COVID-19 Test Profits Make Labs Potential Target for Public Backlash

While polymerase chain reaction (PCR) molecular testing to detect the genetic presence of an infectious agent predates the pandemic by decades, COVID-19 turned it into a massive profit center almost overnight. In the early months of the pandemic, independent labs accrued a profit of at least $10 on each PCR COVID-19 test performed in the period from May to December 2020, according to a new study published in the Journal of General Internal Medicine.   

The COVID-19 Testing Boom

It’s almost hard to believe that a lab test for the SARS-CoV-2 virus that causes coronavirus didn’t exist back in January 2020. Of course, that all changed in an instant. Heroically, labs from across the nation and around the world heeded the unprecedented and urgent need to develop lab tests in the early days of the pandemic. The COVID-19 public health emergency (PHE) was declared on January 27, 2020. By March 27, nearly two dozen PCR tests had received emergency use authorization (EUA) from the FDA, including products from key independent labs like Roche, Thermo Fisher Scientific, Labcorp, Quidel, Hologic, Quest, Abbott, Cepheid, DiaSorin, GenMark, Luminex, and BGI. Less than a month later, products from Becton Dickinson, Exact Sciences, Co-Diagnostics, Qiagen, Bio-Rad, Ortho Clinical Diagnostics, and literally dozens of others reached the market.

In addition to answering an emergency health need, development, production, and distribution of PCR tests for COVID-19 proved to be a highly profitable business venture. The new study suggests that, starting in May 2020, earnings from PCR testing grew at an eight percent clip. The study authors also characterize the $10 per PCR test profit as a conservative estimate.

In addition to unprecedented demand, test producers and labs benefited from uniquely favorable market conditions. Federal relief legislation—the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security (CARES) Act—mandated that insurers pay the full costs of COVID-19 tests without charging deductibles, copayments, or other cost-sharing amounts. The CARES Act also requires insurers to pay out-of-network COVID-19 testing providers an “amount that equals the cash price for such service as listed by the provider on a public internet website.”    

By the end of the year, labs had also generated a new revenue center for COVID-19 testing: antigen and serology tests, which, while cheaper than PCR tests, could be provided on a high throughput and rapid basis at the point of care. 

The Potential for Public Backlash

Though the well is finally starting to dry up, COVID-19 testing has clearly been a boom for many labs. None of this is headline news, of course. As required by US securities laws, labs have been transparent in reporting their windfall COVID-19 revenues in quarterly earnings reports. But other than the insurance companies, nobody has seemed to take any notice of or raise a stink about the money labs were making.

To be sure, making a lot of money is neither illegal nor immoral, especially when it’s the product of innovation and response to a desperate public health need. But as in just about every capitalist country, in America, people resent it when corporations make a lot of money as a result of hard times.

As long as the public isn’t paying for COVID-19 tests, the risk of backlash seems fairly remote. And soon, the PHE will end and free COVID-19 PCR tests will become a thing of the past.

Meanwhile, COVID-19 test labs have gained a new enemy, at least on the public relations front: the health insurance industry. From almost the beginning of the free COVID-19 test mandate, insurers have accused labs of price gouging. Insurers are now also making the case that two years’ worth of financing COVID-19 testing without cost-sharing has driven up costs. The result: Insurers are now in a position to jack up premiums and shift the blame to labs. They can also point to the massive earnings that COVID-19 testing labs have posted over the past two years to bolster their PR case and blame-shifting tactics.

Bottom Line

It could be that the lab industry is going to learn the truth of the old saying about no good deed going unpunished. With recession on the horizon, inflation on the rise, and free COVID-19 testing in sunset, public scapegoats will soon be in even greater demand. Labs that answered the call during the PHE and made a lot of money in so doing, as well as, in a perverse irony, non-COVID-19 testing labs that nearly went out of business during the pandemic, may make a tempting target for finger pointers, especially if goaded in that direction by the health insurance industry.