Diagnostic Kits/Glossary

Reference Lab

Rosen. Diagnostic Test Service Commercialization: A Roadmap to Diagnostics in the 21st Century. (2008) pp. 47-48

OPPORTUNITY PRICING AND MARGINS ARE ATTRACTIVE

The bulk of reference lab test services cover highly commoditized routine tests. Here the margins are low because labs compete for clients based on cost per test. As lab medicine evolved with the development of personalized medicine, the complexity of testing has increase significantly.

New technologies are fueling faster growth in segments such as analysis of biopsy tissue, protein biomarkers and genetic testing. LabCorp and Quest have developed tests in these areas, but most have been developed by smaller reference labs such as Esoterix and US Pathology Labs.

Part of the growth in the new single analyte and multiplexed molecular and protein tests is related to the perception that these tests offer physicians decision making information not available with conventional tests. As such they command premium pricing. Therefore Quest and LabCorp have acquired several of the major esoteric testing companies to enhance their position in this high-growth segment.

These labs and other specialized reference labs have a clear advantage over test services offered by companies in their CLIA-registered labs. They have established distribution networks and immediate access to medical specialists. Thus the esoteric test segment is a clear winner for them. The average cost of a molecular test performed in a reference lab ranges from $10 to $50, reimbursement is usually at least $100 and the labs often charge as much as $500 for these tests.

Promotional and clinical study activities that provide scientific and economic evidence of the value of high-priced esoteic tests do not come cheap. None of the test companies that have launched in-company test services are in the black. Genomic Health’s success has been hard bought. The company has invested in researching a panel of biomarkers that has proved effective and has supported numerous clinical studies. Where Genomic Health and other companies that market test services save is in lab technologist training costs, after sales service and continuing education.

The reagent and instrumentation costs for many multiplexed esoteric and genomic tests are still high and demand is relatively low, most hospital labs would not be able to justify investment in offering these tests. Thus, it may appear that profit consideration is the driving force for test services. In effect, the most obvious route to market for complex and still esoteric tests is via collaboration with a reference lab or a CLIA-registered company lab. In this way the test becomes available to the largest number of physicians and patients.