Did California get its money’s worth from $1.7 billion COVID test contract?
The Valencia lab, a public-private venture between the state and PerkinElmer, processed only 1 to 8% of all Californians’ COVID tests in the first 10 months of the contract. And the lab was riddled with dozens of problems, according to an inspection report.
A patient sample that wasn’t processed for more than 30 days. A test used without proper validation of its accuracy. Patient results changed without notification. Safety and disinfection procedures called into question.
These are just a few of the myriad problems at the Valencia Branch Laboratory, a public-private COVID-19 testing lab operated by PerkinElmer that the California Department of Public Health hired in a no-bid, $1.7 billion annual contract.
An inspection report released last month by the health department outlines major problems dating back further than a year ago, raising new questions about how the state is spending taxpayer dollars to combat the pandemic. The report shows the lab has routinely underperformed, failing to meet the contract’s goals for turnaround times and numbers of processed tests. But the state auto-renewed the year-long contract at the end of October.
Gov. Gavin Newsom and state health officials say the laboratory has been crucial to expanding the state’s testing capacity for schools and underserved communities.
But California’s two largest school districts — Los Angeles Unified and San Diego Unified — aren’t relying on the lab because it was unavailable when they needed it.
A CalMatters analysis shows each test at the PerkinElmer Valencia lab costs the state more than three times the amount the Los Angeles Unified pays a Bay Area startup, SummerBio.
Already, the state has paid more than twice as much to PerkinElmer for 5.5 million tests as LA Unified’s total projected $350 million cost for the entire school year. The school year is less than half complete, but LA Unified already has administered 7.4 million COVID tests while never using the state’s PerkinElmer lab.
In the 10 months following its October 2020 opening, the lab processed between 1 and 8% of all COVID-19 tests administered in California each week, according to available data archived by CalMatters. During the first week of December, the lab processed roughly 8.5% of California’s tests, according to the most recently available data.
PerkinElmer, a global testing diagnostic company, did not respond to a request for comment about the cost of the testing and the reported problems at the lab.
“CDPH probably should have canceled (the contract) because honestly, there’s other vendors out there. They’re doing it for a lot less money more efficiently.”
State health department officials, in an unsigned statement in response to questions, said the PerkinElmer contract was renewed because of the potential for a winter surge and continued need for testing.
But the health department’s report, which was released eight months after officials indicated it would be completed, revealed that inspectors from the state’s Laboratory Field Services threatened sanctions for major deficiencies just 10 days before the contract was renewed.
The state public health department “probably should have canceled (the contract) because honestly, there’s other vendors out there. They’re doing it for a lot less money more efficiently,” Republican Senate minority leader Scott Wilk, who represents the area surrounding Valencia, told CalMatters.
Wilk has been the most outspoken critic of the contract, repeatedly calling on the Newsom administration and the health department to halt the auto-renewal. Wilk said his office is working on a proposal to reform the no-bid contracting powers that the Legislature granted Newsom at the beginning of the pandemic.
“I think there have been abuses there,” Wilk said.
Public health experts and advocates say despite the lab’s troubles, it provides critical testing for smaller school districts, rural counties and underserved communities. Roughly 62% of tests processed at the lab are from communities of color, with about a third from the state’s most disadvantaged neighborhoods, based on the California Healthy Place Index.
In Madera County, for instance, the lab allowed the county and its partners to ramp up testing in a speedier time frame.
“Valencia has been a net positive for Madera County. Residents would have been at a significant disadvantage without the combination of the Valencia lab and state contracts like the one with OptumServe,” said Sara Bosse, Madera County’s public health director.
Could the state have gotten a better deal?
The state currently pays PerkinElmer $37.78 per test, according to a Department of Finance analysis, and charges schools $21 and community organizations $55 per test.
That compares to $12 per test that LA Unified pays SummerBio.
When the state contract was announced, it was hailed by local governments and health organizations as a cost-savings measure. But as whistleblower reports about lab failings emerged and vendors with more competitive pricing came online, many questioned why the state didn’t try to renegotiate a better price, which is allowed under the contract.
Compared to SummerBio’s pricing for LA Unified, the state could have paid approximately $4.6 million less for testing during the first week of December, the most recent week the lab’s testing numbers are available. (CalMatters calculated that amount by multiplying the number of tests conducted by the state by the rate charged by PerkinElmer versus the rate SummerBio charges LA Unified)
LA Unified tests a dizzying half a million students and employees weekly and has been held up by proponents of testing and critics of the state government as a model for COVID-19 surveillance.
