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.

Comments

"we have policymakers who do not know that supply curves slope upwards"

Yes but our healthcare system, where normal market logic fails, doesn't know that. I like the ideas listed they are rational but our bureaucracies both public and private are the furthest from that.

I’m not seeing the slowdown that Politico claims. Per the Covid Tracking Project, daily tests seem to fluctuate between 120k-160k. Of course, the CDC and FDA have been worse than useless.

The real action is going to shift to the serological tests. I signed up to give blood on the 29th and the blood bank is looking for plasma from individuals who have recovered from Wuhan flu. I wonder if is feasible for them to test donors.

Things are moving quickly- Trump only realized what a disaster the CDC is when he visited it on March 6th. He often refers to the “broken system” he inherited.

Is it now mandatory for some to show ignorance by referring to a non-influenza virus using the thoroughly incorrect term flu?

"Wuhan coronavirus" doesn't roll off the tongue. And honestly I'm tired of hearing the word "coronavirus". Plus it's unfair to Corona beer, their product is mediocre but that's no reason to tank it over a fake pandemic.

My personal choice has always been "bat soup fever" but as we're quickly learning that is even more inaccurate. And I can't do my Ted Nugent impression by singing "Chinese bioweapons laboratory fever".

So we're sticking with Wuhan flu, count yourself lucky that you still have the lung capacity to be pedantic over it.

I call it Boomer virus because it was sent by God to kill off the most failed of His creations.

The memeboi demographic?

People who aren't trying to protect their business in China, or directly on the Chinese payroll, or people dumb enough to believe either of the former two are credible and objective sources of information. But hey, they aren't Faux News, amirite? ("Amirite" is another meme, I'm told.)

You know there are several billion people who use coronavirus that not only don't live in the U.S, and who aren't trying to protect their business in China, or directly on the Chinese payroll, or people dumb enough to believe either of the former two are credible and objective sources of information.

You live in a very small shark tank, it seems.

"Is it now mandatory for some to show ignorance by referring to a non-influenza virus using the thoroughly incorrect term flu?"

Seriously, there's nothing worse than a pedantic poster who can't take a joke.

The joke is funny because it's not a flu? I say go all out and call it Burmalaria. Or Myanmarthritis.

Rome Syndrome. Catalonia Pneumonia. Seattulcer. New Yorkancer. Atlantaberculosis. NOlung.

Funny, Trump didn't complain about the nice economy he inherited. Now that he broke it through his own incompetence, he needs to fix it and stop whining like a teenager on social media. He already spent $6 trillion and if he continues to fail at his job his legacy will easily be one of the worst in US history.

Put down that bong and get to work on that book. You promised that you would write it yourself.

How many Dems are super spreaders trying to make Trump's numbers look bad?

They’re all cowering indoors.

Sad testing; machines are not available , then reagents , then trained workers , then money to pay them , then swabs, then PPE.
Please find a reopening strategy that doesn’t include large scale testing !

While you are at it, chase all branches of dependency graph. Swabs? Reagents? Little plastic tubes? Labels? Might have to apply (or threaten to apply) defense production act - to all manner of things in the supply chain. This could go quite far (plastic resins for injection molding tubes???)

Politico Article: What f!cking testing criteria? Why can't the stuff be bought at some price, any price really, and be tested at some price?

What criteria do I have to meet to buy Cheerios?

This passing parade is not believable.

That they have to actually be available and you have the money to pay for them?

Or are you the sort of econ blog reader that just imagines a box of Cheerios when looking at an empty shelf or an out of stock notice on Amazon?

Economists when stranded on a desert island tend to assume a can opener.

The higher scoring economists imagine a can opener and a can of food.

Well played

An engineer imagines a boat....

Frame challenge: how important is it actually to have a lot of tests, unless you have enough to literally test your entire country in a few days (which won't be possible no matter what)? Why not simply presume anyone with a cough/loss of smell/pneumonia/etc to be COVID-positive? Any of their contacts could also be presumed to be COVID-positive by proxy and asked to stay at home. I've seen photos of people waiting for 12 hours in their cars to get tested - which means they're obviously having a mild case of the disease. What benefit does anyone get from knowing that their cough is actually COVID or not, as compared to presuming that it is and taking up all necessary measures?

For statistical purposes it would be sufficient to test patients who are bad enough to be hospitalized - in any case they're the only ones we worry about. Multiply number of hospitalizations by a factor of 10-20 and you have your total number of cases, no $200 fee required.

Oh, one argument I've seen is that people need a COVID test to get sick leave. If that's the case it would be easier for the government to cover the cost of sick leaves for the duration of the pandemic, at the risk of some amount of fraud. If someone is a COVID patient, you might as well let them stay in bed instead of driving to a Walmart for testing. If they're a flu/cold patient, let them stay in bed too - spreading flu around isn't great either. If they're just lazy and want a week off... kind of unfair, but let's eat that cost up instead of going crazy on testing.

