In healthcare, some of the most expensive failures occur before treatment even begins. When patients cannot access the right diagnostic tests early in their care journey, misdiagnosis and delayed diagnosis can trigger years of unnecessary procedures, ineffective treatments, and escalating costs. Researchers often refer to this process as the “diagnostic odyssey”—a prolonged path to identifying the root cause of disease.
For Maryland policymakers grappling with rising healthcare costs and the future of the state’s life sciences economy, improving access to advanced diagnostic testing may represent a powerful but underappreciated lever. Expanding fair access to independent laboratories could not only shorten diagnostic journeys for patients but also lower long-term healthcare costs while strengthening the state’s innovation-driven biotech sector.
Diagnostics Guide Care but Represent a Small Share of Spending
Laboratory diagnostics guide roughly 70 percent of clinical decision-making in medicine while accounting for only about 2–3 percent of total healthcare spending in the United States, according to analyses from the Lewin Group and the American Clinical Laboratory Association.
This imbalance underscores a key reality: accurate diagnostic testing early in the care pathway can prevent far more expensive downstream interventions such as hospitalizations, surgeries, and prolonged treatment for advanced disease.
Independent laboratories play an important role in this diagnostic ecosystem. While large national labs focus primarily on high-volume routine testing, independent labs frequently specialize in complex molecular diagnostics, next-generation sequencing, pharmacogenomics, and functional testing capable of identifying disease earlier and more precisely.
However, insurance network restrictions and exclusive contracting arrangements can sometimes limit physicians’ ability to order these advanced tests—even when they may be clinically appropriate.
The Cost of Diagnostic Errors
Diagnostic errors are a significant contributor to healthcare waste. The National Academies of Sciences, Engineering, and Medicine estimate that most Americans will experience at least one diagnostic error during their lifetime.
Research published in BMJ Quality & Safety estimates diagnostic errors affect approximately 5 percent of U.S. adults in outpatient care each year. When conditions are misdiagnosed or overlooked, patients often undergo repeated testing, unnecessary imaging, ineffective treatments, and additional specialist visits before the underlying disease is correctly identified.
For rare disease patients, the consequences are especially costly. The EveryLife Foundation for Rare Diseases reports that patients often wait four to seven years for a diagnosis. During that time, the resulting diagnostic odyssey can generate more than $200,000 in avoidable healthcare costs per patient.
In many cases, access to specialized diagnostic testing could significantly shorten that journey.
Early Detection and the Economics of Disease
Early diagnosis consistently produces some of the largest cost savings in healthcare.
Cancer treatment illustrates this clearly. Research from the National Cancer Institute shows that treating cancers in early stages can cost significantly less than treating advanced disease, where care often requires complex therapies, hospitalizations, and long-term management.
Advanced diagnostics—including genomic screening, molecular biomarkers, and liquid biopsies—are increasingly capable of detecting diseases earlier than traditional testing methods.
Independent laboratories are frequently at the forefront of developing and deploying these advanced technologies. Ensuring clinicians can access these tests without restrictive network barriers allows for earlier intervention and reduces long-term treatment costs.
Maryland’s Healthcare Cost Challenge
The stakes are particularly high in Maryland, which operates under a unique all-payer hospital payment system designed to control healthcare spending.
Despite these efforts, healthcare expenditures in the state remain substantial. According to the Centers for Medicare & Medicaid Services, healthcare spending in Maryland exceeds $60 billion annually. Hospital care represents the largest share of those costs.
Maryland’s Health Services Cost Review Commission (HSCRC) has also documented significant price variation across care settings. Hospital-based laboratory services can cost several times more than identical tests performed in independent laboratories due to facility fees and higher operational overhead.
Studies analyzing hospital outpatient pricing nationally have found that diagnostic tests can cost two to five times more in hospital settings compared with independent laboratories.
When patients are directed primarily toward hospital-based testing, the healthcare system absorbs those higher costs.
Competition and Transparency in Diagnostic Markets
Expanding fair access to independent laboratories can introduce competitive pressure into the diagnostic marketplace.
Greater competition can drive price transparency and encourage more efficient care delivery. Studies examining healthcare price transparency tools have found that enabling patients and providers to compare prices across providers can reduce medical spending by as much as 14 percent in some markets.
For self-insured employers and insurers, even modest reductions in diagnostic testing costs can generate meaningful system-wide savings.
