Please ensure Javascript is enabled for purposes of website accessibility

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

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

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

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.