California Spent $1.7 Billion on a COVID Testing Contract. Was It Worth It? – KQED

Kristen Hwang and Ana B. Ibarra

Dec 16

A registered nurse stirs a nasal swab in testing solution after administering a COVID-19 test at Sameday Testing on July 14, 2021, in Los Angeles. (Mario Tama/Getty Images)

A patient sample that wasnt 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 in the Valencia neighborhood of Santa Clarita, a city north of Los Angeles 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 contracts goals for turnaround times and numbers of processed tests. But the state auto-renewed the yearlong contract at the end of October.

Gov. Gavin Newsom and state health officials say the laboratory has been crucial to expanding the states testing capacity for schools and underserved communities.

But Californias two largest school districts Los Angeles Unified and San Diego Unified arent 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 Los Angeles Unified pays a Bay Area start-up, SummerBio, for a test.

Already, the state has paid more than twice as much to PerkinElmer for 5.5 million tests as LA Unifieds 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 states 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 Californias 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 Senator Scott Wilk, R-Santa Clarita

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 departments report, which was released eight months after officials indicated it would be completed, revealed that inspectors from the states 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, theres other vendors out there. Theyre 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 autorenewal. 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.

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 also will recoup the costs through federal school reopening grants and federal emergency funds.

Cost comparisons from laboratory to laboratory are difficult because a laboratorys 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 governors office about LA Unifieds 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 Unifieds contracts are often piggybacked by other districts and government organizations.

The simplest way to put it is, they [state health officials] werent 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.

Like LA Unified, San Diego Unified School District began developing its testing plans well before the states 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 districts contract with UC San Diego cheaper. Now, although the school district is paying a private vendor much more than the states reduced price of $21, Barrera said its 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 were finally able to scale with private vendors would be to then move away and do something with the state and then have the states program end, he said. Then were 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 states 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 couldnt 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 states 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 districts 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.'California Department of Public Health

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 would have been 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 cant 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.

When the lab opened in October 2020, it was built with the promise to process 150,000 tests per day, doubling the states 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 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 states total tests during the summer of 2021, according to available data archived by CalMatters.

The state Testing Task Force posts the number of tests processed online weekly but deletes the previous weeks 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.

Elaine Howle, who is stepping down this month after leading the State Auditor office for 21 years, said in a November CalMatters interview that auto-renewal of contracts like the PerkinElmer one may be something thats particularly concerning, particularly if, as you say, there were some reporting requirements and those werent met. Her office has reviewed use of federal money but has not reviewed no-bid contracts.

Im aware that there are no-bid contracts out there, she said. I wasnt aware of a contract that size that auto-renewed.

Sacramento-based public contract lawyer Jennifer Dauer said its not uncommon for governments competitive bidding requirements to be suspended or autorenewal 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 its 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.

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California Spent $1.7 Billion on a COVID Testing Contract. Was It Worth It? - KQED