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Objectives To assess the implementation of proficiency testing in the northwest Ethiopian government comprehensive specialized hospital laboratories, with a focus on identifying and understanding the challenges encountered during their participation in the external quality assessment scheme. Methods A cross-sectional study was conducted among 3 comprehensive specialized hospitals in northwest Ethiopia, analyzing 41 documented laboratory test parameters from 2020 to 2022. In addition, face-to-face, in-depth interviews were carried out to identify the major challenges the participating institutions faced. Results The study covered a total of 41 tests across 9 cycles. Overall, proper implementation of proficiency testing was observed in 59.3% of the tests, with 61.8% maintaining consistent implementation status over 3 consecutive years. In addition, the overall performance of the laboratory was 54.3%, with a 68.7% participation rate. The predominantly identified challenges included the lack of participation, insufficient reagents and supplies, inadequacy of suitable proficiency testing materials, equipment malfunction and downtime, lack of management support, insufficient budget, and inadequate training and awareness. Conclusions The results of this study highlight the ineffective implementation of proficiency testing. Contributing factors include personnel issues, equipment and supplies challenges, managerial shortcomings, difficulties with proficiency testing providers, budgetary constraints, and a lack of training and motivation. [ABSTRACT FROM AUTHOR]