be able to understand.
0:11:52 But you have to respect the fact that, you know,
0:11:54 consumers want more information and the broader flow
0:11:58 of information is a positive for decision-making
0:11:59 and for our system.
0:12:02 – But what does it look like the push towards value-based
0:12:04 or outcome-based care in the healthcare system overall,
0:12:07 where we’re all trying to maybe shift towards valuing
0:12:11 those outcomes instead of paying per price, per service?
0:12:14 – In my view, the fundamental challenge with providing
0:12:17 well-coordinated care was the total lack of alignment
0:12:18 between the interests of the parties
0:12:19 in our healthcare system.
0:12:22 We have the largest cohort of genetic counselors
0:12:23 in the United States as a result of the
0:12:27 GenSIME Genetics acquisition, and we do not get reimbursed
0:12:29 for genetic counseling services for the most part.
0:12:30 – That’s still the case, wow.
0:12:31 – Because most of the genetic counselors
0:12:34 are advanced doctorates, they have a doctorate degree
0:12:36 or they have an advanced degree, but they’re not physicians.
0:12:38 So they can’t get paid off the physician fee schedule
0:12:41 and there’s no code on the clinical fee schedule
0:12:43 to pay people for the test interpretation.
0:12:45 This is really a vexing problem because, you know,
0:12:49 again, our system categorizes people as you’re a doctor
0:12:51 so you can get paid for this or you’re a lab
0:12:52 so you can get paid for that.
0:12:53 And, you know, the genetic counselor provides
0:12:56 just as much interpretation to the physician
0:12:58 as they do directly to the patient,
0:12:59 but you can’t get paid because you’re kind of
0:13:00 in that never, never land.
0:13:02 It should be in the interest of the payers
0:13:04 to pay for genetic counseling.
0:13:06 We’ve had a lot of pushback from the payers about,
0:13:08 well, the genetic counselors have a conflict of interest
0:13:09 ’cause they work for you.
0:13:12 We’ve done a study that shows that there are more instances
0:13:14 in which our genetic counselors recommend
0:13:17 against a genetic test than when outside
0:13:20 genetic counselors are used by the payers.
0:13:21 – What do you attribute that to?
0:13:23 – Because our genetic counselors,
0:13:27 their sole responsibility in their view is to the patient.
0:13:29 The outside genetic counselor is in a much more
0:13:32 difficult position because if they recommend
0:13:34 against the test, hey, you work for Blue Cross,
0:13:37 you work for United, you’re recommending against my test,
0:13:38 you know, the physician gets angry,
0:13:40 the patient gets angry, so there’s much more of a default
0:13:42 of, you know, let’s just go with it
0:13:43 even though it might not be valuable.
0:13:45 And in my personal experience, you know,
0:13:48 I’ve had an instance in which a physician ordered a test
0:13:52 for a family member that really exactly replicated
0:13:54 a different test that had been done.
0:13:57 Genetic tests, you know, from a snip microarray
0:14:00 to a gene sequence, and nobody other than, you know,
0:14:02 once we sent it to our laboratories,
0:14:03 they’re like, you’ve already done this test.
0:14:04 There’s no point doing it again.
0:14:07 So yes, genetic counseling, I still think
0:14:09 it’s vastly underutilized and it will be more
0:14:12 and more important as people get deeper into genetics
0:14:14 and more is known about the genome
0:14:16 and how it’s interpreted.
0:14:19 You mentioned you have a menu of 4,400 tests.
0:14:23 What tests do you think are underutilized,
0:14:24 generally speaking, that would help physicians
0:14:26 make better decisions, right?
0:14:28 ‘Cause the old axiom is the only reason
0:14:30 you would order a diagnostic is if it’s going
0:14:32 to somehow change a decision that your physician
0:14:34 would make in terms of your care.
0:14:37 So the opposite is probably also true
0:14:39 that there are probably tests out there
0:14:41 that the physicians would order would change
0:14:44 the direction in which they manage your care.
0:14:45 – Is there sort of an underutilized category
0:14:46 of tests in your mind?
0:14:48 – You know, again, if you think about
0:14:51 the payer’s interest, it’s pretty simple.
0:14:53 You know, we want you to provide more services
0:14:54 for less price.
0:14:57 From the patient’s perspective, you have the sick,
0:14:59 the chronically sick, you have the worried well,
0:15:01 so, you know, what should be the balance
0:15:03 between what’s ordered and what’s paid for.
0:15:05 And from the provider perspective,
0:15:08 you have a whole array of new tests
0:15:10 that come to market all the time
0:15:12 and what’s the right way to introduce them
0:15:14 and to educate doctors and patients about their use.
0:15:17 I think the most underutilized tests
0:15:20 are actually probably the most common tests.
0:15:24 So I think thyroid testing is very much underused
0:15:27 and not well understood by most primary care physicians.
0:15:29 I think Hemoglobin A1C for management of,
0:15:32 you know, patients with chronic diabetes,
0:15:34 which of course, when you have diabetes,
0:15:37 most patients have two or three other comorbidities.
0:15:38 I think the whole menu of tests
0:15:41 around chronic kidney disease is vastly underutilized
0:15:44 because we know that most patients,
0:15:46 most consumers with chronic kidney disease
0:15:48 don’t even find out about it
0:15:49 until they’re beyond stage two
0:15:51 and, you know, potentially into stage three
0:15:52 of their kidney disease.
0:15:55 And yet the simple EGFR tests, you know,
0:15:58 indicates when your kidney is not performing adequately.
0:16:03 So there’s a whole range of what you and I would characterize
0:16:05 as kind of, quote unquote, routine core tests
0:16:07 that could be much better used
0:16:09 if we had a willingness on the payer’s part
0:16:10 to make that investment.
0:16:12 So can we stay on that for a second?
0:16:14 You talked about price, value.
0:16:15 There’s one thing that I think characterizes
0:16:19 the diagnostics industry, at least historically,
0:16:22 is that reimbursement has always been under pressure
0:16:24 and in many cases declining.
0:16:26 The ability to capture value
0:16:30 has been somewhat challenging or limited.
0:16:32 If you look from the companion diagnostic side,
0:16:34 at least historically, and this is changing,
0:16:36 you know, pharmaceutical companies
0:16:38 actually had little interest or limited interest
0:16:40 in having companion diagnostics
0:16:43 that would exclude patients from undertaking a therapy,
0:16:45 although I think that is shifting.
0:16:47 So when you take all of that together
0:16:48 and you combine that with the fact
0:16:50 that you in some ways have a frenemy in the hospitals,
0:16:52 right, because they have their own labs,
0:16:54 so they wanna keep as much of the testing
0:16:55 that they can themselves
0:16:56 and they will send stuff out to you
0:16:58 when they have to or need to,
0:17:01 what do you think the future of this industry looks like?
0:17:04 – Look, one of the things that I’ve observed
0:17:07 in my career in healthcare and in the lab industry is,
0:17:10 our industry hasn’t changed much
0:17:11 in terms of what we really do.
0:17:13 And yes, it’s changing how we deliver,
0:17:15 it’s changing the throughput of the instruments,
0:17:17 but basically the industry hasn’t changed much.
0:17:18 Why is that?
0:17:20 It’s because we are, you know,
0:17:23 the foundation of diagnosis and care.
0:17:26 And so you can see a healthcare system
0:17:30 in which there are way fewer hospitals
0:17:31 and much more is done in the home
0:17:33 or is done in outpatient centers
0:17:35 and the hospitals are facing that reality.
0:17:39 You can see a system in which there are, you know,
0:17:40 way fewer independent physicians
0:17:43 and they work for somebody or you can see a system,
0:17:46 but I just can’t envision a system in which there’s no lab.
0:17:49 So our position in the infrastructure is essential.
0:17:51 – Let’s talk about reimbursement pressure.
0:17:53 How do you get paid today?
0:17:55 What do you get paid for?
0:17:56 Who pays you?
0:17:58 – There’s always gonna be reimbursement pressure
0:17:59 in healthcare.
0:18:01 I mean, we were engaged in a discussion recently
0:18:02 with an analyst who said,
0:18:03 “Well, I don’t understand why you can’t get
0:18:05 “three to 4% price increases a year
0:18:07 “because, you know, you’re the low-cost provider
0:18:08 “and you bring high value.”
0:18:11 And, you know, it’s just not a realistic way
0:18:14 to look at healthcare and say people are gonna get
0:18:15 three or 4% price increases.
0:18:17 And we know that, you know,
0:18:19 the drug companies are under pressure about their pricing
0:18:21 and the hospitals are under pressure about their pricing.
0:18:24 And so we have to assume that prices
0:18:26 will continue to be under pressure
0:18:29 and that new innovative things
0:18:33 that have a decent price set will erode over time.
0:18:35 Government is actually the largest payer
0:18:37 and the payer of default in our system today.
0:18:39 I don’t think a lot of people realize that,
0:18:42 but Medicare Advantage, which is a government-run program
0:18:44 that’s administered by private companies,
0:18:47 Medicaid, which is a traditional fee-for-service program,
0:18:48 and then Manage Medicaid, which, again,
0:18:50 is a government-funded program
0:18:51 that’s administered by private companies.
0:18:54 Then you add in federal employee benefits,
0:18:56 railroad retirement, you know, I mean, there’s just enough.
0:18:57 So there’s–
0:18:57 – It sounds pretty straightforward.
0:18:59 – Yeah, exactly.
