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Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues

Behind the Scenes: LabCorp’s Rapid Response to COVID-19

This past fall, Brad Staats, faculty director of the UNC Center for the Business of Health, sat down with LabCorp President and Chief Medical Officer Dr. Brian Caveney to discuss the trials and tribulations of moving quickly to fight a worldwide pandemic, as well as what the impact of COVID-19 might be on the future of healthcare. The two met as part of the 2020-21 UNC Kenan-Flagler Business School Dean’s Speaker Series.

(Note: This transcript has been edited for brevity. To view the entire interview, click here.)

Professor Brad Staats: I want to start with, not shockingly, COVID-19. … Could you talk a little bit about how the ramping up of COVID testing in the U.S. was so challenging?

Dr. Brian Caveney: We’re very lucky in the sense that we’re a global life sciences company, and we have a few thousand people in our clinical research unit west of Shanghai, not that far from Wuhan. So we actually had a very inside look very early on of our need to protect the health and safety and welfare of our own employees that were working in the Chinese provinces. And we were aware of things happening before, maybe, even the global media. … So we were literally in as good a position as you could possibly be for having some semblance of what could possibly happen. But yet still, there was so much incredible uncertainty at the time. …

We were one of the early pioneers in PCR technology, which, as many of you have seen in the media, that’s the primary technology being used for the most accurate diagnostic test for [COVID-19]. We’ve been doing that for over 30 years and have that equipment all around the world. But … switching it over is not as easy as just having equipment sitting around in a warehouse that you can turn on and be ready to handle pandemic volumes of testing, as you can imagine. And then, of course, the equipment itself is just one of many, many things that have to be right in order to do it from the IT interfaces, having the regulatory ability to actually offer a test in the market and working with the FDA, having all of the consumables required to do the testing: the liquid reagents, which are the primer sequences that are used for identification; the simple things like the plastic pipette tips [and] all of the other things; and importantly, the labor required to do it that know how to use the equipment and can efficiently handle the specimens safely in transport.

And so in that first week of March, we were fortunate to be the very first commercial lab to be able to offer the test to the public after the original CDC assay. But even though we’re a very large, efficient organization, we can only do a few hundred specimens per day. … It was very challenging to scale up in those early days, literally a 24/7 endeavor for about a month to handle all of those different issues that I just mentioned to be able to scale up.

Staats: Can you talk a little bit about how you had thought about scaling your capacity, knowing that eventually we’ll be on the other side of COVID, so you have to strike a balance there?

Caveney: We’re a publicly traded company and have to be very responsible with our resources. But, you know, kudos go completely to our CEO, in working daily with the coronavirus task force at the White House, with the CDC, the NIH, the FDA.  We actually went to our board and made a decision: we are going to spare no expense. We’re going to call all of the equipment manufacturers — which is a very, very, very global supply chain — and basically try to order every available piece of equipment, consumable supplies, reagents, you name it, across the board so that we could scale up as we foresaw a probable significant increase in cases and therefore the need for testing. So we basically put an APB out for the entire world for every possible way that we could scale up testing.

Another important, I would say, business or strategic decision we made … We decided very early on that there were likely to be global supply chain challenges, and therefore we have brought up eight different platforms or different ways of performing the diagnostic testing, using each of the major manufacturers around the world and in other parts of that supply chain, so that as inevitable problems arose or supply chain squeezes occurred, we may not be able to hit full capacity, but at least we wouldn’t be shut down.

Staats: That’s the global supply chain.  Could you talk a bit about those challenges, how you worked to overcome them? And do you think that reshaped LabCorp’s approach going forward?

Caveney: The life sciences industry is a very global one. And it’s not just a cost play like you might see in some other areas of technology or consumer goods. It’s truly about diverse innovation, science, research, R&D done around the world, and some of the largest and most well-known life sciences companies that build the laboratory equipment for the world are not based in America. … And so it was a tremendous challenge in the early days because, as you remember, the political ramifications in the very early days involved closing down the borders for consumer travel, but also very importantly, business travel. And so there were many, many, many challenging conversations with our federal government representatives, saying, “But we have millions of dollars of equipment and supplies sitting in customs in the New York harbor or the San Francisco harbor that we have got to get to our labs in order to scale up our capacity. Can you please help us and put politics aside and do what you need to do to inspect the goods and make sure that we can quickly get it to our laboratories?” And I would say they were incredibly flexible and collaborative in making that happen, knowing that the spotlight was on getting that done.

No one in the history of medicine has ever really thought about swabs before. … Who would have known, or frankly cared, before March that probably two-thirds of the entire world’s supply of those come from one really good factory about 12 miles east of Milan, Italy. And if you’ll remember, one of the very first places that had the worst caseload outside of China in the very beginning was Milan, Italy. And that massively shut down or limited supply coming out of that factory. … and that’s the very simple, cheap thing needed to massively scale up capacity in the early days. So while it was a crisis for a very short period of time and led to a lot of conversations with our federal government, a couple of things happened.

