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Good News for COVID-19 Testing Companies: Medicare Nearly Doubles Reimbursement

By Brian Orelli, PhD - Updated Apr 16, 2020 at 5:12PM

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Diagnostic laboratories, rather than the test manufacturers, may be the biggest beneficiaries.

As of Tuesday, the Centers for Medicare and Medicaid Services (CMS) began paying laboratories $100 for each COVID-19 diagnostic test they conduct using high-throughput technologies to rapidly process large numbers of samples, nearly twice the approximately $51 per test the agency pays them for other types of COVID-19 tests.

"This is an absolute game-changer for nursing homes, where risk of coronavirus infection is high among our most vulnerable," CMS Administrator Seema Verma said in a statement.

The increased reimbursement will benefit diagnostic companies, such as Laboratory Corporation of America (LH 0.26%) and Quest Diagnostics (DGX -0.01%), which both have large networks of labs that have been running COVID-19 tests for over a month.

Abbott labs employees stack racks of vials for testing

Image source: Abbott Labs via PRNewswire

It's less clear how much of the increased reimbursement will trickle through to the companies that developed those tests for COVID-19, such as Roche Holding (RHHBY 2.34%), Thermo Fisher Scientific (TMO 1.80%), and Abbott Labs (ABT 0.90%). Considering the cost of the tests, plus need for trained employees to run them, and the general overhead costs, it's possible Lab Corp and Quest were generating slim margins or even losing money processing COVID-19 tests for patients under the previous Medicare reimbursement rate.

The American Clinical Laboratory Association (ACLA), a trade group of diagnostic testing laboratories, praised the CMS's move.

"We know that the lack of predictable reimbursement for tests performed has been a barrier to entry for some laboratories, and today's decision will help encourage all laboratories with the appropriate expertise to come to the table and perform COVID-19 testing," ACLA President Julie Khani said in a statement.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Quest Diagnostics Incorporated Stock Quote
Quest Diagnostics Incorporated
DGX
$140.55 (-0.01%) $0.02
Laboratory Corporation of America Holdings Stock Quote
Laboratory Corporation of America Holdings
LH
$259.42 (0.26%) $0.68
Abbott Laboratories Stock Quote
Abbott Laboratories
ABT
$111.48 (0.90%) $0.99
Roche Holding AG Stock Quote
Roche Holding AG
RHHBY
$42.00 (2.34%) $0.96
Thermo Fisher Scientific Inc. Stock Quote
Thermo Fisher Scientific Inc.
TMO
$603.21 (1.80%) $10.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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