Former Superintendent Austin Beutner, who spearheaded the search for a cost-effective COVID-19 testing company at the time, said the district knew early on routine testing would be critical to bringing students back to school.
“We said it’s got to be accurate, quick, high volume, and then the fourth piece was the price,” Beutner said. “In most cases, we were looking at north of 100 bucks. You do the math — 100 times half a million each week. That’s a lot of money.”
The state has paid PerkinElmer about $740 million. In contrast, LA Unified will spend $350 million for the whole school year and tests far more people.
According to district documents, 22 companies were evaluated through an expedited bidding process and SummerBio offered the lowest price by far, between $38 and $166 less than other diagnostics companies, including major players like Curative and Fulgent.
The state has paid PerkinElmer about $740 million for testing in the past year. Most of the cost is recouped through federal funds and health insurance payments, according to the state health department. In contrast, LA Unified is projected to spend $350 million for the entire school year, and tests far more people per week than the Valencia lab. The district will also recoup the costs through federal school reopening grants and federal emergency funds.
“Cost comparisons from laboratory to laboratory are difficult because a laboratory’s testing arrangements vary due to differences in the scope of their contracts and the set-up of each laboratory,” health officials said in an emailed statement.
The health department did not answer questions about whether other vendors were considered or whether the department has tried to negotiate a lower rate with PerkinElmer.
SummerBio representatives declined to comment about the Valencia lab but said the company has been in contact with state officials.
Beutner said he notified the governor’s office about LA Unified’s plans as a courtesy, months before the PerkinElmer contract was announced. As the largest district in the state — and second largest in the nation — LA Unified’s contracts are often piggybacked by other districts and government organizations.
“The simplest way to put it is, they (state health officials) weren’t particularly responsive or interested,” Beutner said.
By the time the state laboratory opened in October 2020, LA Unified was well on its way to developing its own internal testing infrastructure. And the state test — which was $55 for schools at the time — was still far more expensive.
Too little, too late or a lifeline for schools?
Like LA Unified, San Diego Unified School District began developing its testing plans well before the state’s PerkinElmer lab was a resource. The district tests around 25,000 students per week, which is approximately a quarter of its student population.
“Just speaking from our experience, our district, we have always had to move quickly and establish our strategies because, you know, waiting for the state would just have taken too long,” board president Richard Barrera said.
San Diego Unified conducts a limited amount of pooled testing through the state lab at no cost, but the bulk of its testing is done through a private vendor.
The district initially contracted with UC San Diego to offer tests to students and staff at around $40 per test before moving to another vendor, which charges about $60 per test, when the university could no longer handle its testing needs. At the time, there was little guidance from the state for school testing, which caused headaches for school administrators.
The state was charging schools $55, which made the district’s contract with UC San Diego cheaper. Now, although the school district is paying a private vendor much more than the state’s reduced price of $21, Barrera said it’s too late for the district to switch. The district has already built up capacity through a private vendor and established procedures for getting parental consent, notifying them of test results, training staff and contact tracing.
“The last thing we would want to do now that we’re finally able to scale with private vendors would be to then move away and do something with the state and then have the state’s program end,” he said. “Then we’re back to ramping up from scratch.”
State officials say the laboratory is needed to reach communities with few resources. Barrera said for smaller districts, the state support is likely crucial to keeping kids in classrooms.
Most school testing has been funded by the state through federal grants.
Long Beach Unified has been using the state’s PerkinElmer Valencia lab. But after January, Long Beach administrators say the district will be responsible for paying for testing. At the peak of its efforts, which averaged between 6,000 to 12,000 tests per day, Long Beach officials said other vendors couldn’t handle the volume, although there were some early issues concerning slow results from the state. At the now-reduced cost of $21 for school districts, Long Beach officials said the state laboratory is one of the cheaper testing options.
South of Modesto, in Ceres Unified School District, administrators say they have worked closely with the state’s Valencia lab for molecular PCR testing. Several months ago they had issues with false positives from the laboratory.
“We were informed by the lab that a few tests were positive, but when they retested with another organization they were negative,” said Edith Narayan, the district’s coordinator of student services. There have been no recent issues.
“There are few companies that control the entirety of the supply chain…PerkinElmer was uniquely able.”
Officials in San Juan Unified School District, northeast of Sacramento, said supply chain shortages played a part in their decision to use the state testing program, which seemed like the most reliable “comprehensive, accessible and affordable” option. They have had one instance of delayed test processing and are generally satisfied with the program.
State health department officials said in their statement that control of the supply chain was one of the reasons PerkinElmer was awarded the contract. “There are very few companies that control the entirety of the supply chain meaning that they not only build their own laboratory machines, they also produce all the necessary reagents and testing kits…PerkinElmer was uniquely able to address this particular testing constraint,” they said.