0:19:00 Just send out a bunch of bills
0:19:02 and hope somebody pays them.
0:19:03 So the government is the largest payer
0:19:05 and then Manage Care is the second-largest payer,
0:19:07 the large managed care plans.
0:19:09 We have our CFO, who’s now been with the company
0:19:12 for five years, came from the industrials world.
0:19:13 And he’s a terrific CFO,
0:19:15 but we were talking about the billing system
0:19:16 and he said, “Well, I don’t understand why
0:19:18 “we just don’t go out to Oracle or something,
0:19:19 “just buy one and put it in.
0:19:20 “It just can’t be that complicated.
0:19:21 “You send a bill, they pay.”
0:19:24 I said, “Oh no, it’s a little more, you send a bill.
0:19:26 “They adjudicate it.
0:19:28 “It may go to the patient’s deductible,
0:19:30 “back to the patient.
0:19:33 “It may be that the service is not a coverage service.
0:19:34 “It may be that there’s a coverage policy
0:19:35 “that hasn’t been met.
0:19:38 “It may be that they pay part of it
0:19:40 “and you have to send part of it.”
0:19:43 So billing is a huge and complex area for us
0:19:45 and we have over 2,000 people
0:19:47 who just manage the billing side
0:19:49 of our provision of services.
0:19:50 – And lengthy.
0:19:53 I mean, it sounds like much, much time passing.
0:19:56 – Which is super frustrating for the patient
0:19:57 because by the time they get a bill,
0:19:59 it may be months after they had the service.
0:20:02 And I can’t tell you how many complaints we get about,
0:20:03 I don’t even know who LabCorp is.
0:20:05 My doctor drew some blood
0:20:06 and the next thing I know, I’m getting a bill from you.
0:20:09 So it’s a very complex billing system.
0:20:11 So to your earlier question, Jorge,
0:20:13 about what we do about margins.
0:20:17 I mean, our laboratories are only a small part
0:20:18 of our infrastructure.
0:20:21 We have several thousand cars and couriers
0:20:22 that pick up specimens.
0:20:24 We have our own aircraft.
0:20:26 There’s a whole logistics piece that underlies it.
0:20:30 We have 1,700, 1,800 patient service centers
0:20:31 where people can come and get their blood drawn.
0:20:33 We have people sitting in doctor’s offices.
0:20:36 All of that has to be coordinated underneath the testing.
0:20:40 We’re working on how do we make that more automated,
0:20:43 more digitized, how do we take paper out of the process
0:20:46 so that we can actually deliver the customer
0:20:47 a better experience.
0:20:52 We moved from, you used to go to LabCorp and get there
0:20:54 and it was a laborious process.
0:20:56 You had your requisition for your lab test.
0:20:58 You had to get a driver’s license, your insurance card.
0:20:59 We scanned it.
0:21:01 You fill that information.
0:21:03 Now we have check-in kiosks.
0:21:04 You can check-in online.
0:21:06 I went and had my blood drawn not long ago.
0:21:09 I checked-in online for my testing.
0:21:12 When I got to the patient service center,
0:21:14 I had a QR code if that’s what they’re called on my phone.
0:21:15 I scanned it at the kiosk.
0:21:17 I was checked in, that’s it.
0:21:18 And, you know, five minutes later,
0:21:20 I’m called, testing’s done and I’m through.
0:21:23 So these are ways in which we’re working on
0:21:25 preserving our margin and at the same time
0:21:28 providing a better experience for the consumer.
0:21:30 And I know it’s 4,400 tests.
0:21:31 It’s a pretty broad range.
0:21:34 So it’s going to be an over-generalization,
0:21:37 but on average, what do you get paid per test?
0:21:40 And on average, what is the sort of collections rate?
0:21:42 ‘Cause that’s one of the things that I think is so shocking
0:21:44 to people outside of the healthcare system
0:21:48 that a significant number of percentage of bills
0:21:49 just go unpaid.
0:21:54 – Yeah, so our average encounter price is about $45.
0:21:57 We do about two million patient encounters a week.
0:22:01 And so it’s a big, high-scale, high-throughput business.
0:22:04 We see about 110 million patient encounters a year.
0:22:07 In terms of the bills, you know, our bad debt rate,
0:22:10 our non-collected rate is in the range of 4%.
0:22:11 But when you think about that, first of all,
0:22:13 it’s a very substantial amount and almost all of it
0:22:16 comes from the patient side of the equation.
0:22:19 But what that doesn’t speak to is the amount
0:22:22 of service that we provide that physicians order
0:22:25 that patients need that doesn’t get paid for to begin with.
0:22:27 ‘Cause that doesn’t actually get down to the bottom line.
0:22:29 That all gets adjusted out at the sales level.
0:22:34 So payer policies, we only cover a vitamin D test
0:22:36 with these diagnoses.
0:22:40 Or we have a payer that only covers prenatal screening
0:22:45 for women if the putative father appears at the appointment.
0:22:47 Which when you think about the Medicaid population
0:22:49 or the underserved population,
0:22:51 the chances of getting the putative father
0:22:53 at the appointment are pretty small.
0:22:57 And yet, we know that it’s important for that patient
0:23:00 to have the genetic screening that the physician has ordered.
0:23:04 So there’s a lot of leakage in the system of, you know,
0:23:07 where we’re, and look, you know, we’re a public company,
0:23:09 we’re a for-profit organization.
0:23:10 We have to try to maximize what we can do
0:23:13 for our shareholders, but we also have a real sense
0:23:16 of the mission of improving patients’ health and lives.
0:23:18 And so we do a lot of things that do benefit patients,
0:23:20 even though we get frustrated with the payers
0:23:23 that they have restrictive policies.
0:23:25 – So in this model where the test is ordered,
0:23:27 it’s paid for, and then the information goes on,
0:23:29 there’s lots of leakage in the system, as you say,
0:23:30 and there’s problems with this model,
0:23:32 but it is a very entrenched model.
0:23:35 How do we move towards this value-based
0:23:38 or outcomes-based shift where we’re trying to value
0:23:41 what happens as a result of all these things in the future?
0:23:43 What would that look like in the lab?
0:23:46 – So to me, what that looks like is the hospitals
0:23:48 think about their laboratory, and instead of saying,
0:23:52 well, gee, I can run a thyroid panel in my hospital lab
0:23:54 and get paid $300 for it,
0:23:57 and maybe the patient gets a bill for $16.
0:24:00 To the doctor, it looks like I have a bundle of dollars here
0:24:02 to spend on this patient.
0:24:05 I’m at risk if I spend more than is allocated,
0:24:06 but I also have potential upside
0:24:08 if I spend less than allocated.
0:24:11 So I’m completely good
0:24:14 with sending the test to LabCorp for $40
0:24:16 and using the hospital lab in a different way,
0:24:19 which is supporting the emergency room,
0:24:23 supporting the operating theaters with pathology.
0:24:26 I’m actually optimistic that as we move to value-based care,
0:24:27 there’ll be a much more rational approach
0:24:31 to how we think about where the site of service
0:24:32 should be for everything, right?
0:24:36 I mean, we do way too many non-acute things
0:24:38 in the hospital today.
0:24:41 You should be paid the same price by Medicare
0:24:43 for doing the same service at every site.
0:24:45 The hospital shouldn’t make more
0:24:46 for doing a colonoscopy in the hospital
0:24:48 than they get from doing it
0:24:49 at an ambulatory surgery center.
0:24:52 The doctor should not be getting paid more
0:24:54 for doing chemotherapy in the office
0:24:55 than it can be done at a remote cancer center.
0:24:57 – Yeah, that does feel appropriate.
0:25:00 – And certainly, the hospital should not be getting paid more
0:25:02 for doing chemotherapy in the hospital setting,
0:25:04 which is the worst setting for the patients
0:25:06 to get chemotherapy in than for doing it
0:25:08 in a less acute environment.
0:25:12 So in my mind, it will bring real economic rationality.
0:25:14 It has the potential to bring, if done right,
0:25:15 real economic rationality
0:25:17 to the ancillary services part of the system.
0:25:19 – So you touched on something really interesting,
0:25:23 that healthcare delivery is being pushed out
0:25:26 of the four walls of the monolithic hospital
0:25:27 out into the periphery.
0:25:30 The consumer is increasingly becoming more empowered,
0:25:32 or at least it’s demanding more of healthcare system
0:25:35 as they, in turn, are being demanded to pay more
0:25:37 for their own healthcare employers as well.
0:25:39 What do you think the coming decades look like
0:25:41 from a technology standpoint
0:25:43 for the laboratory diagnostics industry?
0:25:45 I can see how technology will make coordination of care
0:25:49 easier, I can see how it would make logistics more efficient.
0:25:52 I can also imagine how technology will enable us
0:25:55 to test for things that we can’t test for today,
0:25:58 to derive insights that we don’t have today.
0:26:00 But I can also imagine that at some level,
0:26:02 as technology gets better,
0:26:05 it will make less sense to send a sample to the diagnostic
0:26:07 and it’ll become increasingly feasible
0:26:10 to send a diagnostic to the sample.
0:26:14 So is sort of point of care diagnostics technology,
0:26:15 is that an existential threat,
0:26:19 or will there always be things that have to be done
0:26:21 in a centralized lab setting,
0:26:23 even if there are more things over time
0:26:26 that can be done in a sort of point of care setting?
0:26:27 – So are you asking essentially,
0:26:29 will the lab be unbundled too?