That same company actually very quickly and amazingly efficiently, opened a factory in Puerto Rico to be able to crank out tens of thousands of [swabs] per day, that we were able to get within just a couple of weeks … we also turned a completely separate group of our R&D team into working every single day with the FDA to say, “How can we carefully and accurately get these specimens from patients using anything else besides that?” And we were able to eventually get up to dozens of different swab types…[and] we were able to validate them with the positive specimens that we had, to show all of that data to the FDA and then enable us to massively expand the ways in which doctors and nurses were able to collect the specimens. … And then similarly, there are liquid solutions you put the swab into for transportation back to the laboratory, and you have to maintain the integrity of the cells in there so that the specimen is still in good shape. … And we were able to expand from a very specific type of liquid that was originally used to then validate the ability of saline to also preserve the virus under the right temperature conditions for a short period of time to get those to the nation’s laboratories. And that’s been an unsung but unbelievably important scientific innovation.

Staats: Let’s pull it a bit wider. … As we look at healthcare broadly, there are a number of different market failures that have occurred over the last couple of years, whether that’s the opioid crisis or Martin Shkreli or some of the inflated billing we see. How do we think about things as a system addressing these failures? And how can business be a part of the solution?

Caveney: Even though everyone would agree that the overall total cost of healthcare is too much, every dollar spent within healthcare is some healthcare provider’s revenue. And we’ve seen just an incredibly painful year for many of our customers — doctors’ practices, physicians’ offices, hospitals, health systems, other types of institutions around the country — that could take them a long time to recover from this. I would perhaps caution against looking at this as though this is the new normal in applying a policy solution because “it would have potentially helped in 2020” is probably not the lens that hindsight will apply to it in years to come. As we all know, it’s dramatically more complicated than just coming up with a silver-bullet policy solution. …

I would think that there are thousands of potential incremental impacts that could be made in the current state of affairs in the country at the state and federal level. That’s more likely to be on the table rather than major overhauls. I would think in the short term and personally, I’m okay with that, … expecting small wins in a lot of different categories, rather than one or two major signature changes that we all magically believe in going to “fix” the system. I just don’t think that that’s in the cards.

Staats: The theme around incentives and metrics came up over and over again — that we need to improve them to get not only better access, but better outcomes. And so can you offer comments on how you see those incentives and metrics moving in a direction for, maybe, a better health system?

Caveney: Several problems with that are, obviously, the healthcare itself. The things within the direct control of the healthcare provider are only one small subset of what actually drives outcomes, as we all know. The other problem, though, that is probably in my opinion not talked about enough, is we really don’t have a good enough set of quality metrics that actually help show the world what a good quality outcome is. Doctors, and even the CMS nationally, state very clearly that we have metric fatigue, if you will. There are thousands of different things we could measure people on. We’re not really sure yet if they matter to the patient and to the doctor and to the system overall yet. So we need a whole lot more work on even what we’re measuring and how, make it within the workflow of them, so it’s not an extra administrative burden to even measure the stuff that we say matters, and then have the financial incentives actually be enough to get their attention and make it worthwhile of doing the extra work or the change in work or whatever it is to get it.

Staats:  Can you comment on how the healthcare ecosystem can move into that true collaboration that we’d like to see?

Caveney: There are so many different examples from this year. I hope that trend continues. I mean, just in my little industry, the lab industry, there are thousands and thousands of different labs across the country. But there are two really major national ones, LabCorp and Quest Diagnostics. And given the nature of the crisis this year, I actually have the chief medical officer of Quest on speed dial. We’ve written a couple of papers together this year, [and] we’re probably going to talk this weekend about another situation we’re dealing with in the supply chain. And we’re fierce competitors in our day jobs pre-COVID. But you have to rise above [to] the occasion. You have to do what’s right for the industry and for our customers and for patients. And I hope at least that theme or that willingness continues in the future.

Staats: Let me kind of push you on that for a second. How likely do you think it is we’ll really get long-lasting change in healthcare as a result of all of these responses to COVID?

Caveney: Probably not that many, as most people yearn to get back to some semblance of normalcy. Could we see more provider consolidation because of the financial impairment that’s taken place this year? Probably. Are we going to see more value-based care contracts? Because many of the physicians who lost so much revenue during the middle part of the year would like a little bit more predictability in their budgeting, perhaps. But I don’t know that we’re going to see wholesale change as a result of what happened this year. I think everybody is going to optimize their current situation and try to succeed in the future, just like they did before they ever heard the word COVID.

Brad Staats: Thank you, Brian, and thank you, everyone, for joining us for the Dean’s Speaker series.

For more on the Dean’s Speaker Series, click here.