Independent laboratories also often operate with lower overhead than hospital systems, allowing them to offer specialized testing at lower cost while maintaining high-quality standards.
Maryland as a Hub for Diagnostic Innovation
Beyond healthcare delivery, fair access policies also intersect with Maryland’s position as one of the world’s leading biotechnology clusters.
The BioHealth Capital Region—anchored by Maryland, Washington, D.C., and Northern Virginia—hosts one of the densest concentrations of biomedical research institutions in the world, including the National Institutes of Health, the Food and Drug Administration, Johns Hopkins University, and the University of Maryland School of Medicine.
The region has also produced numerous diagnostic innovators.
Companies such as Personal Genome Diagnostics (founded in Baltimore and later acquired by Labcorp) helped pioneer liquid biopsy technologies for cancer detection. Other Maryland-based diagnostics and precision medicine companies—including GeneDx, QIAGEN’s Maryland operations, and multiple emerging molecular diagnostics startups—continue to develop advanced genomic testing tools used in clinical care and research.
Independent laboratories are often where these technologies first reach physicians and patients.
Policies that expand access to these labs therefore support both healthcare efficiency and the broader life sciences innovation pipeline.
Economic Competitiveness and the Life Sciences Sector
Maryland’s life sciences industry employs tens of thousands of workers and generates billions in economic output annually. According to industry analyses, the BioHealth Capital Region ranks among the top U.S. clusters for NIH funding, biomedical research, and biotechnology company growth.
Ensuring that innovative diagnostic technologies can reach the clinical market is essential to sustaining that growth.
When physicians have access to cutting-edge diagnostic testing developed by local laboratories and startups, it accelerates clinical adoption, supports commercialization pathways, and reinforces Maryland’s reputation as a leader in biomedical innovation.
In contrast, policies that restrict access to independent labs can unintentionally slow the diffusion of new diagnostic technologies.
The Policy Opportunity
Healthcare systems across the country are seeking solutions that simultaneously improve patient outcomes and control costs. Diagnostics represent one of the most powerful opportunities to achieve both goals.
When clinicians can order the most appropriate test—regardless of which laboratory performs it—patients benefit from faster diagnoses, more targeted treatments, and fewer unnecessary procedures.
For Maryland, expanding fair access to independent laboratories could help:
• Reduce misdiagnosis and diagnostic delays
• Lower long-term healthcare costs
• Increase price competition in diagnostic testing
• Accelerate adoption of precision medicine technologies
• Strengthen the state’s biotechnology and diagnostics innovation ecosystem
In a healthcare system increasingly defined by precision medicine and data-driven care, the ability to access the right diagnostic test at the right time may be one of the most powerful tools available for improving both affordability and patient outcomes.
As policymakers in Annapolis consider ways to improve healthcare efficiency and support the state’s thriving life sciences sector, fair access to independent diagnostic laboratories represents a policy lever capable of advancing both goals simultaneously.
References Used for this Publication
National Academies of Sciences, Engineering, and Medicine. Improving Diagnosis in Health Care.
https://nap.nationalacademies.org/catalog/21794/improving-diagnosis-in-health-care
Singh H., Meyer A., Thomas E. The Frequency of Diagnostic Errors in Outpatient Care. BMJ Quality & Safety.
https://qualitysafety.bmj.com/content/23/9/727
EveryLife Foundation for Rare Diseases. National Economic Burden of Rare Disease Study.
https://everylifefoundation.org/national-economic-burden-of-rare-disease-study/
Mariotto A.B. et al. Projections of the Cost of Cancer Care in the United States. Journal of the National Cancer Institute.
https://academic.oup.com/jnci/article/103/2/117/2517805
National Human Genome Research Institute. Pharmacogenomics Fact Sheet.
https://www.genome.gov/about-genomics/fact-sheets/Pharmacogenomics-Fact-Sheet
Centers for Medicare & Medicaid Services. National Health Expenditure Data.
https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data
Maryland Health Services Cost Review Commission.
https://hscrc.maryland.gov/pages/default.aspx
The Lewin Group / American Clinical Laboratory Association. Value of Diagnostics Report.
https://www.acla.com/wp-content/uploads/2015/02/ACLA-Value-of-Diagnostics.pdf
Desai S. et al. Association Between Availability of a Price Transparency Tool and Outpatient Spending. JAMA.
https://jamanetwork.com/journals/jama/fullarticle/2542646