0:26:31 – Yeah, my question is will the lab disappear?
0:26:33 – There will always be some tests
0:26:34 that need a venous blood draw,
0:26:37 that need a relatively significant amount of specimen,
0:26:38 and that can only be done in the lab environment.
0:26:40 And particularly, you know,
0:26:43 the complex and esoteric testing will, in my mind,
0:26:46 there will always be a central laboratory.
0:26:47 – So you’re not worried about genome sequencing
0:26:48 on the iPhone?
0:26:50 – Not today.
0:26:52 It’s funny, years ago I was at a personalized
0:26:53 medicine conference and one of the panelists
0:26:55 was talking about, oh, you know, within three years,
0:26:57 you’re just gonna put your saliva on the iPhone
0:26:58 and it’s gonna measure all your vital signs,
0:27:01 and you know, including all your laboratory values.
0:27:02 But it didn’t come to pass,
0:27:05 so many things in healthcare, it’s way slower
0:27:06 than people think.
0:27:10 But I’m a big believer in, you know,
0:27:12 laboratory testing needs to be democratized.
0:27:16 I mean, part of the reason that we don’t have
0:27:19 as much of an impact on patient care as we should is,
0:27:21 when you think about the way the system works,
0:27:23 so you go to the doctor,
0:27:26 now my doctor actually is, I was actually very impressed,
0:27:29 he sent me the lab that slipped before my appointment
0:27:32 to have the blood drawn, so he could have the results.
0:27:34 – But there’s a good chance he knows who you are.
0:27:38 – Yeah, he’s probably, that’s right, he does know who I am.
0:27:41 But most of the time you go to the doctor,
0:27:42 you get your blood drawn,
0:27:44 you get the results back three days later,
0:27:46 now it’s like, well, now I gotta call the doctor,
0:27:47 I gotta figure out the interpretation,
0:27:50 or you get the lab slip, you went to the doctor,
0:27:52 you weren’t feeling so great on a Friday,
0:27:54 you woke up Sunday morning, you felt okay,
0:27:57 and the lab slip just kind of, you know, goes in the trash.
0:28:01 – A shocking number of drug prescriptions never get filled,
0:28:04 and obviously the drug you don’t take cannot work.
0:28:08 Do you have a sense of what percentage of diagnostic tests
0:28:12 that are ordered by a physician are actually done?
0:28:16 – I don’t, and it’s a major point of frustration for me
0:28:20 that most physicians and health systems
0:28:24 have a follow-up system for ancillary services,
0:28:26 like if you go to the doctor and they say get an MRI
0:28:27 and you don’t show up for the MRI,
0:28:29 you’re gonna get pestered, you know,
0:28:30 or you get a referral for physical therapy,
0:28:32 you’re gonna get pestered.
0:28:34 If they give you a lab slip and you don’t do the labs,
0:28:36 you probably never hear anything about it.
0:28:40 There’s, you know, kind of urban lore about, oh, you know,
0:28:41 10, 15% never get performed.
0:28:44 There was a study done years ago at Harvard Medical School,
0:28:47 even there, there was a relatively high non-compliance rate,
0:28:49 as I remember, you know, 15, 20%.
0:28:53 And so I think that being able to move care
0:28:57 closer to the patient, if, this is a big if,
0:28:59 if the technology is good enough
0:29:03 that it is clinically relevant, that it’s reproducible,
0:29:04 and that the quality is there,
0:29:06 that’s a good thing for patients,
0:29:07 and it’s a good thing for our industry.
0:29:09 We can collect testing in the home,
0:29:12 and as long as it’s performed in our main laboratory,
0:29:16 we can integrate that into the patient’s health record.
0:29:18 So one of the big issues with point of care testing
0:29:20 has always been, you know, you do it,
0:29:23 and then you get a printout,
0:29:24 and, you know, unless you literally staple it
0:29:27 to the patient’s forehead and they go to the doctor’s office,
0:29:28 half the time it never gets to a place
0:29:30 where it’s gonna be well-interpreted.
0:29:31 – So the information flow gets messed up.
0:29:33 – And I don’t think there’s gonna be sort of, you know,
0:29:35 the quote-unquote killer app
0:29:38 that’s gonna just completely turn the business upside down,
0:29:40 ’cause believe me, enough people have tried to find it
0:29:42 in the last 10 years, and, you know, so far we’re not there,
0:29:45 but the technology will change.
0:29:48 Bringing lab testing closer to the patient is an imperative,
0:29:50 just to make lab testing more effective
0:29:51 and more valuable in the system,
0:29:53 and in the value-based care model,
0:29:56 when we’re engaged with patients in their homes
0:29:58 around not only your actual health,
0:30:01 but, you know, your social determinants of health,
0:30:03 and then we’re gonna have much more opportunity
0:30:04 to bring those tools to the patient
0:30:06 and actually, you know, help them manage their care.
0:30:08 – So when we think about the lab
0:30:09 and the way it’s changed over time,
0:30:12 from, you know, pipettes and beakers to microarrays,
0:30:15 what do you see coming next as the big new tools
0:30:16 or the new innovations
0:30:17 that you’re trying to think about how to integrate?
0:30:20 – So from a technological standpoint,
0:30:23 obviously the increasing miniaturization of instruments,
0:30:25 the tabletop instruments,
0:30:26 which, again, goes back to what we talked about
0:30:29 with democratizing the range of services.
0:30:31 Sequencing as a tool for diagnostics,
0:30:34 you know, the cost of sequencing is rapidly coming down.
0:30:37 The competitive landscape is becoming much more competitive
0:30:38 than it has been historically,
0:30:42 and so genetic testing that we have traditionally done,
0:30:43 you know, again, I remember when we started
0:30:46 with cystic fibrosis, you know, we looked at 30 markers,
0:30:48 and then it was 60 markers, then it was 90 markers,
0:30:51 and now we just sequenced the cystic fibrosis gene,
0:30:53 and there’s way more information in there,
0:30:55 which has pluses and minuses.
0:30:57 The pluses, there’s way more information in there.
0:30:59 The minuses, a lot of it is not well understood,
0:31:01 and so, you know, that takes me to what I think
0:31:03 is really gonna be what’s revolutionary
0:31:06 in the next 10 years is the understanding of the data
0:31:08 and the integration of the data
0:31:11 that comes from laboratory medicine.
0:31:15 That’s gonna be the huge transformation in our business.
0:31:17 It’s not gonna be the underlying technology.
0:31:19 People think, oh, you know, sequencing,
0:31:20 that’s a great new thing.
0:31:22 Sequencing is just another methodology
0:31:24 to do many of the things we already do today.
0:31:26 It’s a more efficient methodology,
0:31:28 but what comes out of the sequence
0:31:29 is a wealth of information
0:31:32 that we haven’t been getting historically,
0:31:34 and integrating that information into the coordination
0:31:37 and the arc of patient care is gonna be where
0:31:39 we’re really gonna see diagnostic shine
0:31:40 in the next five, 10 years.
0:31:43 – So as we look five, 10 years into the horizon,
0:31:46 if I’m an entrepreneur starting out,
0:31:48 and I have an idea or a technology
0:31:51 that I think is applicable as a diagnostics
0:31:54 or applicable to the diagnostics industry,
0:31:56 what do you think are the opportunities
0:32:00 or the blue sky opportunities for entrepreneurs
0:32:01 coming into this industry today?
0:32:04 – I mean, there are so many areas of diagnostics
0:32:07 that we just, fertility is an area
0:32:10 that we just don’t have really good tools.
0:32:13 And so, an entrepreneur who could bring to the market
0:32:18 something that would increase the rate of success in IVF.
0:32:19 Great area.
0:32:21 – What are some of the other ones?
0:32:23 – I think that emerging infectious disease
0:32:25 is an area of real concern.
0:32:28 I mean, the public health services
0:32:30 were overwhelmed with Zika testing,
0:32:32 so they ended up sending it to the commercial labs
0:32:34 without going through full regulatory processes,
0:32:35 the tests that they were doing,
0:32:38 ’cause they just couldn’t handle the specimens.
0:32:41 Anything that addresses new and emerging disease states,
0:32:44 in my mind, is a real area of opportunity.
0:32:48 The caution is, one, the history of the diagnostics industry
0:32:52 is littered with the small laboratory
0:32:54 that offered one test
0:32:56 and had a great arc at the beginning
0:32:59 and then ran up against the reality,
0:33:02 which is that the doctors want to order everything
0:33:04 from one place.
0:33:06 So, go back to non-invasive prenatal testing.
0:33:07 There were three companies
0:33:10 that did non-invasive prenatal testing,
0:33:11 all of them were independent,
0:33:14 and now one of them is independent,
0:33:15 one of them was bought by Roshan,
0:33:16 one of them was bought by us.
0:33:19 Why? Because the OBGYNs,
0:33:21 who were doing the non-invasive prenatal testing,
0:33:25 didn’t want to have to put a box over here,
0:33:27 a specimen over here to go to that company
0:33:29 and everything else from my office goes to Quest
0:33:30 or everything goes to LabCorp.
0:33:34 So, the distribution channel is really, really critical.
0:33:37 And the second thing that’s really critical is reimbursement.
0:33:39 You can’t imagine how many people come
0:33:43 with a really cool test and great data,
0:33:44 but the payers just, you know,
0:33:46 they’re just not going to pay for things
0:33:48 that even if they should, you know,
0:33:51 broad-based screening for whatever disease it is
0:33:53 of the asymptomatic population,
0:33:54 payers don’t want to pay for it
0:33:56 because there’ll be too many false positive,
0:33:58 too much treatment and while saving the long run
0:34:02 for screening the whole asymptomatic population,
0:34:03 I’m not going to do well.
