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 PCR testing while having a potential impact on healthcare premium costs, is described in a June 9 Journal of General Internal Medicine paper published by a team of researchers, including three economists from the University of Hawaii in Manoa College of Social Sciences.
Two major elements of the U.S. government’s response to the pandemic are the families-first response to the coronavirus (FFCRA) and Coronavirus Aid, Relief and Economic Security (CARE) acts. Although the laws require commercial insurance plans to cover the costs of COVID-19 testing without any cost sharing for patients, they are silent on what prices labs can charge.
“In many concentrated insurance markets such as Hawaii, insurers have little incentive to negotiate lower prices. They can easily pass these costs on to premiums without losing market share,” the co-author said. Tim Hallidyprofessor of economics at uh Mānoa College of Social Sciences and uh Economic Research Organization (UHERO) searcher. “The financial consequences of high profits for test providers are borne by plan sponsors and will likely result in higher insurance premiums, all else being equal, shifting the burden onto patients.”
Find profit margins
Single use Hawaii Monthly sales tax data, the group analyzed how the COVID-19 pandemic has affected independent lab revenue and profitability. The results showed that private laboratory revenues followed the volume of PCR tests carried out in the state at the run. Between May and December 2020, the monthly revenue growth rate averaged 8%. The researchers estimate that the benefits per PCR test were at least $10, but the actual number is likely much higher.
“COVID-19 testing pricing policies are as if designed to funnel tax dollars, employers and workers to testing facilities and insurance companies,” said co-author Ge Bai. , professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. “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 problems that contribute to this situation 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 CARE Law that encourages off-grid labs to set high prices.
Besides Halliday and Bai, other team members include:
- Cara Tanundergraduate researcher in Department of Economics in uh Mānoa College of Social Sciences
- Ruben Juarezprofessor of economics at uh Mānoa College of Social Sciences and UHERO searcher
- Seth Colby, Research and Tax Planning Officer, Hawaii State Department of Taxes