How the CARES Act affects COVID-19 test pricing

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Editor's note:

This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings. 

Tucked in the Coronavirus Aid, Relief, and Economic Security (CARES) Act – the sweeping economic relief package signed into law on March 27, 2020 – are a pair of provisions addressing payment for COVID-19 testing. The first of these (Sec. 3201) clarifies a requirement enacted in the Families First Coronavirus Response Act, passed a week earlier, that commercial health insurance plans must cover COVID-19 testing without imposing any cost-sharing on enrollees. This provision on its own, however, does nothing to prevent an out-of-network testing entity (e.g., a clinical laboratory, hospital, or clinician’s office) from balance billing a patient for the difference between their list price (also known as their charge), which is unilaterally set and tends to be very high, and what the insurer chooses to pay – a provider practice typically referred to as “surprise billing.”

Sec. 3202 of the CARES Act is aimed at addressing this issue and to guarantee out-of-network testing entities receive payment.  The law mandates health plans to pay an out-of-network provider of COVID-19 testing “an amount that equals the cash price for such service as listed by the provider on a public internet website.”

The rest of this blog details how the CARES Act provision is likely to affect in-network and out-of-network pricing for COVID-19 tests, what the different types of tests are and what entities will be billing, the dynamics of insurer-provider contracting for lab testing, and how the provision should be improved.

Effects on COVID-19 Test Prices

Unfortunately, this “cash price” is not a market-determined price – it is irrelevant to patients because all options have to be made free to them by law, so there is little constraint on how high this is set by testing entities. Nor is there any reason for out-of-network entities to accept any less than this amount (other than a desire to contract in the future with the insurer or fear of a public relations backlash). Moreover, in theory the patient can still be surprise balance billed if the provider’s charge is higher than this “cash price,” though it is unclear why any provider would list a “cash price” lower than their charge.

As a result, this provision can be thought of similar to a surprise billing protection that requires health plans to pay out-of-network providers full billed charges. In that context, such a provision would incentivize providers to increase their unilaterally set list price in order to drive up payment, at the expense of employers, consumers, and taxpayers.

Applied to COVID-19 testing, some unscrupulous actors will surely find ways to exploit the new CARES Act provision that could be avoided if the law is changed to instead require out-of-network payment at Medicare payment rates or even a multiple thereof (unlike most health care services, lab prices for commercial insurers are similar or lower than Medicare rates on average). However, the inflationary effects of the CARES Act provision should be relatively limited, particularly after the immediate wave of more emergent testing and once greater testing capacity becomes available. Depending on the type of test, COVID-19 testing will predominantly be billed by clinical laboratories, hospitals, and clinician offices. In each case, insurers can generally steer enrollee testing to in-network providers (discussed in more detail later). Put another way, the CARES Act provision will likely inflate costs for out-of-network COVID-19 testing, but have limited, if any, spillover effects on prices for in-network testing.

What Tests Are Performed and Who Bills for Them?

There are many possible testing locations: government labs, hospital-run labs, clinician offices, and stand-alone clinical lab facilities including large national chains or small facilities. To better understand what entities might be billing under what circumstances, it is helpful to lay out the different methods to test patients for COVID-19, including both those that exist today and those that are likely to soon be approved for use by the Food and Drug Administration (FDA).

We include comparisons to Medicare billing for flu tests because the testing methods tend to be similar, although there are some key differences, such as the higher likelihood of COVID-19 testing taking place inside a hospital given the higher risk of hospitalization. Statistics on billing of flu tests to Medicare patients are calculated from the 2017 Medicare Provider Utilization and Payment Data: Physicians and Other Supplier Public Use File released by the Centers for Medicare and Medicaid Services (CMS). These data do not include bills from hospital labs, but hospital labs should be involved in all three types of testing detailed below.