0:34:05 But in a value-based care model,
0:34:07 in which the reward is for early detection
0:34:08 and early treatment,
0:34:11 then payers should be enthusiastic
0:34:12 to pay for early detection and early screening.
0:34:15 So, the reimbursement piece and the distribution channel
0:34:16 are really critical for the entrepreneur
0:34:18 who comes up with a great idea.
0:34:19 – And so, in that spirit,
0:34:22 how does an entrepreneur work with LabCorp?
0:34:24 Do I knock on your front door?
0:34:25 – So, there’s two ways.
0:34:28 One is we invest in ideas that we think are interesting
0:34:31 and often those are ideas that are,
0:34:33 well, the whole goal of it is invest in ideas
0:34:35 that are disruptors, invest in ideas
0:34:36 that are potentially competitive
0:34:38 so we can see what’s going on and understand the lens,
0:34:39 because that’s one way.
0:34:42 The other way is, we’re not a research company,
0:34:43 we’re a development company,
0:34:45 so we take other people’s good ideas
0:34:47 and we scale them so we can run them
0:34:49 100 million times a week if we need to
0:34:52 and that’s why we welcome the idea of entrepreneurs
0:34:55 doing things that will enhance the value
0:34:57 of diagnostics in general.
0:34:59 – So, yes, essentially, come knock on your front door.
0:35:00 – Knock on our front door.
0:35:01 Knock on the side door, we got plenty of doors.
0:35:02 We welcome it.
0:35:05 – Thank you so much for joining us on the A16Z podcast.
0:35:06 – Thank you, it’s been great being with you.
0:00:03 I’m Hannah.
0:00:05 A lot’s going on in the world of healthcare right now,
0:00:07 and one topic that’s especially relevant
0:00:10 is how diagnostic labs work.
0:00:11 The conversation that follows,
0:00:12 which was actually recorded
0:00:15 at our A16Z Innovation Summit in November,
0:00:18 covers everything from the evolution of the modern lab
0:00:20 over the past 50 years,
0:00:23 especially as new technologies and new tests are added,
0:00:25 how tests go from being specialized
0:00:27 to mainstream and widely available,
0:00:31 to who pays, how, and how reimbursement works.
0:00:34 We also discuss where information from the lab flows
0:00:36 in electronic health records or elsewhere
0:00:37 in the healthcare system,
0:00:40 a topic we’ve covered before on this podcast,
0:00:42 so be sure to check out those past episodes
0:00:43 with General Partner Julie Yu,
0:00:47 and touch on what the lab of the future might be like.
0:00:48 Joining this conversation with me
0:00:51 and General Partner Jorge Conde is Dave King,
0:00:55 Executive Chairman and previous CEO and President at LabCorp,
0:00:57 one of the largest clinical laboratory networks
0:00:59 in the world.
0:01:00 – So where should we begin
0:01:03 when we talk about the evolution of the modern lab?
0:01:05 What’s the history and what do you think of as the timeline
0:01:07 of where we began to what brought us
0:01:08 to the modern lab today?
0:01:10 – Our original founder, Dr. Jim Powell,
0:01:13 was talking about why he came up with the idea
0:01:16 of a reference lab, and he’s a pathologist,
0:01:17 and one of the things he pointed out
0:01:21 is that in the day in 1969,
0:01:23 when a test was sent to a laboratory,
0:01:25 sometimes it would be five, six days
0:01:26 before a response came back
0:01:28 and the patient either had progressed
0:01:30 or as he said, progressed, released or died.
0:01:31 – Too slow.
0:01:35 – Too slow, not super reliable or reproducible
0:01:37 in terms of overall quality.
0:01:40 A lot of work was done in hospitals or small laboratories.
0:01:44 Jim’s idea was, let’s put the instruments in one place
0:01:45 and bring the specimens,
0:01:47 instead of sending the specimen somewhere
0:01:49 and waiting for the answer to come back.
0:01:52 And obviously that’s evolved over the course of time
0:01:55 into reference laboratories that look like warehouses.
0:01:57 I mean, look, manufacturing facilities.
0:02:00 You know, large numbers of very high throughput instruments,
0:02:04 very IT and tech connected.
0:02:06 We have a robotic sorting machine
0:02:07 that we’re putting into all of our laboratories,
0:02:10 which basically replaces all of what we used to do
0:02:12 at the front end manually, you know,
0:02:14 uncapping, shaking, pouring off.
0:02:17 And so the business has not changed a lot
0:02:19 over the 50 years, what we do,
0:02:21 but the way in which we do it and the quality
0:02:23 and the scope and the, you know,
0:02:26 the breadth of our business has changed quite dramatically.
0:02:27 – What is the sort of, like,
0:02:29 the spectrum of diagnostics for each lab?
0:02:31 How do you specialize in different labs or not?
0:02:33 Like, what does that look like, that lay of the land?
0:02:37 – So we perform about 4,400 different tests.
0:02:39 Not all labs have a menu as big as ours.
0:02:41 There are also some highly specialized labs
0:02:43 that do, for example, oncology testing
0:02:46 or do coagulation testing for blood cancers
0:02:48 or do thyroid testing.
0:02:50 We think of an SHR test as anything
0:02:53 that is performed by a sort of non-standard methodology.
0:02:56 So if you come to our laboratories,
0:02:59 there’s a huge set of chemistry instruments
0:03:00 that just, they run chemistry tests,
0:03:02 all day long, glucose, potassium.
0:03:05 There’s a huge set of hematology instruments
0:03:06 that run CBCs.
0:03:08 We look for infections in high white blood cell counts.
0:03:11 And then there are DNA tests,
0:03:13 which are in the SHR category.
0:03:15 There are specialized thyroid testing.
0:03:16 There’s allergy.
0:03:19 All things kind of outside what we would consider
0:03:21 the norm of basic wellness testing.
0:03:23 – And so over time, you would imagine
0:03:27 the definition of a test will move from esoteric
0:03:31 to non-esoteric as it becomes more commonly used.
0:03:32 – Absolutely, yeah.
0:03:34 There’s definitely an arc when you introduce,
0:03:39 you know, when ACOG dictated that within their guidelines
0:03:43 all pregnant couples should be tested for cystic fibrosis.
0:03:45 I mean, we had offered cystic fibrosis for years.
0:03:46 Nobody ever ordered it.
0:03:47 Now all of a sudden it exploded.
0:03:49 And so it really went from being
0:03:53 a pretty esoteric test that was not commonly ordered
0:03:57 to very much a routine part of prenatal screening and care.
0:03:59 And there are many examples like that over time.
0:04:00 – So how does that happen?
0:04:03 How does a new test get integrated into this system?
0:04:05 Is it partially about whether you have the tools available
0:04:07 or whether the demand for the test is there?
0:04:08 What is the driving factor?
0:04:10 – We always start with what’s the unmet clinical need.
0:04:12 I mean, obviously market size matters
0:04:14 ’cause there has to be enough market demand
0:04:16 to justify bringing up a test.
0:04:18 But, you know, what is an unmet clinical need?
0:04:21 So if you look at non-invasive prenatal testing,
0:04:24 for example, the unmet medical need was
0:04:29 that invasive prenatal testing, whether Amnio or CVS,
0:04:32 you know, pose risk to both mother and the fetus.
0:04:35 And as the technology improved
0:04:37 to where this could be done through blood testing,
0:04:38 it clearly made sense to integrate that
0:04:41 into the sort of the more standard test menu.
0:04:43 When you do it through blood,
0:04:45 it’s a simple, relatively painless process.
0:04:49 There’s literally no risk to the mother or the fetus.
0:04:50 The results come back faster
0:04:52 and the reliability is very much concordant
0:04:54 with the more invasive procedure.
0:04:55 So that’s a good example
0:04:57 of where there was a clear clinical need
0:05:01 for a better way of doing what we’re doing.
0:05:03 Other tests like companion diagnostics,
0:05:06 where a drug comes out and we’re able to demonstrate
0:05:08 either in the clinical trial
0:05:10 or through use in the marketplace,
0:05:13 that there’s a diagnostic test that can tell you
0:05:16 whether this drug is gonna be efficacious
0:05:17 for this patient with this condition.
0:05:20 There, the clinical need is almost always very compelling
0:05:23 because you’re talking about potentially
0:05:26 a very expensive drug and you wanna know,
0:05:27 is it gonna work for this patient
0:05:29 or is it just gonna be, you know,
0:05:32 more healthcare resources that are not gonna be well spent?
0:05:34 – So how about the information flow?
0:05:36 In some ways, the lab is sort of the ground truth, you know,
0:05:38 and that it doesn’t mean anything
0:05:41 if that information doesn’t go somewhere and have an effect.
0:05:42 So can you describe to us,
0:05:44 is it more complicated than we think
0:05:46 or is it just lab to provider?
0:05:48 What is the kind of information flow at the moment?
0:05:50 How does that work in the system?
0:05:52 – That’s one of the big changes that’s occurred
0:05:54 when I started a lab core.
0:05:57 We still used to drive around with paper reports
0:05:59 in the courier vans and drop them off
0:06:00 at the doctor’s offices.
