Supply curves slope upward, Switzerland fact of the day, and how to get more tests done
Under Swiss law, every resident is required to purchase health insurance from one of several non-profit providers. Those on low incomes receive a subsidy for the cost of cover. As early as March 4, the federal health office announced that the cost of the test — CHF 180 ($189) — would be reimbursed for all policyholders.
Here is the article, that reimbursement is about 4x where U.S. levels had been. The semi-good news is that the payments to Abbott are going up:
The U.S. government will nearly double the amount it pays hospitals and medical centers to run Abbott Laboratories’ large-scale coronavirus tests, an incentive to get the facilities to hire more technicians and expand testing that has fallen significantly short of the machines’ potential.
Abbott’s m2000 machines, which can process up to 1 million tests per week, haven’t been fully used because not enough technicians have been hired to run them, according to a person familiar with the matter.
In other words, we have policymakers who do not know that supply curves slope upwards (who ever might have taught them that?).
The same person who sent me that Swiss link also sends along this advice, which I will not further indent:
“As you know, there are 3 main venues for diagnostic tests in the U.S., which are:
1. Centralized labs, dominated by Quest and LabCorp
2. Labs at hospitals and large clinics
3. Point-of-care tests
There is also the CDC, although my understanding is that its testing capacity is very limited. There may be reliability issues with POC tests, because apparently the most accurate test is derived from sticking a cotton swab far down in a patient’s nasal cavity. So I think this leaves centralized labs and hospital labs. Centralized labs perform lots of diagnostic tests in the U.S. and my understanding is this occurs because of their inherent lower costs structures compared to hospital labs. Hospital labs could conduct many diagnostic tests, but they choose not to because of their higher costs.
In this context, my assumption is that the relatively poor CMS reimbursement of COVID-19 tests of around $40 per test, means that only the centralized labs are able to test at volume and not lose money in the process. Even in the case of centralized labs, they may have issues, because I don’t think they are set up to test deadly infection diseases at volume. I’m guessing you read the NY Times article on New Jersey testing yesterday, and that made me aware that patients often sneeze when the cotton swab is inserted in their noses. Thus, it may be difficult to extract samples from suspected COVID-19 patients in a typical lab setting. This can be diligence easily by visiting a Quest or LabCorp facility. Thus, additional cost may be required to set up the infrastructure (e.g., testing tents in the parking lot?) to perform the sample extraction.
Thus, if I were testing czar, which I obviously am not, I would recommend the following steps to substantially ramp up U.S. testing:
1. Perform a rough and rapid diligence process lasting 2 or 3 days to validate the assumptions above and the approach described below, and specifically the $200 reimbursement number (see below). Importantly, estimate the amount of unused COVID-19 testing capacity that currently exists in U.S. hospitals, but is not being used because of a shortage of kits/reagents and because of low reimbursement. This number could be very low, very high or anywhere in between. I suspect it is high to very high, but I’m not sure.
2. Increase CMS reimbursement per COVID-19 tests from about $40 to about $200. Explain to whomever is necessary to convince (CMS?…Congress?…) why this dramatic increase is necessary, i.e., to offset higher costs for reagents, etc. and to fund necessary improvements in testing infrastructure, facilities and personnel. Explain that this increase is necessary so hospital labs to ramp up testing, and not lose money in the process. Explain how $200 is similar to what some other countries are paying (e.g., Switzerland at $189)
3. Make this higher reimbursement temporary, but through June 30, 2020. Hopefully testing expands by then, and whatever parties bring on additional testing by then have recouped their fixed costs.
4. If necessary, justify the math, i.e., $200 per test, multiplied by roughly 1 or 2 million tests per day (roughly the target) x 75 days equals $15 to $30 billion, which is probably a bargain in the circumstances.
5. Work with the centralized labs (e.g., Quest, LabCorp., etc.), hospitals and healthcare clinics and manufactures of testing equipment and reagents (e.g., ThermoFisher, Roche, Abbott, etc.) to hopefully accelerate the testing process.
6. Try to get other payors (e.g., HMOs, PPOs, etc.) to follow CMS lead on reimbursement. This should not be difficult as other payors often follow CMS lead.
Just my $0.02.”
TC again: Here is a Politico article on why testing growth has been slow.