The Great Diagnostics Tension: Outsourcing vs. Decentralization
Last year, I had a chat with Dr. Joseph Annunziata that inspired this article!
Diagnostics sits at the center of precision medicine, yet the industry is being pulled in two opposing directions. On one side, outsourced reference labs like Caris, Tempus, Guardant, and Foundation Medicine are consolidating share, building comprehensive assay menus and data platforms at scale. On the other, we see a countercurrent of decentralization: hospitals, academic centers, and even pharma partners looking to bring testing closer to patients, integrate it into EMRs, and capture more of the value locally.
The strategic question is not whether the market will expand; it will. The question is who captures the value as testing shifts across these two models.
In this article, we share our perspective on decentralization based on internal DeciBio databases and tracker, layering the perspective of Joseph Annunziata, a KOL we interview for many of our engagements.
Reference Labs: Scale, Breadth, and Data Gravity
A recent survey with 100 oncologists that we conducted shows the reference lab model is still dominant: Foundation, Tempus, Caris, and Guardant together account for >60% of genomic profiling in the U.S. Their pitch is compelling: breadth of assays, strong salesforces, faster turnaround times, and increasingly, unmatched databases that attract pharma partners. Analysts reinforce this, with Caris leading in tissue CGP and Tempus setting the pace with its $900M+ data backlog.
The reference lab model thrives on outsourcing economics: hospitals and oncologists avoid the cost and complexity of running high-complexity assays in-house, while labs benefit from volume, scale efficiencies, and the ability to monetize data across customers.
Decentralization: Control, Integration, and Clinical Proximity
Yet the decentralization trend is real. Many oncologists (especially at academic centers) expect to increase use of in-house assays or local solutions over the next 12 months. The drivers are clear:
- Integration into EMRs and care pathways, making testing results more actionable at the point of care.
- Faster reflex testing, especially where tissue is available in-house.
- Economic capture, as institutions seek to avoid sending high-value samples (and revenue, now that reimbursements are increasingly available) to external labs.
Tools players like Illumina and ThermoFisher are positioned to benefit from this decentralization, equipping local labs with instruments and reagents that can deliver parts of the CGP (or MRD workflow) closer to the bedside. However, as Joseph highlights, many barriers exist:
- Capital intensity & infrastructure gaps: High-complexity assays (CGP, MRD) require costly instruments, bioinformatics pipelines, and quality systems that many hospitals aren't equipped to build or maintain.
- Reimbursement uncertainty: Even as coverage expands, payer contracts are typically negotiated at the reference lab level. Local labs face longer timelines and more friction in securing consistent reimbursement.
- Billing complexity: In the same vein, navigating coding, prior authorizations, denials, and appeals is resource-intensive. Reference labs have large, specialized billing teams, while hospitals or academic labs often lack this sophistication, creating revenue leakage.
- Operational complexity: Running CLIA labs with NGS, bioinformatics, and variant interpretation requires specialized staff. Academic centers may manage this, but community hospitals often cannot.
- Regulatory risk: With LDT reform and FDA oversight intensifying (despite the recent vacating of the FDA LDT ruling), decentralized labs face higher compliance burdens that reference labs are better resourced to navigate.
- Data fragmentation: Reference labs create value not just from running tests, but from aggregating and monetizing data at scale. Decentralized testing risks producing siloed datasets that lack pharma utility.
- Physician engagement & training: Outsourced labs deploy large, specialized salesforces that engage oncologists daily. Local labs struggle to replicate this commercial infrastructure, which slows adoption.
MRD as a Battleground
Minimal residual disease (MRD) is perhaps the clearest arena for this outsourcing vs. decentralization tension. Guardant's tumor-naïve Reveal and Natera's Signatera are scaling via the reference lab model. But both Tempus and Natera are hedging, with both tumor-naïve test and a tumor-informed assay available, with the ambition of becoming a one-stop shop. Meanwhile, academic centers are piloting their own MRD assays, raising the question: will MRD become another test hospitals "own," or will it consolidate under outsourced players who can generate payer coverage and industrialized throughput?
Salesforce Reality: Outsourcers Still Win on Influence
Another insight: reference labs dominate physician interactions. Guardant ranks #1 in sales rep engagement across both community and academic oncologists, with Tempus, Foundation, and Natera not far behind. In contrast, NGS vendors are far behind. In a market where adoption hinges on awareness, training, and trust, the ability to consistently engage physicians is a moat that decentralized solutions struggle to replicate.
A Hybrid Future?
Ultimately, the market may resolve into a hybrid equilibrium:
- Reference labs as the "platform hubs", providing the breadth of testing, payer contracting, and data services pharma needs.
- Decentralized assays as the "last mile", integrated into local care, enabling faster answers for common cases and expanding access.
The strategic winners will be those who navigate both worlds: Tempus with its dual genomics/data strategy, Caris with tissue dominance plus liquid expansion, Guardant with a diversified liquid portfolio, and Exact Sciences leveraging its Cologuard brand into MRD.
Conclusion: Power Is Shifting, Not Disappearing
The tension between outsourcing and decentralization is not a zero-sum game, but it will reshape the power dynamics of diagnostics. Reference labs may retain scale and data gravity, but decentralization is a check on their dominance, keeping hospitals and payers engaged in the value chain.
Diagnostics is no longer just about running tests. It is about designing systems of care that balance scale, access, and data. The sector is finally at an inflection point, and the strategic choices made now will determine who builds the backbone of precision medicine in the decade ahead.