0:06:03 In most cases, you know, we drop them the next day
0:06:05 and those were the days when the doctor would have
0:06:08 the folder out, a test would go in the chart and the, you know,
0:06:12 so now I think upwards of 85% of what we return
0:06:14 is returned in some electronic fashion
0:06:17 and it may flow directly back into the doctor’s medical record,
0:06:19 you know, electronic health record.
0:06:21 It may go back in some other electronic fashion
0:06:23 where it goes to the doctor’s office
0:06:26 but it doesn’t directly integrate into the health record.
0:06:29 And this, in my opinion, is actually one of the big obstacles
0:06:34 to a more seamless coordination of care system for patients
0:06:36 because I agree with you, the lab is the ground truth.
0:06:40 I mean, you know, 70% of clinical diagnoses
0:06:42 start with a laboratory result
0:06:45 and doctors always, you come into the doctor
0:06:46 and you say, I’m not feeling well.
0:06:47 The first question is, well, you know,
0:06:49 let’s look at the labs and see what they say.
0:06:51 Do you have an infection?
0:06:53 If you’re overtired, is it your thyroid?
0:06:56 The problem is we have many participants in the system
0:06:59 who don’t facilitate the exchange of information.
0:07:02 And so, you know, we have local hospitals
0:07:04 near our headquarters that won’t allow us
0:07:06 to return information electronically
0:07:07 into the medical record.
0:07:08 – Is that still happening?
0:07:11 – Oh yeah, and if the doctor wants to order from LabCorp,
0:07:13 like my physician works at a local hospital,
0:07:16 you know, he receives the reports back as a PDF.
0:07:19 – Those hospitals want to use their own labs, essentially.
0:07:21 – Very much so, because this is where the interest
0:07:23 in the system are not well aligned.
0:07:25 The hospital labs are able to command
0:07:28 much higher pricing from the payers than we are,
0:07:30 so they have a vested interest in using their own labs.
0:07:33 And, you know, I think this will evolve
0:07:35 as we, two things happen.
0:07:37 One, we move into the value-based care environment
0:07:41 where the dollar cost of services is less relevant
0:07:45 than the overall kind of bundle of care and outcomes.
0:07:49 And number two, healthcare is a truly unique ecosystem
0:07:52 because we don’t have pricing transparency.
0:07:53 You don’t know what it’s gonna cost you
0:07:55 to have a service done.
0:07:57 We have our phones, we can tell exactly what we’re gonna pay
0:07:59 for this service or for this product,
0:08:01 we can comparison shop.
0:08:02 We don’t have that in healthcare,
0:08:04 and all of the pricing transparency work
0:08:07 that’s being done now is more about list price
0:08:10 than it is what is gonna cost the patients.
0:08:11 You know, the consumer is smart.
0:08:15 They can make sound, both economic and quality decisions
0:08:16 about their lab services.
0:08:19 – But it does feel like, I hate when I get a test result
0:08:21 back directly through my medical chart, you know,
0:08:24 without it having been seen by the doctor
0:08:28 because it feels like so often there’s this context
0:08:29 that I don’t have.
0:08:31 So like, something will come up and I’ll like Google,
0:08:33 okay, there’s some range here and this looks a little weird,
0:08:35 you know, and then the doctor will be like, well, X, Y,
0:08:36 and Z, that’s why it’s totally fine.
0:08:39 You know, in that information flow,
0:08:40 how do you think about both the translation
0:08:43 and the context when it’s going direct to consumer like that?
0:08:45 – I think some test results are binary, right?
0:08:47 I mean, you tell the consumer you have or you don’t have
0:08:49 and that’s fairly simple.
0:08:51 Things that are much more nuanced, you know,
0:08:53 thyroid stimulating hormone.
0:08:57 The difference between 0.3 and 0.4 is probably
0:09:00 pretty much irrelevant, but the difference between, you know,
0:09:02 0.3 and 1.3 can be quite relevant.
0:09:04 And I think two things are critical there.
0:09:08 One is, you know, as we move more into direct consumer,
0:09:12 we need to figure out in a more comprehensive way
0:09:13 how we provide context.
0:09:16 So one of the things I’ve always thought is,
0:09:19 it would be great to be able to provide a link
0:09:21 on the report that goes to the patient kind of.
0:09:23 – So I don’t just go to Dr. Google,
0:09:25 who’s terrifying always.
0:09:27 – Everybody goes to Google and when you’ll find a lot
0:09:29 of chat groups where people say, oh yeah, you know,
0:09:32 I had a 1.3 and the next thing I knew I was in the hospital
0:09:35 for two months, oh, so I think that’s really important.
0:09:37 And again, part of that runs up against the current
0:09:40 regulatory environment and what you can do in terms of claims
0:09:43 for the testing or how you can interpret the testing
0:09:45 when you’re not a physician in the practice of medicine.
0:09:48 But it’s an area that we need to get our arms around
0:09:51 because it’s only gonna grow and consumers are only getting
0:09:52 more and more interested in.
0:09:53 – Yeah, that’s the direction.
0:09:54 – Absolutely.
0:09:57 – One of the things you mentioned was physicians themselves
0:10:00 being well positioned to interpret tests.
0:10:03 When you look at something like genetic testing,
0:10:06 the vast majority of physicians can’t go very, very deep
0:10:08 on interpreting those results.
0:10:12 And so as a result, there’s a need for genetic counselors
0:10:13 and the like.
0:10:15 So actually on the topic of the consumer,
0:10:19 what’s your view in terms of what consumers should be able
0:10:20 to order directly?
0:10:22 ‘Cause there’s been a rise of direct to consumer diagnostics
0:10:26 type services and you know, the pro argument is
0:10:29 consumers should have control over their own information.
0:10:30 It is their healthcare data.
0:10:32 They are the ultimate decision makers.
0:10:35 The con argument is that consumers may not be equipped
0:10:39 to fully comprehend what a diagnostic test is telling them.
0:10:41 Where would you come out on that?
0:10:45 – I am not a believer in the sort of paternalistic
0:10:47 healthcare system of, you know, everything has to go
0:10:50 through some learned third party who’s gonna interpret it.
0:10:55 The truth is with the explosion of genetic information,
0:10:58 for example, there are many physicians who practice
0:11:01 in the community who are not fully informed about
0:11:03 what these tests mean or how they should be ordered
0:11:04 or interpreted.
0:11:07 So it’s really in my view a little short-sighted to say,
0:11:10 well, the consumers, you know, quote unquote,
0:11:12 doesn’t have the information to be responsible
0:11:14 for the consequences of the testing.
0:11:17 The other side of that, which I, you know, fully respect
0:11:20 the regulators position is consumers need to understand
0:11:22 and we need to help the consumer understand.
0:11:26 Like a lot of these tests are complicated.
0:11:30 And so if you get a result that says that you have
0:11:33 sensitivity, for example, to warfarin or you’re a
0:11:37 fast metabolizer, gosh, the consumer can’t go out
0:11:39 and adjust their own dose with that information.
0:11:43 And so there’s a fine balance, health and wellness,
0:11:45 sexually transmitted diseases, things that I would say
0:11:49 are more kind of in the mainstream of what the consumer
0:11:50 would be able to understand.
0:11:52 But you have to respect the fact that, you know,
0:11:54 consumers want more information and the broader flow
0:11:58 of information is a positive for decision-making
0:11:59 and for our system.
0:12:02 – But what does it look like the push towards value-based
0:12:04 or outcome-based care in the healthcare system overall,
0:12:07 where we’re all trying to maybe shift towards valuing
0:12:11 those outcomes instead of paying per price, per service?
0:12:14 – In my view, the fundamental challenge with providing
0:12:17 well-coordinated care was the total lack of alignment
0:12:18 between the interests of the parties
0:12:19 in our healthcare system.
0:12:22 We have the largest cohort of genetic counselors
0:12:23 in the United States as a result of the
0:12:27 GenSIME Genetics acquisition, and we do not get reimbursed
0:12:29 for genetic counseling services for the most part.
0:12:30 – That’s still the case, wow.
0:12:31 – Because most of the genetic counselors
0:12:34 are advanced doctorates, they have a doctorate degree
0:12:36 or they have an advanced degree, but they’re not physicians.
0:12:38 So they can’t get paid off the physician fee schedule
0:12:41 and there’s no code on the clinical fee schedule
0:12:43 to pay people for the test interpretation.
0:12:45 This is really a vexing problem because, you know,
0:12:49 again, our system categorizes people as you’re a doctor
0:12:51 so you can get paid for this or you’re a lab
0:12:52 so you can get paid for that.
0:12:53 And, you know, the genetic counselor provides
0:12:56 just as much interpretation to the physician
0:12:58 as they do directly to the patient,
0:12:59 but you can’t get paid because you’re kind of
0:13:00 in that never, never land.
0:13:02 It should be in the interest of the payers
0:13:04 to pay for genetic counseling.
0:13:06 We’ve had a lot of pushback from the payers about,
0:13:08 well, the genetic counselors have a conflict of interest
0:13:09 ’cause they work for you.
0:13:12 We’ve done a study that shows that there are more instances
0:13:14 in which our genetic counselors recommend
0:13:17 against a genetic test than when outside
0:13:20 genetic counselors are used by the payers.
0:13:21 – What do you attribute that to?
0:13:23 – Because our genetic counselors,
0:13:27 their sole responsibility in their view is to the patient.
