California silently renews $1.7B contract with a problematic COVID testing lab

PerkinElmer's internal testing issues go unchecked as the state of California renews an expensive contract with them anyway.

SAN FRANCISCO (KGO) -- The state quietly renewed a $1.7 billion COVID testing contract with a lab once promised to be a game-changer during the pandemic but has since been plagued with problems over the past year.

The California Dept. of Public Health (CDPH) not only has the authority to terminate the contract but has other cost-efficient options that could save hundreds of millions of dollars.

See contract, here.

Sources tell the ABC7 News I-Team, following our story, several state departments are meeting with lawmakers to discuss the contract and potential alternatives. Meantime, state legislators are putting pressure on CDPH to release a report detailing the investigation into the lab's reported deficiencies.

October 2020

Gov. Gavin Newsom tweeted out a video of PerkinElmer's $25 million dollar Valencia Branch lab on Oct. 30 last year. In the tweet, Newsom wrote the lab will double California's testing capacity, guarantee 28 to 48-hour turnaround results, and would also cut the cost of a test from $150 to $30.
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Did all of that happen?

"The easy answer is no," said Scott Amey, an attorney for the Project on Government Oversight, a non-partisan independent watchdog group. "I question why the state would renew this contract. There's certainly been some questions raised about previous performance."

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CDPH's Laboratory Field Services Division, which regulates laboratories in the state, conducted an inspection late last year that found 'significant deficiencies in the Valencia Branch lab - including inconclusive test results. The state reported PerkinElmer was confident the deficiencies would be quickly remedied to avoid any issues with the lab's license.

The lab was provided the deficiencies on Feb. 19, 2021, and had until March 1, 2021, to formally respond with how the problems were addressed, according to the state. But that report expected over seven months ago still hasn't been released to the public.
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Last month, State Senate Republican Leader Scott Wilk sent Health and Human Services Secretary Dr. Mark Ghaly a letter urging the agency release the report detailing the investigation into the lab's alleged deficiencies.

"Delaying the public release of the report with little to no explanation is unacceptable," Wilk wrote in the letter. "It is crucial that we receive a transparent and timely accounting of the issues regarding working conditions in the lab and the accuracy of the tests."

RELATED: CA to renew COVID testing contract worth up to $1.7B with company reporting less efficient results

Wilk sent a second letter to Ghaly weeks later urging him to halt the auto-renewal of PerkinElmer's contract, but his office confirmed to the I-Team they still haven't received the report.

"I'm surprised the state didn't take a more lessons-learned approach and get out of that deal and maybe enter into a new one that might have included some performance and incentive fees," said Amey.

Patricia Kelmar is the Healthcare Campaigns Director for the California Public Interest Research Group, a think tank coalition that operates in 25 states.

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"When it comes to evaluating COVID testing contracts, what should be the priority?" ABC7's Stephanie Sierra asked.
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"We want to make sure the turnaround times are as promised and the volume of tests are met," said Kelmar. "Basically that you're getting what you're paying for."

Yet, neither of those goals were consistently accomplished at the Valencia Branch lab over the past year. The facility was expected to reach the capacity of processing 150,000 tests per day. But the most recent public records from October obtained by the ABC7 News I-Team show the lab never exceeded processing 40,000 tests per day - reporting one of the slowest turnaround times compared to its competitors.

"I'd be particularly concerned about the cost," said Amey. "Because this isn't free."

According to state data published in late October, PerkinElmer's PCR COVID test costs around $55, not the $30 initially promised. And public records indicate only around half or 52% of those tests were processed within one day. Whereas, Bay Area-based SummerBio is charging $10 per PCR COVID test with an average of 94% of samples processed within one day over the past year.

"The state should be holding to that $30 and asking why is it currently costing us $50 - especially if you have other people in the market that are doing it in the $10," said Amey.

The ABC7 News I-Team brought these questions to the state - specifically asking whether the health department is considering companies demonstrating most cost-efficient results, but we haven't received a clear answer. We've also reached out to PerkinElmer for further comment, but have yet to hear back.

The silence from the state comes as PerkinElmer cashed in on an impressive third quarter. According to SEC filings, the company generated an additional $562 million dollars in the first half of this year just from operating activities compared to last year. Records indicate that increase is slightly more than its competitor Fulgent and similar to Quest.

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