I would agree. For the RT-PCR test , the main benefit is to detect asymptomatic people who might be infectious. But even then, their status can change daily , ( negative today, positive tomorrow) , so you would have to keep testing them every day. For people who need hospitalization a chest CT may be good enough for diagnosis as they often did in Wuhan.
The aB test in theory is useful to detect the already immune but we hear they’re not ready for prime time. Too many false positives. At least in the UK, they gave up on the immunity passport concept for now.

The best use is to screen high risk areas for pre-symptomatic people who are infected, shedding, but haven't yet developed symptoms.

After the "lockdown" the residual new cases I'm anecdotally seeing in my state is transmission to/from nursing homes, dialysis centers, chemotherapy infusion centers. Those are critical areas to fortify with testing and PPE.

Testing won't do much help in, say, a nursing home unless you switch it to full isolation after the test where all employees live on site until the pandemic is over. Otherwise one employee could get infected tomorrow and then infect the whole facility. So far I've only heard of one nursing home in the UK taking such a radical step.

Some French ones did this, it appears to have been successful so far whereas some other aged care centers have seen upwards of 15% mortality rates.

"equals $15 to $30 billion" -- it so turns out that the Senate Democrats released a $30B plan on Wednesday for “fast, free testing in every community". In a strange turn of events, the Democrats appear to know more about supply that the Republicans.
https://www.nytimes.com/2020/04/15/us/coronavirus-cases-update-live.html

Nixon to China is rare; it's a lot easier to propose policy when it goes along with your priors.

e.g. shoveling money at your favoured industry, banning travel from "enemy countries" however they are defined.

Extending this to foreign policy. You can anticipate a schizophrenic yo-yoing of policy where a Democrat in power means sanctions against Russia, lower tariffs against China, more immigration from Mexico, pro-Shia bloc actions. A Republican in office will mean the opposite.

>> Supply curves slope upward
Then why are doctors and nurses seeing wage cuts during a pandemic?

It's the result of an arbitrary reimbursement system. Large multispecialty groups rely on cross subsidization. e.g. an orthopedic surgeon doing elective hip replacements indirectly allows the hospital to pay for the salary of ER, critical care, hospitalists who treat life threatening conditions.

Cut elective procedures and suddenly you need a new revenue stream to keep the lights on.

The other reason is misallocation of resources. NYC is paying premium for any health worker who wants to go there. Other places that are hit less hard have furloughed front line care personnel to save costs.

Because medical offices have been largely shut down.

This position about tests is dogmatic: the more informed you are, the better. But it is not necessary true in this case? What would change being tested as there is no anti-viral medication? It sounds more like wishful thinking from a worried infovore economist than a well-thought cost-benefit analysis.

Don't worry. It will all be in place just in time to test the last three people who get the virus.

Start at the other end. The bonus is that it would make it better every year. Limit vulnerability to the source of these things, get China to implement first world public health standards in their food markets.

Figure out places and practices that spread the virus, and figure out ways to prevent it. Mass transit, elevators, other crowded places with surfaces that keep the virus viable for days. Fix that.

The specifics of this particular one are now an academic interest. Don't waste time or resources reacting like it was January 2020. That is past. Spend time figuring out what would apply to the next one.

Everybody should watch Contagion. Jude Law on Forsythia as a cure for the virus:

https://www.youtube.com/watch?v=CHZ8wx6J36Q

> 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.

> 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.

I'm not sure what image you have in your mind of the testing process, so to provide some clarity:

Almost all current covid tests are done using these cotton swab tests. A very small proportion in hospitals are done on sputum and bronchoscopy specimens.

The swab is taken by a nurse or doctor wearing standard PPE. In some hospitals this will mean an N95 mask, in others a surgical mask (in line with the current WHO guidelines). This could be done in a tent or a parking lot to increase throughput, but it can also be done safely in a standard clinic environment.

Once the swab is taken, it is sealed inside a tube for transport to the lab. The virus is inactivated by the transport medium. The RNA extraction and PCR analysis steps are then done at the lab, and only standard safety precautions (gloves +/- mask) are required. You do not need 'space suits', negative pressure rooms etc - it is all done under standard laboratory precautions because the virus is inactivated. Large numbers of swabs can be tested in each run through the extraction and PCR process.

Point of care testing is slightly different. In this situation the swab is loaded into a PCR machine at the doctors office via a consumable cartridge. They work well, but don't work at scale because the cost per test and overall throughput is much higher when you can basically only run a handful of tests at a time. In my experience these tests are only useful in rural clinics or in something like a sexual health clinic, where very quick turnaround (<1 hour for some tests) can help to treat people quickly before they leave.