0:13:29 The outside genetic counselor is in a much more
0:13:32 difficult position because if they recommend
0:13:34 against the test, hey, you work for Blue Cross,
0:13:37 you work for United, you’re recommending against my test,
0:13:38 you know, the physician gets angry,
0:13:40 the patient gets angry, so there’s much more of a default
0:13:42 of, you know, let’s just go with it
0:13:43 even though it might not be valuable.
0:13:45 And in my personal experience, you know,
0:13:48 I’ve had an instance in which a physician ordered a test
0:13:52 for a family member that really exactly replicated
0:13:54 a different test that had been done.
0:13:57 Genetic tests, you know, from a snip microarray
0:14:00 to a gene sequence, and nobody other than, you know,
0:14:02 once we sent it to our laboratories,
0:14:03 they’re like, you’ve already done this test.
0:14:04 There’s no point doing it again.
0:14:07 So yes, genetic counseling, I still think
0:14:09 it’s vastly underutilized and it will be more
0:14:12 and more important as people get deeper into genetics
0:14:14 and more is known about the genome
0:14:16 and how it’s interpreted.
0:14:19 You mentioned you have a menu of 4,400 tests.
0:14:23 What tests do you think are underutilized,
0:14:24 generally speaking, that would help physicians
0:14:26 make better decisions, right?
0:14:28 ‘Cause the old axiom is the only reason
0:14:30 you would order a diagnostic is if it’s going
0:14:32 to somehow change a decision that your physician
0:14:34 would make in terms of your care.
0:14:37 So the opposite is probably also true
0:14:39 that there are probably tests out there
0:14:41 that the physicians would order would change
0:14:44 the direction in which they manage your care.
0:14:45 – Is there sort of an underutilized category
0:14:46 of tests in your mind?
0:14:48 – You know, again, if you think about
0:14:51 the payer’s interest, it’s pretty simple.
0:14:53 You know, we want you to provide more services
0:14:54 for less price.
0:14:57 From the patient’s perspective, you have the sick,
0:14:59 the chronically sick, you have the worried well,
0:15:01 so, you know, what should be the balance
0:15:03 between what’s ordered and what’s paid for.
0:15:05 And from the provider perspective,
0:15:08 you have a whole array of new tests
0:15:10 that come to market all the time
0:15:12 and what’s the right way to introduce them
0:15:14 and to educate doctors and patients about their use.
0:15:17 I think the most underutilized tests
0:15:20 are actually probably the most common tests.
0:15:24 So I think thyroid testing is very much underused
0:15:27 and not well understood by most primary care physicians.
0:15:29 I think Hemoglobin A1C for management of,
0:15:32 you know, patients with chronic diabetes,
0:15:34 which of course, when you have diabetes,
0:15:37 most patients have two or three other comorbidities.
0:15:38 I think the whole menu of tests
0:15:41 around chronic kidney disease is vastly underutilized
0:15:44 because we know that most patients,
0:15:46 most consumers with chronic kidney disease
0:15:48 don’t even find out about it
0:15:49 until they’re beyond stage two
0:15:51 and, you know, potentially into stage three
0:15:52 of their kidney disease.
0:15:55 And yet the simple EGFR tests, you know,
0:15:58 indicates when your kidney is not performing adequately.
0:16:03 So there’s a whole range of what you and I would characterize
0:16:05 as kind of, quote unquote, routine core tests
0:16:07 that could be much better used
0:16:09 if we had a willingness on the payer’s part
0:16:10 to make that investment.
0:16:12 So can we stay on that for a second?
0:16:14 You talked about price, value.
0:16:15 There’s one thing that I think characterizes
0:16:19 the diagnostics industry, at least historically,
0:16:22 is that reimbursement has always been under pressure
0:16:24 and in many cases declining.
0:16:26 The ability to capture value
0:16:30 has been somewhat challenging or limited.
0:16:32 If you look from the companion diagnostic side,
0:16:34 at least historically, and this is changing,
0:16:36 you know, pharmaceutical companies
0:16:38 actually had little interest or limited interest
0:16:40 in having companion diagnostics
0:16:43 that would exclude patients from undertaking a therapy,
0:16:45 although I think that is shifting.
0:16:47 So when you take all of that together
0:16:48 and you combine that with the fact
0:16:50 that you in some ways have a frenemy in the hospitals,
0:16:52 right, because they have their own labs,
0:16:54 so they wanna keep as much of the testing
0:16:55 that they can themselves
0:16:56 and they will send stuff out to you
0:16:58 when they have to or need to,
0:17:01 what do you think the future of this industry looks like?
0:17:04 – Look, one of the things that I’ve observed
0:17:07 in my career in healthcare and in the lab industry is,
0:17:10 our industry hasn’t changed much
0:17:11 in terms of what we really do.
0:17:13 And yes, it’s changing how we deliver,
0:17:15 it’s changing the throughput of the instruments,
0:17:17 but basically the industry hasn’t changed much.
0:17:18 Why is that?
0:17:20 It’s because we are, you know,
0:17:23 the foundation of diagnosis and care.
0:17:26 And so you can see a healthcare system
0:17:30 in which there are way fewer hospitals
0:17:31 and much more is done in the home
0:17:33 or is done in outpatient centers
0:17:35 and the hospitals are facing that reality.
0:17:39 You can see a system in which there are, you know,
0:17:40 way fewer independent physicians
0:17:43 and they work for somebody or you can see a system,
0:17:46 but I just can’t envision a system in which there’s no lab.
0:17:49 So our position in the infrastructure is essential.
0:17:51 – Let’s talk about reimbursement pressure.
0:17:53 How do you get paid today?
0:17:55 What do you get paid for?
0:17:56 Who pays you?
0:17:58 – There’s always gonna be reimbursement pressure
0:17:59 in healthcare.
0:18:01 I mean, we were engaged in a discussion recently
0:18:02 with an analyst who said,
0:18:03 “Well, I don’t understand why you can’t get
0:18:05 “three to 4% price increases a year
0:18:07 “because, you know, you’re the low-cost provider
0:18:08 “and you bring high value.”
0:18:11 And, you know, it’s just not a realistic way
0:18:14 to look at healthcare and say people are gonna get
0:18:15 three or 4% price increases.
0:18:17 And we know that, you know,
0:18:19 the drug companies are under pressure about their pricing
0:18:21 and the hospitals are under pressure about their pricing.
0:18:24 And so we have to assume that prices
0:18:26 will continue to be under pressure
0:18:29 and that new innovative things
0:18:33 that have a decent price set will erode over time.
0:18:35 Government is actually the largest payer
0:18:37 and the payer of default in our system today.
0:18:39 I don’t think a lot of people realize that,
0:18:42 but Medicare Advantage, which is a government-run program
0:18:44 that’s administered by private companies,
0:18:47 Medicaid, which is a traditional fee-for-service program,
0:18:48 and then Manage Medicaid, which, again,
0:18:50 is a government-funded program
0:18:51 that’s administered by private companies.
0:18:54 Then you add in federal employee benefits,
0:18:56 railroad retirement, you know, I mean, there’s just enough.
0:18:57 So there’s–
0:18:57 – It sounds pretty straightforward.
0:18:59 – Yeah, exactly.
0:19:00 Just send out a bunch of bills
0:19:02 and hope somebody pays them.
0:19:03 So the government is the largest payer
0:19:05 and then Manage Care is the second-largest payer,
0:19:07 the large managed care plans.
0:19:09 We have our CFO, who’s now been with the company
0:19:12 for five years, came from the industrials world.
0:19:13 And he’s a terrific CFO,
0:19:15 but we were talking about the billing system
0:19:16 and he said, “Well, I don’t understand why
0:19:18 “we just don’t go out to Oracle or something,
0:19:19 “just buy one and put it in.
0:19:20 “It just can’t be that complicated.
0:19:21 “You send a bill, they pay.”
0:19:24 I said, “Oh no, it’s a little more, you send a bill.
0:19:26 “They adjudicate it.
0:19:28 “It may go to the patient’s deductible,
0:19:30 “back to the patient.
0:19:33 “It may be that the service is not a coverage service.
0:19:34 “It may be that there’s a coverage policy
0:19:35 “that hasn’t been met.
0:19:38 “It may be that they pay part of it
0:19:40 “and you have to send part of it.”
0:19:43 So billing is a huge and complex area for us
0:19:45 and we have over 2,000 people
0:19:47 who just manage the billing side
0:19:49 of our provision of services.
0:19:50 – And lengthy.
0:19:53 I mean, it sounds like much, much time passing.
0:19:56 – Which is super frustrating for the patient
0:19:57 because by the time they get a bill,
0:19:59 it may be months after they had the service.
0:20:02 And I can’t tell you how many complaints we get about,
0:20:03 I don’t even know who LabCorp is.
0:20:05 My doctor drew some blood
0:20:06 and the next thing I know, I’m getting a bill from you.
0:20:09 So it’s a very complex billing system.
0:20:11 So to your earlier question, Jorge,
0:20:13 about what we do about margins.
0:20:17 I mean, our laboratories are only a small part
0:20:18 of our infrastructure.
0:20:21 We have several thousand cars and couriers
0:20:22 that pick up specimens.
0:20:24 We have our own aircraft.
0:20:26 There’s a whole logistics piece that underlies it.
0:20:30 We have 1,700, 1,800 patient service centers
0:20:31 where people can come and get their blood drawn.
0:20:33 We have people sitting in doctor’s offices.
0:20:36 All of that has to be coordinated underneath the testing.
