Coronavirus testing in the U.S. was limited for months because of low Medicare payments.

Erin Mansfield

The federal Medicare program lowballed payments for a coronavirus lab test early in the outbreak, limiting the number of labs screening Americans for the deadly disease at a time when the nation needed all the tests it could get.

The price forced labs to take losses on the tests, several lab executives said, blocking many from scaling up fast enough to expand the nation’s testing capacity. 

“Nobody wants to make a fortune on this,” said Aaron Domenico, the chief operating officer of Atlantic Diagnostic Laboratories, which spends about $67 on a simple coronavirus test. “I’m an American first, and if I could do it for cost, I’d be happy to do it for the people at cost, but I can’t do it below cost.” 

The low price was on a test that tells if a person is currently sick, and is performed on samples from hundreds of nasal swabs at a time. Even before the complicated scientific process involved, purchasing the specialized machines can cost hundreds of thousands of dollars. 

The price limited what labs could collect from the federal Medicare program, which covers 44 million people who are at high risk for the disease because of age or disability. It also set a low benchmark for what private insurance companies pay labs. 

In March, two major laboratory organizations made public pleas for increased Medicare reimbursement. At the same time, government officials were reporting dayslong backlogs in getting test results from labs and rationing who could be tested. 

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The Medicare program paid just $51 for the test through April 14. That’s around half the $96 price tag for a similar test for the flu, and about one-third of the cost for a respiratory panel. The result was another setback early in the coronavirus pandemic  for the very companies that could have more quickly ramped up testing of patients.

The U.S. Centers for Medicare and Medicaid Services doubled its payment to $100 per test two weeks ago. But by then, the country had lost time, and labs that were already in the market had lost money. 

Data from the COVID Tracking Project show that 44% more tests were conducted during the week after the payment change than in the previous week. 

Effects on labs 

Low reimbursements played a role in testing shortages, Seema Verma, the administrator for the U.S. Centers for Medicare and Medicaid Services, said during a discussion with reporters earlier this month. She said the agency could determine this because it can see who is performing the tests.

“There are a lot of labs that are just not performing this test, and we recognized that there may have been some issues with reimbursement,” Verma said. “We’ve had conversations with the labs and there’s a lot that’s involved in running this high-throughput test and that’s why we’re increasing the reimbursement.

“So, that should increase testing capacity across the country,” Verma said. “There's a lot of unused capacity.”

Domenico, from Atlantic Diagnostic Laboratories, said he has done only 200 diagnostic tests so far, not for lack of interest. He was asking a major device company through March and April for equipment he needed to do more diagnostic tests. 

But the economics wouldn’t work. Now, two weeks after the reimbursement was doubled, he has the machinery to do up to 1,400 tests per day. 

Renee Ennis, the chief financial officer for Tricore Reference Labs in New Mexico, said the coronavirus diagnostic test costs her company between $52 and $73. That doesn’t include the cost of additional supplies, or the original machine investment. 

“We made the investments assuming that the testing capacity was going to be there, but we would have taken a loss overall if the reimbursement of the test had not gone up, and we may even at the end because of initial investments,” Ennis said. 

Julie Khani, the president of the American Clinical Lab Association, has members that include lab giants Quest Diagnostics and LabCorp. She said her organization advocated for higher reimbursements starting in March. 

By the time Medicare increased the test reimbursement, her members had performed 2.1 million tests because they were “completely focused on doing all they could to meet patient needs for testing.” Now, the higher reimbursements aren’t retroactive. 

“We strongly advocated for a reimbursement level that’s going to result in all laboratories who have the expertise to perform this testing to be able to, you know, get into the game, make sure they have enough of their supplies and resources,” Khani said. 

Mark S. Birenbaum, the executive director of the National Independent Laboratory Association, which represents smaller labs, sent a letter to congressional leaders on March 20 saying that the Medicare reimbursement was hurting lab capacity. A week later, he issued a news release criticizing the new CARES Act for not addressing the Medicare reimbursement issue.

Birenbaum said in an interview Thursday that some of his members were being paid as little as $36 per test. He was referencing the rate Medicare paid for a similar test that the CDC developed.

“The rates they had published, $36 and $51, I was told by many labs weren’t sufficient to cover their costs, so a number of labs are holding back because they didn’t want to lose money,” Birenbaum said. 

Effects on private payers

The Medicare payment will also affect how much state Medicaid programs and private insurance companies pay these labs, because they use Medicare as a benchmark. 

The CEOs of Quest and LabCorp — which have the most bargaining power to force insurance prices — say they are having trouble getting higher payments. The new rate from Medicare gives them more leverage with insurers.  

Adam Schechter, the CEO of LabCorp, said Wednesday that the company is attempting to get all customers to pay the $100 rate now. Whether the insurance companies pay the full amount is another story. He said he’ll know the outcome of the negotiations in a few days. 

He said the $100 reimbursement is “at a good rate” because of the complexity of the diagnostic test, which is more intricate than the antibody tests that use blood samples and are becoming more prevalent.

A nurse in a hazmat suit swabs a woman's nose during a test for coronavirus at Somerville Hospital in Massachusetts.

To collect a sample for a molecular test, a medical provider puts a long swab up a patient’s nostril until it hits the throat. The lab then separates out small pieces of the sample, a process called RNA extraction. The lab then processes those pieces to find any viral pathogens.

Rick Martin, the CEO of a small Texas lab called MicroGenDx, said he is in a worse situation because he is not a lab giant. His staff has been contacting insurance companies trying to get them to honor the new payment rate. 

“We lose a lot of money,” because of problems with insurance companies, Martin said. “I can do that and file claims when I’m doing 300 or 400 tests a day which is my core business. But when I’m doing 3,000, 4,000, 5,000 a day, I can’t afford for that to happen.”