  1. Nucleic acid amplification tests. These tests identify the novel coronavirus by looking for viral DNA in a sample collected from the patient and tend to be the most accurate. Until very recently, polymerase chain reaction (PCR) tests were the only kind performed in the U.S. and have been the primary type of test used around the world to date. In the U.S., PCR tests have involved a medical professional taking a nasopharyngeal swab and then sending it to a lab where a technician or laboratory professional prepares the sample and analyzes it, which is why they tend to be more time-intensive (although some countries have managed much quicker turnarounds for their PCR tests). While a multitude of labs are currently performing these tests – with many done by government, hospital, and clinical labs – over time these PCR tests seem likely to become dominated by the larger national or regional labs (to the extent they’re not simply replaced by other types of testing). There is also the potential that more rapid tests can be performed without the specialized equipment needed for PCR with a benchtop machine in clinician offices, such as the recent test from Abbott that generated significant press. Such quicker tests likely will primarily be billed by the clinician administering the test; indeed, only 25% of Medicare patients receiving the most common PCR testing code for the common flu (CPT 87502) in 2017 were billed by a clinical lab (excluding tests billed by a hospital). Instead, nearly all were billed by primary care or emergency clinicians conducting the test on their own equipment.
  2. Antigen (protein) detection tests. These tests look for particles of the virus itself. Like the typical flu test, antigen detection tests for COVID-19 have the potential to be performed in a matter of minutes within a clinician’s office, but none have yet been approved by the FDA. They are usually far quicker and cheaper to perform than PCR tests, though may be less accurate. For instance, the average Medicare payment rate for the most common antigen detection flu test (CPT 87804) is roughly $16, whereas the current Medicare payment for a flu PCR test averages $112 and the Medicare price for a COVID-19 PCR test is $51. Importantly for judging the potential impacts of the CARES Act provision, antigen detection COVID-19 tests likely will be predominantly billed by primary care clinicians; by comparison, in 2017, only 5% of the most common antigen detection flu tests for Medicare patients were billed by clinical labs and only another 7% by emergency physicians (although emergency physicians may be more common in COVID-19 testing given the higher rates of hospitalization).
  3. Serology (antibody) tests. These test a person’s blood for COVID-19 antibodies. It usually takes at least a week for the human body to develop antibodies, so serology tests are not preferred for diagnosing a patient presenting with COVID-19 symptoms, but they are valuable for determining who has previously had the disease and recovered as well as who might now have immunity. These are just starting to earn FDA authorization, but should continue to grow in prevalence over the coming months. Serology tests likely will predominantly be billed by clinical labs.

Insurer-Provider Contracting for COVID-19 Testing

For Centers for Disease Control (CDC) labs and state public health labs, the risk of price-gouging seems low. Hospital labs tend to be negotiated as part of the broader insurer/hospital contract, so as long as an enrollee is at an in-network hospital, the COVID-19 test price should fall under the network contract. Tests billed by clinician offices are similarly negotiated as part of the insurer/clinician contract.  Therefore, the major risk for out-of-network billing comes from tests operated by stand-alone lab facilities, but even in those cases, insurer contracts with clinician offices and hospitals typically specify where different lab tests should be sent.

Over time, antigen detection and rapid nucleic acid amplification tests that can be performed in-office are likely to become the dominant forms of COVID-19 diagnostic testing, which will largely be billed by the clinician who administered the test. These are the situations for which the CARES Act provision is least concerning because commercially-insured patients by and large seek treatment from in-network primary care professionals. PCR tests in the short-term and the significant serology testing, however, are likely to be primarily performed and billed by large clinical labs.

Unfortunately, some areas for concern remain. Analyzing Medicare data, Emergency physicians billed for 6% of antigen detection flu tests and 7% of PCR flu tests given to Medicare patients in 2017, suggesting they may end up a modest source of billing for COVID-19 testing. Roughly one-in-five emergency physician services is delivered out-of-network, potentially allowing them to name their price for COVID-19 tests, which employers and insurers would be legally required to pay. Some patients also end up at out-of-network emergency rooms, in which case the hospital or freestanding emergency department would similarly be able to extract a high price for testing. While I have not been able to locate many entities listing a “cash price” for COVID-19 testing, the three hospitals I found listed prices around $150-$200, roughly three times the Medicare rate or what they likely are getting paid in-network from private insurers (lab tests tend to be similarly priced in Medicare and private insurance, unlike most other services). There may also be reason for concern with drive-through testing centers or any widespread testing encouraged other than from a patient’s known sources of care, depending on who is carrying out the testing.

How to Fix the CARES Act Provision

If the goal is to encourage more COVID-19 testing, higher prices or other subsidies may be warranted (although it is unclear to what extent price is an obstacle to greater testing capacity). However, the CARES Act provision makes a poorly targeted and seemingly inefficient incentive because it primarily benefits the small share of testing entities that both receive a significant number of samples from out-of-network patients and are willing to take advantage of the provision. Indeed, LabCorp, one of the largest national labs, appears to be accepting Medicare rates for out-of-network COVID-19 testing.

Congress should revise the CARES Act provision to instead require commercial insurers to pay for out-of-network COVID-19 testing at Medicare prices (instead of the unilaterally set “cash price”), which tend to be in line with prices negotiated with private insurers, and prohibit testing entities from balance billing patients.

Thank you to Abigail Keller, Scott Diamond, Allan Joseph, and JP McGinnis for immense help conveying the details of COVID-19 testing methods. And thank you to Kathleen Hannick and Sobin Lee for excellent research assistance.