0:20:40 We’re working on how do we make that more automated,
0:20:43 more digitized, how do we take paper out of the process
0:20:46 so that we can actually deliver the customer
0:20:47 a better experience.
0:20:52 We moved from, you used to go to LabCorp and get there
0:20:54 and it was a laborious process.
0:20:56 You had your requisition for your lab test.
0:20:58 You had to get a driver’s license, your insurance card.
0:20:59 We scanned it.
0:21:01 You fill that information.
0:21:03 Now we have check-in kiosks.
0:21:04 You can check-in online.
0:21:06 I went and had my blood drawn not long ago.
0:21:09 I checked-in online for my testing.
0:21:12 When I got to the patient service center,
0:21:14 I had a QR code if that’s what they’re called on my phone.
0:21:15 I scanned it at the kiosk.
0:21:17 I was checked in, that’s it.
0:21:18 And, you know, five minutes later,
0:21:20 I’m called, testing’s done and I’m through.
0:21:23 So these are ways in which we’re working on
0:21:25 preserving our margin and at the same time
0:21:28 providing a better experience for the consumer.
0:21:30 And I know it’s 4,400 tests.
0:21:31 It’s a pretty broad range.
0:21:34 So it’s going to be an over-generalization,
0:21:37 but on average, what do you get paid per test?
0:21:40 And on average, what is the sort of collections rate?
0:21:42 ‘Cause that’s one of the things that I think is so shocking
0:21:44 to people outside of the healthcare system
0:21:48 that a significant number of percentage of bills
0:21:49 just go unpaid.
0:21:54 – Yeah, so our average encounter price is about $45.
0:21:57 We do about two million patient encounters a week.
0:22:01 And so it’s a big, high-scale, high-throughput business.
0:22:04 We see about 110 million patient encounters a year.
0:22:07 In terms of the bills, you know, our bad debt rate,
0:22:10 our non-collected rate is in the range of 4%.
0:22:11 But when you think about that, first of all,
0:22:13 it’s a very substantial amount and almost all of it
0:22:16 comes from the patient side of the equation.
0:22:19 But what that doesn’t speak to is the amount
0:22:22 of service that we provide that physicians order
0:22:25 that patients need that doesn’t get paid for to begin with.
0:22:27 ‘Cause that doesn’t actually get down to the bottom line.
0:22:29 That all gets adjusted out at the sales level.
0:22:34 So payer policies, we only cover a vitamin D test
0:22:36 with these diagnoses.
0:22:40 Or we have a payer that only covers prenatal screening
0:22:45 for women if the putative father appears at the appointment.
0:22:47 Which when you think about the Medicaid population
0:22:49 or the underserved population,
0:22:51 the chances of getting the putative father
0:22:53 at the appointment are pretty small.
0:22:57 And yet, we know that it’s important for that patient
0:23:00 to have the genetic screening that the physician has ordered.
0:23:04 So there’s a lot of leakage in the system of, you know,
0:23:07 where we’re, and look, you know, we’re a public company,
0:23:09 we’re a for-profit organization.
0:23:10 We have to try to maximize what we can do
0:23:13 for our shareholders, but we also have a real sense
0:23:16 of the mission of improving patients’ health and lives.
0:23:18 And so we do a lot of things that do benefit patients,
0:23:20 even though we get frustrated with the payers
0:23:23 that they have restrictive policies.
0:23:25 – So in this model where the test is ordered,
0:23:27 it’s paid for, and then the information goes on,
0:23:29 there’s lots of leakage in the system, as you say,
0:23:30 and there’s problems with this model,
0:23:32 but it is a very entrenched model.
0:23:35 How do we move towards this value-based
0:23:38 or outcomes-based shift where we’re trying to value
0:23:41 what happens as a result of all these things in the future?
0:23:43 What would that look like in the lab?
0:23:46 – So to me, what that looks like is the hospitals
0:23:48 think about their laboratory, and instead of saying,
0:23:52 well, gee, I can run a thyroid panel in my hospital lab
0:23:54 and get paid $300 for it,
0:23:57 and maybe the patient gets a bill for $16.
0:24:00 To the doctor, it looks like I have a bundle of dollars here
0:24:02 to spend on this patient.
0:24:05 I’m at risk if I spend more than is allocated,
0:24:06 but I also have potential upside
0:24:08 if I spend less than allocated.
0:24:11 So I’m completely good
0:24:14 with sending the test to LabCorp for $40
0:24:16 and using the hospital lab in a different way,
0:24:19 which is supporting the emergency room,
0:24:23 supporting the operating theaters with pathology.
0:24:26 I’m actually optimistic that as we move to value-based care,
0:24:27 there’ll be a much more rational approach
0:24:31 to how we think about where the site of service
0:24:32 should be for everything, right?
0:24:36 I mean, we do way too many non-acute things
0:24:38 in the hospital today.
0:24:41 You should be paid the same price by Medicare
0:24:43 for doing the same service at every site.
0:24:45 The hospital shouldn’t make more
0:24:46 for doing a colonoscopy in the hospital
0:24:48 than they get from doing it
0:24:49 at an ambulatory surgery center.
0:24:52 The doctor should not be getting paid more
0:24:54 for doing chemotherapy in the office
0:24:55 than it can be done at a remote cancer center.
0:24:57 – Yeah, that does feel appropriate.
0:25:00 – And certainly, the hospital should not be getting paid more
0:25:02 for doing chemotherapy in the hospital setting,
0:25:04 which is the worst setting for the patients
0:25:06 to get chemotherapy in than for doing it
0:25:08 in a less acute environment.
0:25:12 So in my mind, it will bring real economic rationality.
0:25:14 It has the potential to bring, if done right,
0:25:15 real economic rationality
0:25:17 to the ancillary services part of the system.
0:25:19 – So you touched on something really interesting,
0:25:23 that healthcare delivery is being pushed out
0:25:26 of the four walls of the monolithic hospital
0:25:27 out into the periphery.
0:25:30 The consumer is increasingly becoming more empowered,
0:25:32 or at least it’s demanding more of healthcare system
0:25:35 as they, in turn, are being demanded to pay more
0:25:37 for their own healthcare employers as well.
0:25:39 What do you think the coming decades look like
0:25:41 from a technology standpoint
0:25:43 for the laboratory diagnostics industry?
0:25:45 I can see how technology will make coordination of care
0:25:49 easier, I can see how it would make logistics more efficient.
0:25:52 I can also imagine how technology will enable us
0:25:55 to test for things that we can’t test for today,
0:25:58 to derive insights that we don’t have today.
0:26:00 But I can also imagine that at some level,
0:26:02 as technology gets better,
0:26:05 it will make less sense to send a sample to the diagnostic
0:26:07 and it’ll become increasingly feasible
0:26:10 to send a diagnostic to the sample.
0:26:14 So is sort of point of care diagnostics technology,
0:26:15 is that an existential threat,
0:26:19 or will there always be things that have to be done
0:26:21 in a centralized lab setting,
0:26:23 even if there are more things over time
0:26:26 that can be done in a sort of point of care setting?
0:26:27 – So are you asking essentially,
0:26:29 will the lab be unbundled too?
0:26:31 – Yeah, my question is will the lab disappear?
0:26:33 – There will always be some tests
0:26:34 that need a venous blood draw,
0:26:37 that need a relatively significant amount of specimen,
0:26:38 and that can only be done in the lab environment.
0:26:40 And particularly, you know,
0:26:43 the complex and esoteric testing will, in my mind,
0:26:46 there will always be a central laboratory.
0:26:47 – So you’re not worried about genome sequencing
0:26:48 on the iPhone?
0:26:50 – Not today.
0:26:52 It’s funny, years ago I was at a personalized
0:26:53 medicine conference and one of the panelists
0:26:55 was talking about, oh, you know, within three years,
0:26:57 you’re just gonna put your saliva on the iPhone
0:26:58 and it’s gonna measure all your vital signs,
0:27:01 and you know, including all your laboratory values.
0:27:02 But it didn’t come to pass,
0:27:05 so many things in healthcare, it’s way slower
0:27:06 than people think.
0:27:10 But I’m a big believer in, you know,
0:27:12 laboratory testing needs to be democratized.
0:27:16 I mean, part of the reason that we don’t have
0:27:19 as much of an impact on patient care as we should is,
0:27:21 when you think about the way the system works,
0:27:23 so you go to the doctor,
0:27:26 now my doctor actually is, I was actually very impressed,
0:27:29 he sent me the lab that slipped before my appointment
0:27:32 to have the blood drawn, so he could have the results.
0:27:34 – But there’s a good chance he knows who you are.
0:27:38 – Yeah, he’s probably, that’s right, he does know who I am.
0:27:41 But most of the time you go to the doctor,
0:27:42 you get your blood drawn,
0:27:44 you get the results back three days later,
0:27:46 now it’s like, well, now I gotta call the doctor,
0:27:47 I gotta figure out the interpretation,
0:27:50 or you get the lab slip, you went to the doctor,
0:27:52 you weren’t feeling so great on a Friday,
0:27:54 you woke up Sunday morning, you felt okay,
0:27:57 and the lab slip just kind of, you know, goes in the trash.
0:28:01 – A shocking number of drug prescriptions never get filled,
0:28:04 and obviously the drug you don’t take cannot work.
0:28:08 Do you have a sense of what percentage of diagnostic tests
0:28:12 that are ordered by a physician are actually done?
