Independent labs in Hawaii experienced millions in increased revenue from providing polymerase chain reaction (PCR) testing during the COVID pandemic, according to a recent study by the University of Hawaii Economic Research Organization (UHERO). The study estimated profits to be at least $10 per test, although the actual amount could be much higher.
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Researchers analyzed the revenue reports of 21 independent laboratories who conducted PCR COVID tests in Hawaii from July 2018 to November 2021. Hawaii is in a unique position to provide this data—health services fall under the state’s comprehensive gross excise tax on sales revenue, and businesses must submit information on their revenue monthly to the Department of Taxation.
Before the pandemic, these labs made an average of $19-22 million in monthly revenue, according to the study. After PCR COVID tests became available in February 2020, revenue increased to $28-$36 million, with the highest increase from May 2020-December 2020.
Commercial insurance plans were required to cover COVID testing costs without any cost-sharing for patients under the Families First and Coronavirus Relief Act and CARES Act, but did not set the prices for tests. Labs were reimbursed using the Medicare rate of $51.33 per test, although the study found the actual cost per test to be “likely less” than this rate.
“We believe using the CMS reimbursement rate of $51.33 is a conservative estimate of profitability as the CMS set a rate they felt would incentivize labs to increase testing capacity,” the study said.
The study went on to say a possible consequence of plans paying these high reimbursement prices is higher premiums for consumers.
Tim Halliday, PhD, a UHERO research fellow and one of the study’s authors, estimates the actual effect on premiums to be relatively minor (about $10 per test, or $20 per capita). However, he says the study provides an opportunity to pose larger questions about how ambiguity in the US health financing model can impact the individual.
“It’s important that we look into why the US healthcare system allows certain prices to be charged. When you add all of this stuff up, it translates to us spending 1/5th of our GDP on medical care, when other [Organization for Economic Co-operation and Development] countries get away with much less.
The high cost of medical care has enormous implications for stagnation of wages. It has implications for people being underinsured and uninsured. Anything we can do to help us understand why we spend so much money on health care is critical.”
Other contributing factors to an expensive health care system, according to Halliday, include a heavy reliance on fee-for-service models, federal legislation that prevents price negotiation (such as Medicare Part D’s ban on drug price negotiation), and lack of competition. For example, a single lab in the study conducted 60% of the PCR tests.
The study acknowledges certain biases including data limitations from independent labs in Hawaii. However, with the Families First and Coronavirus Relief Act and CARES Act applying to plans nationwide, the study concludes its overarching findings are “unlikely to be confined only to Hawaii.”