Unprofitable Genetic Testing Labs – The Size of the Loss, The Reasons for the Loss, and What It Means for Genetic Counseling and Genetic Counselors

By Katie Stoll, MS, Jessie Conta, MS, and Michael Astion, MD, PHD

Genetic counseling is a critical part of the genetic services process, beyond just coordination and ordering of a genetic test. However, as the genetic counseling profession has grown alongside the expansion of genetic testing, it has become increasingly intertwined with and dependent upon the financial success of commercial genetic testing laboratories. The relationship risks undervaluing genetic counseling and the breadth of the services genetic counselors provide.

The genetic testing industry has seen rapid growth over the past two decades, with many new companies and billions of dollars invested into start-up genetic testing labs. Despite the enthusiasm of venture capitalists and other investors, commercial genetic testing labs are largely unprofitable, and the losses are significant and sustained. This is shown in Tables 1 and 2 below which are derived from analyzing publicly available, quarterly and annual financial reports (10-Q and10-K Filings) of publicly traded companies whose primary business is clinical genetic/genomic testing.

As shown in the tables, it is common for publicly traded, genetic testing labs to report annual losses of >$100 million. In 2021, only one lab, Fulgent, made a profit (Table 1). However, Fulgent’s 2021 – 2022 quarterly reports (Table 2) indicate that profits aren’t attributable to genetic testing, but rather to COVID test sales, which accounted for ~88% of their 2021 revenue. Myriad has seen a consistent decline in revenue since the US Supreme Court’s ruling in 2013, which forbid human gene patenting and therefore caused Myriad to lose their lucrative BRCA testing monopoly. Although the losses have not been as severe as their competitors, Myriad has not been profitable since 2019, and they have reported greater losses in the first two quarters of 2022 than their annual loss in 2021.

Profit and loss data is difficult to obtain from private genetic testing companies such as Color Genomics, as well as from genetic testing labs owned by much larger, diversified companies, as is the case with Ambry being owned by Konica Minolta. Similarly, profit and loss data on genetic testing is unavailable from integrated health systems, academic medical centers, or publicly traded labs –like Quest, LabCorp, and BioReference— who only have a small portion of their overall testing business in genetics. In regards to academic labs and labs in integrated health systems, our experience, as well as discussions we have had with colleagues strongly suggest that genetic testing is performed at a financial loss, and that it is the overall profit of these full-service labs that allow them to support genetic testing.

Why aren’t genetic testing companies profitable?

Publicly traded genetic testing labs are unprofitable for a variety of reasons. The top reasons are poor reimbursement from insurance plans and patients; intense competition; and excessive expenses for sales, marketing, and executive compensation. In addition, the inclusion of genetic counseling, which companies have highly valued as part of their testing service, adds an expense that is not seen in the other analytic sections of a full-service clinical lab.

Insurance reimbursement

The service of genetic testing is a costly one to deliver and is much more expensive than a lab’s cost to perform other tests. For example, the fully loaded cost of performing a typical test in a highly automated, hospital-based core laboratory is in the range of $10-$20 per test. This includes common tests like complete blood counts, electrolytes, basic coagulation tests, thyroid screening tests, and liver function tests.  For an insurance plan this type of common testing is >65% of their expenses. The cost to labs of genetic testing is much higher, often 10-100-fold higher. Genetic testing usually represents < 20% of an insurance plan’s spending on lab tests.

Why is genetic testing so costly to labs? The main reason is that it is difficult scale genetic testing in a manner analogous to common, high-volume laboratory tests. Compared to common tests, genetic testing is more labor-intensive, more time consuming, involves higher-wage staff, and involves technology that has a higher cost per test. Genetic testing is time consuming because it requires complex tasks not seen with common tests, such as variant analysis, curation, review, and updating. And for many companies, it also includes providing the genetic counseling service, which is often bundled into the service of providing the test. Overall, genetic testing is a personalized, complex technical service which has resisted, for now, the type of full automation that has benefited other parts of the clinical lab.