0:28:16 – I don’t, and it’s a major point of frustration for me
0:28:20 that most physicians and health systems
0:28:24 have a follow-up system for ancillary services,
0:28:26 like if you go to the doctor and they say get an MRI
0:28:27 and you don’t show up for the MRI,
0:28:29 you’re gonna get pestered, you know,
0:28:30 or you get a referral for physical therapy,
0:28:32 you’re gonna get pestered.
0:28:34 If they give you a lab slip and you don’t do the labs,
0:28:36 you probably never hear anything about it.
0:28:40 There’s, you know, kind of urban lore about, oh, you know,
0:28:41 10, 15% never get performed.
0:28:44 There was a study done years ago at Harvard Medical School,
0:28:47 even there, there was a relatively high non-compliance rate,
0:28:49 as I remember, you know, 15, 20%.
0:28:53 And so I think that being able to move care
0:28:57 closer to the patient, if, this is a big if,
0:28:59 if the technology is good enough
0:29:03 that it is clinically relevant, that it’s reproducible,
0:29:04 and that the quality is there,
0:29:06 that’s a good thing for patients,
0:29:07 and it’s a good thing for our industry.
0:29:09 We can collect testing in the home,
0:29:12 and as long as it’s performed in our main laboratory,
0:29:16 we can integrate that into the patient’s health record.
0:29:18 So one of the big issues with point of care testing
0:29:20 has always been, you know, you do it,
0:29:23 and then you get a printout,
0:29:24 and, you know, unless you literally staple it
0:29:27 to the patient’s forehead and they go to the doctor’s office,
0:29:28 half the time it never gets to a place
0:29:30 where it’s gonna be well-interpreted.
0:29:31 – So the information flow gets messed up.
0:29:33 – And I don’t think there’s gonna be sort of, you know,
0:29:35 the quote-unquote killer app
0:29:38 that’s gonna just completely turn the business upside down,
0:29:40 ’cause believe me, enough people have tried to find it
0:29:42 in the last 10 years, and, you know, so far we’re not there,
0:29:45 but the technology will change.
0:29:48 Bringing lab testing closer to the patient is an imperative,
0:29:50 just to make lab testing more effective
0:29:51 and more valuable in the system,
0:29:53 and in the value-based care model,
0:29:56 when we’re engaged with patients in their homes
0:29:58 around not only your actual health,
0:30:01 but, you know, your social determinants of health,
0:30:03 and then we’re gonna have much more opportunity
0:30:04 to bring those tools to the patient
0:30:06 and actually, you know, help them manage their care.
0:30:08 – So when we think about the lab
0:30:09 and the way it’s changed over time,
0:30:12 from, you know, pipettes and beakers to microarrays,
0:30:15 what do you see coming next as the big new tools
0:30:16 or the new innovations
0:30:17 that you’re trying to think about how to integrate?
0:30:20 – So from a technological standpoint,
0:30:23 obviously the increasing miniaturization of instruments,
0:30:25 the tabletop instruments,
0:30:26 which, again, goes back to what we talked about
0:30:29 with democratizing the range of services.
0:30:31 Sequencing as a tool for diagnostics,
0:30:34 you know, the cost of sequencing is rapidly coming down.
0:30:37 The competitive landscape is becoming much more competitive
0:30:38 than it has been historically,
0:30:42 and so genetic testing that we have traditionally done,
0:30:43 you know, again, I remember when we started
0:30:46 with cystic fibrosis, you know, we looked at 30 markers,
0:30:48 and then it was 60 markers, then it was 90 markers,
0:30:51 and now we just sequenced the cystic fibrosis gene,
0:30:53 and there’s way more information in there,
0:30:55 which has pluses and minuses.
0:30:57 The pluses, there’s way more information in there.
0:30:59 The minuses, a lot of it is not well understood,
0:31:01 and so, you know, that takes me to what I think
0:31:03 is really gonna be what’s revolutionary
0:31:06 in the next 10 years is the understanding of the data
0:31:08 and the integration of the data
0:31:11 that comes from laboratory medicine.
0:31:15 That’s gonna be the huge transformation in our business.
0:31:17 It’s not gonna be the underlying technology.
0:31:19 People think, oh, you know, sequencing,
0:31:20 that’s a great new thing.
0:31:22 Sequencing is just another methodology
0:31:24 to do many of the things we already do today.
0:31:26 It’s a more efficient methodology,
0:31:28 but what comes out of the sequence
0:31:29 is a wealth of information
0:31:32 that we haven’t been getting historically,
0:31:34 and integrating that information into the coordination
0:31:37 and the arc of patient care is gonna be where
0:31:39 we’re really gonna see diagnostic shine
0:31:40 in the next five, 10 years.
0:31:43 – So as we look five, 10 years into the horizon,
0:31:46 if I’m an entrepreneur starting out,
0:31:48 and I have an idea or a technology
0:31:51 that I think is applicable as a diagnostics
0:31:54 or applicable to the diagnostics industry,
0:31:56 what do you think are the opportunities
0:32:00 or the blue sky opportunities for entrepreneurs
0:32:01 coming into this industry today?
0:32:04 – I mean, there are so many areas of diagnostics
0:32:07 that we just, fertility is an area
0:32:10 that we just don’t have really good tools.
0:32:13 And so, an entrepreneur who could bring to the market
0:32:18 something that would increase the rate of success in IVF.
0:32:19 Great area.
0:32:21 – What are some of the other ones?
0:32:23 – I think that emerging infectious disease
0:32:25 is an area of real concern.
0:32:28 I mean, the public health services
0:32:30 were overwhelmed with Zika testing,
0:32:32 so they ended up sending it to the commercial labs
0:32:34 without going through full regulatory processes,
0:32:35 the tests that they were doing,
0:32:38 ’cause they just couldn’t handle the specimens.
0:32:41 Anything that addresses new and emerging disease states,
0:32:44 in my mind, is a real area of opportunity.
0:32:48 The caution is, one, the history of the diagnostics industry
0:32:52 is littered with the small laboratory
0:32:54 that offered one test
0:32:56 and had a great arc at the beginning
0:32:59 and then ran up against the reality,
0:33:02 which is that the doctors want to order everything
0:33:04 from one place.
0:33:06 So, go back to non-invasive prenatal testing.
0:33:07 There were three companies
0:33:10 that did non-invasive prenatal testing,
0:33:11 all of them were independent,
0:33:14 and now one of them is independent,
0:33:15 one of them was bought by Roshan,
0:33:16 one of them was bought by us.
0:33:19 Why? Because the OBGYNs,
0:33:21 who were doing the non-invasive prenatal testing,
0:33:25 didn’t want to have to put a box over here,
0:33:27 a specimen over here to go to that company
0:33:29 and everything else from my office goes to Quest
0:33:30 or everything goes to LabCorp.
0:33:34 So, the distribution channel is really, really critical.
0:33:37 And the second thing that’s really critical is reimbursement.
0:33:39 You can’t imagine how many people come
0:33:43 with a really cool test and great data,
0:33:44 but the payers just, you know,
0:33:46 they’re just not going to pay for things
0:33:48 that even if they should, you know,
0:33:51 broad-based screening for whatever disease it is
0:33:53 of the asymptomatic population,
0:33:54 payers don’t want to pay for it
0:33:56 because there’ll be too many false positive,
0:33:58 too much treatment and while saving the long run
0:34:02 for screening the whole asymptomatic population,
0:34:03 I’m not going to do well.
0:34:05 But in a value-based care model,
0:34:07 in which the reward is for early detection
0:34:08 and early treatment,
0:34:11 then payers should be enthusiastic
0:34:12 to pay for early detection and early screening.
0:34:15 So, the reimbursement piece and the distribution channel
0:34:16 are really critical for the entrepreneur
0:34:18 who comes up with a great idea.
0:34:19 – And so, in that spirit,
0:34:22 how does an entrepreneur work with LabCorp?
0:34:24 Do I knock on your front door?
0:34:25 – So, there’s two ways.
0:34:28 One is we invest in ideas that we think are interesting
0:34:31 and often those are ideas that are,
0:34:33 well, the whole goal of it is invest in ideas
0:34:35 that are disruptors, invest in ideas
0:34:36 that are potentially competitive
0:34:38 so we can see what’s going on and understand the lens,
0:34:39 because that’s one way.
0:34:42 The other way is, we’re not a research company,
0:34:43 we’re a development company,
0:34:45 so we take other people’s good ideas
0:34:47 and we scale them so we can run them
0:34:49 100 million times a week if we need to
0:34:52 and that’s why we welcome the idea of entrepreneurs
0:34:55 doing things that will enhance the value
0:34:57 of diagnostics in general.
0:34:59 – So, yes, essentially, come knock on your front door.
0:35:00 – Knock on our front door.
0:35:01 Knock on the side door, we got plenty of doors.
0:35:02 We welcome it.
0:35:05 – Thank you so much for joining us on the A16Z podcast.
0:35:06 – Thank you, it’s been great being with you.
A lot’s going on in the world of healthcare right now, and one topic that’s especially relevant is how diagnostic labs work. In this episode with Dave King, Executive Chairman of Lab Corp (one of the largest clinical lab networks in the world) and a16z’s General Partner Jorge Conde and Hanne Tidnam, we cover the evolution of the modern lab over the past 50 years, especially as new technologies and new tests are added; how tests go from specialized to mainstream and widely available; and who pays for most tests and how reimbursement affects all this. We also discuss where lab information flows—in electronic health records and in the health system at large—and touch on what the lab of the future might be like.
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