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How much profit do private labs make from PCR COVID testing?

A recent paper published in the Journal of General Internal Medicine describes how the federal government’s response to the COVID-19 pandemic created a perfect storm, with private labs making huge profits from polymerase chain reaction, or PCR testing, while potentially investing in health care premium costs.

Photo courtesy of the University of Hawaii

The paper was published by a research team that included three economists from the University of Hawaii at Mānoa.

“In many concentrated insurance markets like Hawaii, insurers have few incentives to negotiate lower rates,” said Tim Halliday, co-author of the paper, economics professor in the College of Social Sciences at UH-Mānoa and research fellow 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 key components of the US government’s pandemic response — the Families First Coronavirus Response and Coronavirus Aid, Relief and Economic Security Acts — require commercial insurance plans to cover the cost of COVID testing at no cost to patients, but they are silent on pricing, the labs can calculate.

Halliday said the consequences of high profits for trial providers would be borne by plan sponsors and would likely result in higher insurance premiums, which would shift the burden to patients.

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“Covid-19 test pricing is designed to divert money from taxpayers, employers and employees to testing facilities and insurance companies,” says co-author Ge Bai, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. it says in the press release. “This study uncovered key issues hampering the efficiency of the US healthcare system, namely, rigid government interest rates, consumer price insensitivity, and misaligned incentives for insurance companies. It highlights an opportunity for policymakers to improve the affordability of health services by focusing on solving these problems.”

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According to the researchers, examples of problems that contribute to this situation include:

  • The Medicare program, which sets a static payment rate of $51 per test, which greatly exceeds costs and does not reflect economies of scale.
  • The FFCRA, which bans cost-sharing, depriving insurance companies of the ability to steer patients away from expensive labs.
  • The CARES Act, which encourages off-network labs to charge high prices.

Using unique Hawaii tax data on monthly sales, the group analyzed how the COVID pandemic was impacting independent laboratory sales and profitability. Results showed private lab revenue tracked the volume of PCR testing performed in the state in lockstep.

“Between May and December 2020, the monthly revenue growth rate averaged 8%,” the press release reads.

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Researchers estimate the profit per PCR test was at least $10, but the actual number is likely far higher.

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