Independent laboratories reap the benefits of lucrative COVID-19 tests and those costs may be boosting health insurance premiums and tax bills, according to a new study.
Labs' revenue from polymerase chain reaction tests grew about 8% a month from May 2020 to December 2020, according to an analysis of Hawaii taxation data. Profits per PCR test were at least $10, but that is a conservative estimate, researchers wrote in a study to be published in the Journal of General Internal Medicine this week.
While federal COVID-19 laws require commercial insurers to cover testing costs without patient cost-sharing, there aren't limits on the prices that labs charge. Health insurance companies in concentrated insurance markets such as Hawaii can pass on those costs in the form of higher premiums without losing market share, the study found.
"For commercially insured patients, every dollar that goes to labs comes from premiums because there is no cost-sharing," said co-author Ge Bai, health policy and management professor at Johns Hopkins University. "Higher testing prices increase healthcare costs, reduce the access and affordability of private insurance plans and swell taxpayer burden."
The American Clinical Laboratory Association said in a statement that the "study fails to recognize the commonsense need for a healthy, nationwide clinical laboratory infrastructure, where labs swiftly developed new diagnostic tests for a previously unknown pathogen and then rapidly scaled a system."
The study is limited by a lack of patient-mix information and laboratory-specific financial data. While the research is based on Hawaii alone, the qualitative findings of the study likely apply to other states, researchers said.
"The general theme that labs made a lot of money off COVID-19 testing is generally true across the country," said Loren Adler, associate director of the University of Southern California-Brookings Schaeffer Initiative for Health Policy. But that consideration is balanced by the public health benefits of widespread coronavirus testing, he said.
Medicare set relatively high reimbursement rates for COVID-19 testing to increase access amid a national shortage. Labs with high volumes can perform a PCR test for less than $20, but the Medicare payment rate is at least $51.
The CARES Act requires private health insurers to pay out-of-network COVID-19 testing providers an "amount that equals the cash price for such service as listed by the provider on a public internet website." But that cash price is not market-determined, Adler said. As such, the law may create an incentive for providers to raise list prices to boost revenue, he said.
"Preventing COVID-19 cases has a large financial gain even if the reduction in the spread of COVID-19 via providing more testing is relatively small. Labs did well financially but they played an important function," Adler said. "Going forward, it might be smart to reevaluate these rules."
Some of the market will naturally adjust when the public health emergency declaration ends and as government funding and testing frequency wanes. In the meantime, Congress is considering legislation to extend the CARES Act's no-cost-sharing rule and prevent out-of-network labs from balance billing, Adler said.
COVID-19 testing should be treated as any other commodity consumers purchase, Bai said.
"Once the market is allowed to set the price, there is no reason competition cannot drive down the price to $10," she said.