Like smaller school districts, some rural counties have relied heavily on the PerkinElmer lab. In Tulare County, at least 23 public testing locations — both community sites and schools — send COVID testing samples to the state lab. In addition, local pharmacies and clinics contract with the state on their own, according to Tulare County Public Health.
In the past two decades, 11 public health labs have closed, leaving the state with the same number of laboratory resources that it had in 1950 despite having more than three times the population.
“They need to keep funding (the Valencia lab),” said Kat DeBurgh, executive director of the Health Officers Association of California. The issues that came with opening a laboratory in a hurry were avoidable if local public health infrastructure had been funded adequately to begin with, she said.
“I hope after the pandemic our state lawmakers and the people in charge of the budget recognize that we can’t be in this state where we spend a lot of money on immediate solutions that are necessary and then let the infrastructure dwindle until the next emergency,” DeBurgh said.
Lab didn’t live up to promised capacity
When the lab opened in October 2020, it was built with the promise to process 150,000 tests per day, doubling the state’s capacity at a time when local public health departments, commercial labs, and health systems were straining to keep up. However, commercial labs and health systems have simultaneously ramped up capacity and have accounted for the bulk of testing throughout California.
The lab processes a daily average of 40,000 tests, according to state health officials.
But the PerkinElmer Valencia lab has routinely processed far fewer results than its commercial counterparts, at times less than 4% of the state’s total tests during the summer of 2021, according to available data archived by CalMatters.
The state Testing Taskforce posts the number of tests processed online weekly but deletes the previous week’s records, so CalMatters used a web scraper to compile historical data between August 2020 and December 2021, after a public records request to the health department yielded minimal documents.
Demand for testing dropped statewide during the summer, so the lab processed on average 75,000 samples and as few as 28,000 samples per week — a small fraction of the daily capacity of 150,000 tests promised by the Newsom administration.
In their anonymous statement, health department officials said the lab has the capacity but has never been asked to ramp up to the maximum. However, in mid-September, the lab had to send overflow samples to another lab even though it hadn’t reached the contract’s 150,000 capacity, according to the health department.
It wasn’t until schools opened in August that the lab began processing more than 10% of the state’s tests. In contrast, commercial labs have accounted for 60 to 70% of all tests, while medical centers account for roughly 20%.
At times, SummerBio alone has processed a greater proportion of tests than all public health labs combined, reaching nearly 20% mid-September.
At the state’s PerkinElmer lab, aside from capacity concerns, the state’s report from April highlighted four instances between Nov. 14 and Dec. 1 of last year where groups of test results were “corrected” or “amended,” but there was no evidence that patients were promptly notified, meaning they may have inaccurately thought they tested positive or negative. Inspectors also reported that when the lab lost tests, instead of reporting them as lost, it labeled the samples “unsatisfactory.”
State health officials said the problems found in the inspection reports have since been resolved.
DeBurgh, the director of the Health Officers Association, said the state has a responsibility to ensure testing is available to everyone regardless of cost or insurance status. Because commercial labs won’t be around forever, the state needs the Valencia lab for long-term public health beyond the pandemic, she said. “Right now, it’s profitable to give COVID-19 tests. That’s not going to be true forever. And yet we are still going to need the tests,” she said.
Elaine Howle, who is stepping down this month after leading the state Auditor’s Office for 21 years, said in a November CalMatters interview that auto-renewal of contracts like the PerkinElmer one “may be something that’s particularly concerning, particularly if, as you say, there were some reporting requirements and those weren’t met.” Her office has reviewed use of federal money but has not reviewed no-bid contracts.
“I’m aware that there are no-bid contracts out there,” she said. “I wasn’t aware of a contract that size that auto-renewed.”
Sacramento-based public contract lawyer Jennifer Dauer said it’s not uncommon for government’s competitive bidding requirements to be suspended or auto-renewal of contracts to occur during emergencies like the pandemic or wildfires.
She said there tends to be little oversight once a contract is signed, particularly during states of emergency. The courts tend to side with public entities, leaving the public to serve as the watchdog.
“There is extreme deference to what public entities who are dealing with emergencies do in their contracting,” said Dauer, who has worked with companies pursuing local, state and federal contracts. “The traffic cop is the public, and it’s an uphill battle.”
Wilk said as the pandemic evolved, and once issues at the laboratory became apparent, the state should have, at minimum, renegotiated the contract rather than renew it on the same terms.
“Renegotiate and get a better deal for the taxpayers,” he said.
CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.