I'm not in the US so can't really comment on the CMS reimbursement rate, but I suspect that incentivising high throughput testing will be much more useful than any point of care strategy.

I think what the author is trying to say is that some Point of Care tests may have reliability issues because some don't use the long cotton swab technique. As you point out, you need to use the long cotton swab to get a good sample. However, I think you are correct that it is becoming obvious that the POC tests that don't use this technique are probably not very reliable.

I'm not sure if things are different in the US but all the point of care tests I've seen have used the same long nasopharyngeal swabs.
The system I've seen most is Cepheid's GeneXpert which I'm pretty sure would be the most common in the US as well.

The POC tests may be the sort of pinprick equipment that is supposed to be quick and easy. It is true that most people would think of POC involving a professional health setting, and definitely involving swabs at this point of time.

Tyler/the author may be referring to point of care antibody tests, which look like a pregnancy test but take blood instead of urine.
They don't have any role in diagnosing people with current disease, only for testing for immunity after people have recovered.

Bosch Healthcare Solutions integrated a COVID test into an already existing series of testing equipment, testing for 11 respiratoiry diseases instead of ten. It is broadly available, the infrastructure and technicians already exist, it simply required the COVID test being developed and approved. Which happened a couple of weeks ago.

There seems no reason at all to double any prices, though the price of the COVID test itself was not listed. Bosch Healthcare Solutions may set whatever price it wishes, but it is the public health bureaus and health insurers that decide what to pay. Obviously, looking at the patient testing rates in Germany, the price is certainly acceptable to everyone involved.

Looking at Switzerland using Worldometer, Roche is making a lot of money with the world's highest country testing rate per million, beating both South Korea and Germany. Switzerland's response is at best average in the EU, and certainly inferior to South Korea's - where testing is undoubtedly only a fraction today compared to a month ago. Countries with now reduced outbreaks require less testing. South Korea is unlikely to be make up the difference to ensure company profits continue at the same level as a month ago.

In the EU, there seems to be a fair amount of competition among those offering testing equipment and tests, both established companies and start ups. Maybe the U.S. should think long term about having more market based solutions, instead of relying on just one or two established companies. Which is what one assumes is happening in Switzerland, where it appears that someone is making a really large amount of money from testing.

In comparison, as of two weeks ago in Germany, the cost for those paying themselves (though in two categories) was either 128,23 or 147.46 using a Hamburg laboratory company. A more expensive option was 204/234.60 in Dusseldorf.

I am morally offended at the suggestion that we should sanction price gouging by paying $200 per test. We should follow the example of India's Supreme Court and demand that these price gouging companies charge nothing as a philanthropic service to the community.

At least when talking about shortages, as noted yesterday in the corona briefing. Agricultural Secretary Sonny Perdue (is he the sort of tough man to make a tender chicken too?)

“In the United States, we have plenty of food for all of our citizens. I want to be clear, the bare store shelves that you may see in some cities in the country are a demand issue, not a supply issue.”

If we double the price of food, will that solve the demand curve dilemma?

I dont think the food analogy is a good one. The demand for food has not increased as a result of the epidemic. The demand for COVID-19 testing has skyrocketed

Don't cry for hospitals! I'll mention that CMS has advanced 90 days of Medicare payments to hospitals to help them with cash flow, and hospitals are at the top of the list for government disaster relief and thus will be receiving many billions. As I have mentioned before, hospitals are trying to dump covid patients on outpatient surgery centers and other non-hospital health facilities (by having the state commandeer them and converting them to ICUs for covid patients). Hospitals are like banks: we can't live without them, but we can live without their rapacious behavior.

And then there is this:

https://www.reuters.com/article/brief-quest-diagnostics-inc-is-dismissin/brief-quest-diagnostics-inc-is-dismissing-temporary-contract-workers-idUSFWN2C10SY

They are the most important part of the American health care system, beyond question.

Do demand and supply curves even make sense when we just dumped $6 trillion into the money supply? Why pay only $200 when we can print into existence however much we want?

https://www.msn.com/en-us/news/politics/the-us-has-thrown-more-than-dollar6-trillion-at-the-coronavirus-crisis-that-number-could-grow/ar-BB12G4S0

FYI, Medicare just doubled reimbursement rates for high-throughput tests from about $50 to $100:

https://www.cms.gov/newsroom/press-releases/cms-increases-medicare-payment-high-production-coronavirus-lab-tests-0

Let's rearrange the chairs another way.

We have become morons.

For specimens collected by hospitals and clinics that they send to Quest or LabCorp, the hospital/clinic still bills insurance. Quest/LabCorp bills the hospital. So lab is getting paid. It is the hospital that is losing on low reimbursement. So hospitals and clinics have insensitive to do their own testing so they can at least keep the low reimbursement themselves

Comments for this post are closed