Price of testing for COVID-19 can be off the charts

By Michael R. Malone

Price of testing for COVID-19 can be off the charts

By Michael R. Malone
Lack of both transparency and competition in the fragmented health care industry pave the way for surprise billing and a wide variability in costs for diagnosis, say health care policy specialists.

Just as the severity of the novel coronavirus fluctuates in its impact on different demographics of the United States, the cost charged for the COVID-19 diagnostic test and associated services—to insurers and ultimately to consumers—can range from $20 to thousands of dollars.

“The variability is a symptom of a much larger disease—a huge lack of transparency when it comes to pricing of anythingin our health care system,” said Karoline Mortensen, an associate professor of Health Management at the University of Miami Patti and Allan Herbert Business School. 

“There’s no regulation on the test price, and that’s similar to what we see in hospital pricing,” she said. “There is some movement toward regulation of price transparency, yet those efforts won’t come to fruition until 2021.”

Mortensen referenced the two federal regulations—the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security or the CARES Act, both enacted in March—that required health coverage for COVID-19 to include the diagnostic test and services related to testing with no cost-sharing for people covered by most private health care plans, Medicare, and Medicaid.

But typical of the industry, there was scant effort to regulate the price of testing—so critical to managing the raging pandemic—and many consumers fail to understand the perplexing system they face to get the test, she said.

Only the Medicare program established guidelines, reimbursing providers up to $100 for the test.

According to late July data from the Peterson-Kaiser Family Foundation (KFF), a partnership monitoring how well the U.S. is doing in terms of health care quality and cost, with 78 of 102 hospital websites reporting, half of the hospitals were charging between $100 to $199 for the test alone, with the least expensive being $20 and most expensive $850.

In her research, Mortensen has referred to the industry as the “wild, wild, West” and, from a systemic perspective, emphasized that there are always winners and losers.   

“The losers now are absolutely the hospitals,” Mortensen said. “They had to shut down elective procedures, had to buy PPE for their staff and employees, and some had to deal with COVID cases with their personnel.”

In contrast, insurers have benefited immensely from the massive drop in elective procedures and emergency procedures, which are typically the most expensive to cover.

“Some researchers are estimating at least a 30-percent drop with heart attacks and other emergency procedures,” she said. “The insurance companies are trying not to advertise it so well, but they are making tremendous profits.”

Economic indicators that chart quarterly profits support that analysis.

“There is a game that hospitals can charge whatever they want for the COVID tests. They’re just supposed to be transparent, supposed to post on their websites what their out-of-network rates are,” she said. Because they realize that insurance companies are required to pay, hospitals can charge what they want, she noted.

“When we look back and see how this unfolds, we can ask, ‘did hospitals charge exorbitant costs just because they could?’ ” Mortensen added.

Emma Dean, an assistant professor of Health Management and Policy, echoed concerns caused by the lack of pricing standardization in the industry.

“If the pricing variation in health care were indicative of the quality of care it could potentially be a good thing—it makes sense that you might charge higher prices for better care because there’s some higher cost associated,” said Dean, a health economist with expertise in pharmaceutical policy and pricing. “But significant research has shown that’s not what causes this variation in pricing,” she added.

“Because we don’t have standardized pricing or set prices by the government, institutions that have more market power and where there is really no competition or where all hospitals in an area are on one health care system can charge significantly higher prices,” she continued. “We see this playing out very clearly in the U.S. health care system.”   

COVID testing is different though, Dean noted, because the mandate was for insurance, private or Medicare, to cover the test.

“We as patients are shielded from these costs, but the insurer has to cover everything for the testing and the lab, and maybe that includes a physician, nurse, or someone else in the health care system,” she said. “If you’re in network, great, but if the person who swabs you is not—insurers have to pay and that’s a higher cost.”

Dean referenced media reports from Texas and other states that have documented charges to insurers of thousands of dollars for COVID-19 related testing and procedures.

“Paying that much for a COVID test makes zero sense, but when you think about how the health care system works, we see how it’s possible to get charged these exorbitant amounts,” she said.  

Dean pointed to the positive intent, yet unintended consequences, of the mandate to require COVID testing for all.

“The positive was to get people tested and without any barriers,” she said. “There was even a special pool of money for the uninsured to get tested—though how to do that hasn’t been communicated clearly and a lot of people aren’t being tested at all because they’re concerned about the out-of-pocket costs,” she added. “But the unintended consequence is if a lab knows that insurance has to pay and an insured person comes in and gets a test, what’s the leverage to lower the price?”

Both Mortensen and Dean point to the need for consumers to be their own best advocates and to scrutinize costs.

“Most consumers are not aware that if they go to a hospital for the COVID test, they will be charged a facility fee, and that other services might incur additional charges,” Mortensen pointed out.

To avoid surprise fees, the best place for testing is at the county-level, where there’s sure to be no separate fee, she advised.

Mortensen suggested that a more coordinated national response was needed to control pricing, a process that occurred in some countries in Europe.

“We needed a more advanced federal response, but instead what we’ve had is piecemeal state responses, which trickles down to county responses, which trickles down to city responses,” she said. The situation meant that protocols were misaligned at the city, county, and state level; and again, the absence of transparency complicated the scenario, Mortensen added.

As an economist, Dean said she often emphasizes market power.

 “The more you’re purchasing, the lower price you’re going to get, and here we had states competing against each other for testing kits—a bidding war on the part of the buyer—so that drives up the price too,” she said.

“Health care prices are one of the big issues we debate in economics,” Dean added. “We actually want more competition, and when we don’t have it, we have these wide range of prices and consumers suffer.”