The high cost for performing genetic testing necessitates high costs to patients and their insurance companies. Historically, insurance companies are mediocre at regulating high-volume, low-cost lab tests because it is too cumbersome and expensive to manage. However, insurance companies have many effective tools for regulating high-cost procedures, including genetic tests. The result is that high-volume, low-cost laboratory tests have a relatively open door to reasonable insurance payments, and insurers invest only a little energy toward closing that door. In the case of genetic testing, the door is closed or only partially open.

Besides negotiating fees with certain labs, the main method that insurance plans use to control genetic test reimbursement is detailed medical necessity policies tied to preauthorization systems. Insurance companies either develop the policies and pre-auth systems or purchase them from third-party benefits managers. Overall, the method involves using software that aids decision making in combination with genetic counselors, nurses, and physicians who adjudicate cases at various decision levels. This approach is then married to an insurance plan’s usual and customary procedures for handling grievances from patients and labs that have been denied payment. For insurance plans, this type of complex system, which is both software and labor intensive, would have a poor return on investment if applied to low-cost, high volume lab tests. But for genetic testing, this type of system has an excellent return on investment, and so insurers are highly motivated to regulate genetic testing. In addition, these insurance systems tend to be overly tuned to block fraud, waste and abuse, and often delayed in keeping up with scientific evidence. Therefore, insurance systems may block some medically necessary genetic testing.

Patients bear high out-of-pocket costs for genetic testing. This is because they are financially liable when their insurers do not cover the test, and, even when insurers provide coverage, there still can be high deductibles or co-pays. In the laboratory industry, it is very expensive to recover the money that the patient owes, and poor financial recoveries from patients is common. This failure to recover the patient portion of the bill adversely affects the bottom line of genetic testing labs.

Response to poor reimbursement from insurers and patients

Many labs performing genetic testing have responded to preauthorization requirements by investing in resources – which sometimes can create an entire division or department – that provide support with prior-authorizations, as well as appeals and support when test coverage is denied. This can help grow the testing business because it removes a barrier that blocks some providers from ordering testing. However, the removal of the barrier comes at a high cost to the genetic testing lab.

To help patients directly, some labs have promised patients low out-of-pocket costs either through reducing the patient’s responsibility under their insurance plan, or by promoting self-pay options that avoids involving the insurance plan. Thus, some labs promise patient out-of-pocket maximums, typically advertised as about $100 when insurance does not cover testing.

For self-pay options that do not involve insurance, the price for genetic testing for patients is often much lower than the list price available to care providers, and it is highly likely that price does not cover the costs of the tests. The current going rate at most labs for self-pay testing for multigene panels is around $250, which is usually much less than what labs try to collect from payers, including Medicare and Medicaid for the same test.

Sales and Marketing

A review of publicly available, 10-K submissions, show that it is not unusual for genetic testing companies to have marketing and sales budgets around 40-50% or more of revenue, which is much higher than typically seen in established, full service clinical laboratories. This most likely relates to the goal of growing revenue and capturing market share, despite the high cost of achieving this in a competitive, and poorly reimbursed business. Those NSGC parties, sponsored luncheon and dinner events, “free” CEU opportunities, and even the complementary genetic counseling, all come at a cost for the marketing and sales budgets of these companies.

Executive compensation

Another contributor to financial losses in publicly traded genetic testing labs is the high pay of executive leadership, including chief executives. Review of executive compensation data shows that executive pay is often inversely correlated with net profits – the longer that a company lasts, regardless of how deep the losses grow, executives tend to be well rewarded. For example, Natera reported compensation for the company’s chief executives totaling $8 million while company losses totaled $128 million in 2018. Contrast this to 2021, when Natera’s C-Suite compensation was > $53 million despite company losses that were > $471 million.

