Hawaii labs profit from PCR tests, University of Hawaii study finds

A study published Thursday in a medical journal and conducted by a team of University of Hawaii economists and others analyzing Hawaii tax data concluded that independent laboratories in Hawaii were making a considerable profit for COVID-19 polymerase chain reaction, or PCR, tests.

Timothy Halliday, UH economics professor and UH Economic Research Organization research fellow, said the labs were profiting between $20 to $80 just off Medicare and Medicaid, and although he and his team don’t know what the actual cost of the tests were, they estimate they were in the $20-to-$30 range.

Halliday’s team analyzed data from the state Department of Taxation and looked at gross excise tax on sales revenue from 21 independent diagnostic laboratories in Hawaii that conducted PCR tests.

The team estimated that from March 2020 to November 2021, the 21 labs generated on the lower end a profit of $28.2 million a month for PCR testing. Since the total number of tests was about 2.8 million, it calculated the profit was about $10 per test at that profit level.

The study found total revenue fluctuated from $28 million to $36 million after November 2020, compared with pre-pandemic monthly revenue of $19 million to $22 million.

The study, titled “Financial Implications of COVID- 19 Polymerase Chain Reaction Tests on Independent Laboratories,” was published Thursday in the Journal of General Internal Medicine and was presented for review in March. It was exempt from institutional review board approval by UH.

“We are the first research team to show revenue going to private testing facilities tracked the volume of PCR tests in lockstep,” Halliday said.

He said prices were never necessary to maintain the testing volume.

The study says, “Although patients do not have cost- sharing for COVID-19 testing, the financial consequences of high profit for testing providers are borne by plan sponsors and will likely result in higher premiums, passing the burden to patients.”

However, Dr. Scott Miscovich, head of Premier Medical Group, which administered 60% to 70% of the PCR tests at the pandemic’s start, said the study doesn’t take into account how much local laboratories were required to spend in order to gear up in terms of reliable, high-volume PCR testing machines and staffing, not to mention basic testing supplies.

“I don’t think it has a lot of validity,” Miscovich said.

At the start of the pandemic, the state’s two largest local laboratories — Diagnostic Laboratory Services and Clinical Labs of Hawaii — had to ramp up staffing and acquire large-capacity, highly accurate machines that run from $600,000 to $1.5 million, and had to triple their space and staffing, Miscovich said. The neighbor islands had to also buy PCR machines and train staff, and initially were sending specimens to Oahu.

Miscovich said that when the pandemic hit, labs had only basic machines to test. “The whole supply-demand, the ability to access everything from the little swabs to the little drop of liquid in vials … to the re-agents that go into the million-dollar machines to allow process, so prices went up astronomically all over the world.”

Miscovich said he was on the phone daily with the two local labs to see what their supplies, equipment and staffing were like to maintain a 24-hour turnaround.

But Halliday blames the high costs on the government for setting reimbursement rates too high, enabling private medical insurers to follow suit.

The Centers for Medicare and Medicaid Services said it increased its Medicare payment in April 2020 to laboratories for “high throughput technology” COVID-19 diagnostic tests to $100 from $51 “to ensure robust laboratory testing.” That technology allows for increased testing capacity using an automated process that can administer more than 200 tests per day, CMS says.

CMS said in an Oct. 15, 2020, news release that on Jan. 1, 2021, Medicare would pay $100 only to labs that complete the high throughput testing within two days of the specimen being collected, and complete the majority of the tests (not just Medicare patients) using the same technology in the same amount of time.

It would pay $75 if it took longer than two days.

“The new payment amounts effective Jan. 1, 2021 reflect the resource costs laboratories face for completing COVID-19 diagnostic tests using high throughput technology in a timely fashion during the Public Health Emergency.”

Halliday said because of Medicare, which is standard across the country, and Medicaid, “it makes it possible for owners of independent labs to make a lot of money, setting their own prices.”

Visitors with out-of-state medical insurance, who needed a PCR test in Hawaii, were being charged upward of $140 out of pocket, Halliday said, adding it is a mystery “why paying $140 out-of-pocket is allowed to exist.”

Miscovich acknowledged unregulated testing companies were running scams, charging up to $250 a test.

Halliday said, “In an ideal world, profit should be zero, so the price should reflect the cost of the test.”

In comparison, he found pharmaceutical companies’ large profit margins justifiable. “Pfizer and Moderna are making a lot of money,” he said. “They had to test those vaccines. That is a difficult, arduous process and risky. With pharmaceuticals, we allow them to have market power because we want them to innovate.”

But he opined that “testing facilities did not invent the PCR test. They are the middlemen, with no economic rationale for profits as with pharmaceutical labs.”

Halliday said when he spoke about testing facilities, he was lumping together hospitals and any facility collecting samples together with private labs. The article says the data was from 21 independent laboratories.

Diagnostic Laboratory Services and Clinical Labs of Hawaii could not respond by press time.