by Walt Valliere
Consulting Director

The drum beat for managing the COVID-19 pandemic from public health leaders continues to be test, test, test. While the supply chain for testing supplies and resources is improving, many hospitals and health systems are still struggling with how to manage their laboratory resources to meet demand. Before investing in new technology, there are several considerations that chief financial officers (CFO) should consider.

Testing Capabilities

CFOs can begin by working with their laboratory directors who can help them understand the opportunities, barriers, and any potential investment in equipment and staff that may be required. Here is how to start an evaluation of your laboratory’s COVID-19 testing capabilities:

  • Verify your laboratory’s Clinical Laboratory Improvement Amendments (CLIA) complexity level. You must follow the Food and Drug Administration’s (FDA) emergency use authorization (EUA) guidelines and existing regulations. For example, a facility that holds a CLIA waiver cannot perform testing that has an authorized setting of high (H) or moderate (M). Your lab must work within the scope of your CLIA certificate.
  • Determine if the laboratory can perform COVID-19 assays on existing test production platforms or if there will need to be an investment in new technology to deliver COVID-19 laboratory tests on-site. Remember, most current COVID-19 tests are authorized for use under FDA EUAs. Once the public health emergency declaration is rescinded, some or all the current tests may not be available for sale. Under such conditions, acquiring new test production technology just to accommodate near-term COVID-19 testing could be viewed as a high financial risk proposition.
  • Calculate how many COVID-19 tests would/could be conducted daily. Understanding the potential for testing is critical to determining the return on investment for new instrumentation and equipment and additional staff. As a general measure, a laboratory needs to perform in excess of 200 COVID-19 tests daily to maximize reimbursement.

Reimbursement Environment

Now that you understand your laboratory’s COVID-19 testing capabilities, the next consideration is to understand current and future testing reimbursement. You can begin by identifying the reimbursement structure for the laboratory’s existing test production platforms. This is important as testing platforms classified as high throughput are reimbursed at a rate that’s twice as much as assays that are classified as low throughput. Consider:

  • Through Dec. 31, Medicare will pay $100 for COVID-19 clinical diagnostic laboratory tests produced on high-throughput platforms as the increased testing capacity leads to faster results that assist physicians in treating their patients and combating the spread of the virus. Starting Jan. 1, 2021, Medicare will pay $100 to laboratories that complete high-throughput COVID-19 diagnostic tests within two calendar days of the specimen being collected. Laboratories that take longer than two days to complete these tests, will be paid $75.
  • For COVID-19 laboratory tests that are not high-throughput, Medicare administrative contractors (MACs) will remain responsible for developing the payment amount in their respective jurisdictions. MACs currently pay approximately $51 for those tests.

And remember that high-throughput platforms are usually expensive to acquire and they typically require not only laboratory scientists with advanced academic credentials and certifications, but also specialized reagents and related analytical materials, many of which are now in short supply. Calculate your total direct and indirect costs to perform a COVID-19 test. If your total cost for test production is higher than $51 for a non-high-throughput test, it might be advisable to outsource the assay to a reference laboratory. The same logic applies for a high-throughput test.

Supply Chain Impact

With an understanding of the positioning of your laboratory’s capabilities and the realities of current and future reimbursements, the next step is to talk with your supply chain leader. Understand what the potential impact would be on the supply chain if testing was ramped up. Without a secure, uninterrupted supply chain to support any COVID-19 assay, production lapses could occur, which means that the lab would not be able to perform tests. It will be important to understand the source (domestic or foreign) and the availability of any test-specific kit and/or testing reagents and consumable items in order help ensure that the laboratory will be able to perform testing uninterrupted to meet demand and achieve maximum reimbursement. 

Where answers to these questions are vague and proof is not conclusive, an investment in new laboratory technology for COVID-19 testing may be premature.

In summary, before investing in COVID-19 testing platforms and/or test kits, hospital laboratory leaders should verify that sufficient potential volume exists to support conducting on-site COVID-19 testing and that a thorough make vs. buy analysis is completed.

To find more health care resources, visit Vizient COVID-19 Resources.

About the author. Walter Valliere brings more than forty-five years of experience leading initiatives to grow market share and reduce operating costs through process improvements, strategic outsourcing, business restructuring, business consolidations, supply chain optimization, and new venture development. Nine years with Vizient, Valliere has also held principal leadership/ownership positions with both a multi-site independent laboratory and a specialty consulting firm that served healthcare, biotech, and biopharma industries.

Published: October 27, 2020