Although these companies are not generating operating profits, their investors aren’t necessarily hurting as a result. Stock prices for boutique, genetic testing labs don’t often sync with the lab’s financial health, and based on reported trading of company insiders, some investors are gaining significant wealth despite the losses of these labs. For example, Invitae hit all time stock highs in December 2020 despite enormous losses reported in every quarter that year. The net loss for Invitae in 2020 was >$600 million, while that same year Invitae insiders cashed out more > $46 million in stock. Another example is that the current CEO of Natera cashed in nearly $76 million in stock over the past four years, while cumulative losses for Natera totaled >$ 1 billion over that same period.

What is at stake for genetic counseling?

A 2018 publication in the Journal of Genetic Counseling analyzed the financial challenges of commercial genetic testing labs and what that could mean for genetic counselors. The authors speculated that genetic testing companies may not find a path to profitability, and their ability to support genetic counseling services may subsequently decrease.

Since this initial analysis, the losses of these companies have continued to grow, and investors have become less enthusiastic. This has put pressure on many companies to change and adjust their business strategy in order to survive. For some, this means cost cutting measures to decrease their cash burn with hopes to increase the odds of profitability. And as predicted, difficult decisions are taking place with many genetic testing companies resulting in layoffs of staff, including genetic counselors. Last month, Invitae announced layoffs of over 1,000 staff, including most of their clinical genetic counselors. SEMA4 and Ambry Genetics have also had layoffs in recent months. Given the overall picture of the financial health of all these labs, and increasing challenges in raising funds, it is likely there will be more layoffs to come for genetic counselors and others who work at these companies.

What does the current financial state of genetic testing laboratories mean for the delivery of genetic services and for the genetic counseling profession? A substantial portion of genetic counseling is now delivered through genetic testing laboratories who have packaged genetic testing with the offer of genetic counseling to draw in clients. If we see fewer companies maintaining genetic counselors on their staff, where will genetic counseling support come from for these patients? In addition to the labs themselves, many of the growing genetic counseling telehealth companies are closely tied to the testing laboratories, with much of their funding and contracts coming through commercial laboratories rather than direct patient referrals or contracts with clinics. It seems possible that these arrangements could also be negatively affected with current financial pressures and cuts to “extra” costs. Genetic counseling is not an “extra” bonus service, but rather a critical part of the genetic services process. Relying on genetic testing companies’ funding to ensure access to this service does not appear to be a sustainable model.

For genetic counseling services to be sustained, independent of the financial health of corporate testing laboratories, it is essential that genetic counseling be recognized and reimbursed as an independent service, with inherent value that is separate from genetic testing. Recognition by the Centers for Medicare and Medicaid Services is a necessary step towards sustainable and independent genetic counseling services, regardless of service delivery modality. I hope you all will join in continued advocacy to see the Access to Genetic Counselor Services Act H.R. 2144 / S. 1450 enacted into law.

Michael L. Astion is a clinical pathologist who is Medical Director, Department of Laboratories at Seattle Children’s Hospital and Clinical Professor of Laboratory Medicine at the University of Washington. For almost two decades he worked at the University of Washington, Department of Laboratory Medicine where he was a Professor and Director of Reference Laboratory Services. His career is divided between clinical service, teaching, clinical service, and research and development. He is the editor-in-chief of Patient Safety Focus, which appears quarterly within AACCs Clinical Laboratory News. He is one of the founders of PLUGS (Patient-centered Laboratory Utilization Guidance Services), a national collaboration whose mission is to improve test ordering, retrieval, interpretation and reimbursement. Dr. Astion is a frequent speaker at professional meetings, where he lectures on issues related to laboratory test utilization; test interpretation; laboratory economics and outreach; and medical errors.

Jessie Conta is a licensed genetic counselor in the Department of Laboratories at Seattle Children’s Hospital. She received her Master of Science degree in genetic counseling from Brandeis University. As the Manager of the Laboratory Stewardship Program at Seattle Children’s, she leads genetic test stewardship interventions, including insurance alignment related to genetic testing. Jessie is also a co-founder and Director of Genetic Counseling Services for PLUGS (Patient-centered Laboratory Utilization Guidance Services), a national collaboration whose mission is to improve test ordering, retrieval, interpretation and reimbursement.