New COVID-19 Revenues Not Enough to Offset Declines in Elective & Screening Tests

That line from Charles Dickens’ A Tale of Two Cities about the best of times and the worst of times is especially apt with what testing laboratories in the US and around the world are experiencing. For laboratories performing COVID-19 testing, it is the best of times, with test volumes running at unprecedented levels. For other laboratories that lack the capabilities for COVID-19, it is just like being in the restaurant, travel, retail and other businesses hemorrhaging revenues as a result of pandemic disruption. And while cancer and other acute care laboratories are still carrying on, the laboratories suffering the most are the ones that perform routine and elective tests that most consumers are putting off until the COVID-19 crisis ends.

¢oronaviru$ Economics

Smaller regional and community laboratories, particularly, are facing challenges. According to National Independent Laboratory Association (NILA) Administrator Mark Birenbaum based on conversations with NILA members, many of these laboratories are reporting drops in testing volume ranging between 40% to 90%. Laboratories which do primarily “non-essential” testing, he says, are seeing drops between 60 to 90%, while laboratories with clients that do “essential” testing are enduring drops of around 40%. Certain specialty laboratories, like those serving the in vitro fertilization space, have shut down completely, he adds.

Even the giant corporate laboratories are feeling the impact. On March 3, Quest Diagnostics filed a Current Report on Form 8-K with the Securities and Exchange Commission to outline the impact of the pandemic on its operating results, cash flows and financial condition and withdraw its previously announced guidance for full year 2020. The company disclosed that during the last two weeks of March, volumes declined in excess of 40%; and that is inclusive of COVID-19 testing.

“Federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancelation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home or shelter-in-place policies, all of which have had,” stated Quest in its Form 8-K, “and we believe will continue to have, an impact on the Company’s operating results, cash flows and financial condition.”

COVID-19 Testing Gains Not Offsetting Declines in Other Testing

On its March 31 Form 8-K, Quest noted that in response to the COVID-19 pandemic it has made substantial investments to expand the amount of COVID-19 testing available to the country and is currently doing more than 30,000 COVID-19 tests per day. However, even with that level of testing, the company still expects a decline in overall volume.

In addition, Birenbaum notes that many independent laboratories cannot make up the lost volume with COVID-19 testing; and even if they could, there are issues with the reimbursement rates. To do the testing, you must be a Level 2 laboratory, he explains. That means that Level 1 laboratories cannot do it.

Even if you are a Level 2 laboratory, you must have certain platforms to run COVID-19 tests. Laboratories that do not have those platforms would need to spend between $250,000 to $1 million or more to obtain the required equipment, Birenbaum says.

And even if you are a Level 2 laboratory and even if you do have all the necessary equipment for COVID-19, you would still face formidable challenges, starting with obtaining the test kits. According to Birenbaum, some laboratories are being told by their vendors that they will not be able to get new shipments of kits for two months. Obtaining swabs for collecting patient samples has also been a challenge for some laboratories, as has supplying the required personal protective equipment (PPE), above all, N95 respiratory filtering masks. And do not forget the staffing challenges posed by pandemic.

But that is not all. Even if a laboratory is able to overcome all of these hurdles and provide COVID-19 testing, there is the further problem of getting reimbursed enough to cover costs. Until recently, pricing put out by local Medicare Administrative Contractors put reimbursement for the Centers for Disease Control (CDC) test at around $36 and reimbursement for non-CDC versions at around $51—not enough to cover costs for most laboratories.

On April 15, CMS announced that it was raising the reimbursement rate to $100, but Birenbaum suggests that even that increase may not be enough to cover the costs for most laboratories. This is particularly true for laboratories that have to make capital expenditures like purchases of new equipment to run COVID-19 tests. And reimbursements from private payors are not much better, particularly insofar as the new CARES Act bans insurers from charging COVID-19 patients the usual cost-sharing payments for laboratory testing.

Takeaway

For all but a few testing laboratories, pandemic is bad for business. And that, in turn, is bad for patients. As long as Medicare and other reimbursement rates remain far below what is necessary to maintain healthy margins, let alone support costly capital improvements, many laboratories are choosing not to perform COVID-19 testing. In addition to limiting patient access, this puts an enormous strain on the testing laboratories that are already up to their neck in meeting the demands for COVID-19 testing.