How much benefit are private labs getting from COVID PCR testing?
A recently published article in the Journal of General Internal Medicine details how the federal government’s response to the COVID-19 pandemic has created a perfect storm in which private labs can reap huge profits from the polymerase chain reaction, or PCR, while potentially impacting healthcare premium costs.
The article was published by a team of researchers, including three economists from the University of Hawaii at Mānoa.
“In many concentrated insurance markets such as Hawaiʻi, insurers have little incentive to negotiate lower prices,” said paper co-author Tim Halliday, professor of economics at the College of Social Sciences. of UH-Mānoa and a researcher at the UH Economic Research Organization, in a press release. , adding that insurers can easily pass these costs on to premiums without losing market share.
Two major elements of the U.S. government’s response to the pandemic — the Families-First Coronavirus Response Acts and the Coronavirus Aid, Relief, and Economic Security Acts — require regimes to commercial insurance cover the costs of COVID tests without any cost sharing for patients, but they are silent on the price that laboratories can charge.
Halliday said the consequences of high profits for test providers are borne by plan sponsors and will likely lead to higher insurance premiums, shifting the burden onto patients.
“COVID-19 testing pricing policies look as if they were designed to funnel tax dollars, employers and workers to testing facilities and insurance companies,” co-author of the paper Ge Bai, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health, said in the press release. “This study uncovered key issues affecting the efficiency of the US healthcare system, namely rigid government rate setting, price insensitivity of consumers, and misaligned insurance company incentives. highlights an opportunity for policy makers to improve the accessibility of health services by focusing on addressing these issues.
According to the researchers, examples of issues that contribute to this include:
- The Medicare program that sets a static payment rate at $51 per test, which far exceeds the cost and does not reflect economies of scale.
- The FFCRA, which prohibits cost sharing, thereby removing the ability of insurance companies to keep patients away from expensive labs.
- The CARES Act, which encourages out-of-network labs to set high prices.
Using unique Hawaiian tax data on monthly sales, the group analyzed the impact of the COVID pandemic on independent lab revenue and profitability. The results showed that private lab revenue tracked the volume of PCR tests performed in the state at the same rate.
“Between May and December 2020, the monthly revenue growth rate averaged 8%,” the statement said.
The researchers estimate the profit per PCR test was at least $10, but the true number is likely much higher.