New PCR test prices could squeeze small labs out of the market

PathCare is the latest private pathology group to heed to the Competition Commission’s call to reduce the costs of the Covid-19 PCR test for consumers to a maximum of R500.

The commission announced on Sunday that it had reached an agreement with leading pathology laboratories, Ampath and Lancet, to reduce the price of the Covid-19 PCR test from R850 to R500.

PathCare has followed suit, saying in a statement that “patient care always comes first” and that it “remains committed to delivering its patient-focused, values-based care using trusted technology”.

Polymerase chain reaction (PCR) tests are considered the gold-standard for Covid-19 testing and are deemed more reliable than rapid tests.

Impact on smaller labs

Some small private labs say the recommendation by the Competition Commission to reduce the cost of the PCR test is good for the consumer but bad for them, as it could squeeze them out of the market.

“I don’t think it was a great call from the Competition [Commission] at all – if anything it creates monopoly instead of creating a competitive space,” owner and director of iMed Distributors Laboratories, Jonathan Blackburn, tells Moneyweb.

Blackburn believes the commission’s decision, although beneficial for consumers, seeks to benefit big labs the most.

Post its agreement with Ampath and Lancet, the commission has recommended that all labs adhere to this new price, saying there is no justification for labs to charge more than the recommended amount.

“The commission encourages all labs to lower their prices with immediate effect as we believe that there are no reasons to justify why the price should not be reduced,” commission spokesperson Siyabulela Makunga tells Moneyweb.

Supply chain considerations

Some private labs are concerned about how the announcement will affect their books and their ability to continue to provide pathology services.

They say the recommended price of R500 does not adequately cover the necessary supply chain costs of getting this particular Covid-19 test done, citing various service and admin costs that need to be factored into the pricing.

iMed tells Moneyweb that it has not been charging service providers (where customers get their Covid-19 swabs taken) more than R500 to process their samples.

But with the new guidelines they may be forced to charge these service providers even less to process the Covid-19 tests for them.

As Blackburn explains: “Just the administration costs, the laboratory professionals, the doctors who sign off, the licensing fee that we have to pay NICD [National Institute for Communicable Diseases] (R5) to upload our results to their portal and diesel costs from the generators for load shedding – I mean the costs are exorbitant and we are not breaking into profit at all.”

‘Just not doable’ for this lab

SpesLab – another small private lab, which does Covid-19 PCR testing for R690 – tells Moneyweb that although they understand why there has been a call to regulate the cost of the tests, the new recommended price of R500 is just not doable for the lab and as such it will stop Covid-19 PCR testing.

“We were significantly cheaper than R850, we also thought the R850 was quite ridiculously high but we are a very small lab so our margins were already quite small on the R690, and now that they reduced it to R500, it’s just not viable for a small lab like us to continue with testing,” owner and director of SpesLab, Dr Andrine Smith tells Moneyweb.

“So unfortunately, what the reduction to R500 has now done, is forced [us], from the end of December, to stop Covid-19 testing,” says Smith.

Big labs, bigger volumes

For small private labs, the sentiment is that the commission’s recommendations will benefit bigger labs as they have the internal capacity to process high volumes of Covid-19 tests at lower costs.

“Their volumes are magnificent per day,” says Smith.

“We buy one kit that does about 200 or 300 tests a time but they buy hundreds of kits, so for them to negotiate a lower price on the test kits is much easier than for us.”

Smith believes the new pricing regulations will effectively force a lot of small private labs to stop Covid-19 testing and focus on their core business, which will ultimately benefit the bigger labs.

“What it most probably will do is just reduce the number of labs that test, so I think most of the small labs will close down [that type of testing] now and those amount of samples that went to the smaller labs will just now go to the Lancet type of labs.”

Impact on service providers

Service provider Dis-Chem says it has been in discussion with its partner laboratories designated for Covid-19 testing to find a way forward following the commission’s pronouncements on Sunday.

The pharmacy retailer tells Moneyweb that some of its partner labs will not take the group’s cost of providing the Covid-19 test to South Africans into consideration and will want to charge Dis-Chem the maximum amount of R500.

“We are still in negotiations with the labs as well due to the fact that we are service providers – we are not a lab so we have an extra cost regarding personnel and PPE [personal protective equipment], and the facility as well. Unfortunately some of the labs won’t take that into consideration and will [also] charge us R500,” says Dis-Chem clinic executive Lizeth Kruger.

The group says this position taken by some of its partners could see it suspending Covid-19 testing at some of its locations across the country.

“Unfortunately then we won’t be able to offer this service because we are going to lose a lot of money,” says Kruger. 

“It’s still early days … but as it stands now, unfortunately [in] some areas we won’t be able to offer the PCR tests.”

The group said the commission’s recommendations could see its books and reputation suffer damage in the long term.

“We don’t have profit margin on the test itself anyhow, but obviously in terms of Dis-Chem as a company and our reputation, that will be damaging and obviously we know that in the long term it will probably have an effect on the profit margins,” says Kruger.

A welcomed move by medical schemes 

In the meantime, the Health Funders Association (HFA) has welcomed the commission’s announcement, saying that as a body representing medical schemes, administrators and organisations, it has been trying to engage with bodies in the pathology sector to get them to revise their steep prices, with no luck.

“We are grateful to the Competition Commissioner for stepping in. We believe that the Covid-19 pandemic calls for the entire health industry to work together in minimising both the human and financial impact of this unprecedented time,” HFA’s CEO, Lerato Mosiah said in a statement.

However, the body is of the view that more still needs to be done to ensure that the cost of medical services and products are not a barrier to access to health services for South Africans.

“We hope that this will lead to greater scrutiny of the pricing of services that medical schemes are obligated to fund at cost under the prescribed minimum benefits,” she added.

Listen to Fifi Peters’s interview with Competition Commission chief economist James Hodge (or read the transcript here):

By Akhona Matshoba

This article first appeared on Moneyweb and was republished with permission. Read the original article here.