COVID-19 test providers reap profits as consumers pay through the nose

Makers of COVID-19 testing tools are raking in billions while many consumers pay through the nose to find out if they are infected.

Over-the-counter rapid tests have been pricey since they first became available in the U.S., with major retailers like Kroger and Walmart recently hiking the price tag for kits even as manufacturers ramp up production to meet a surge in demand driven by the Omicron variant. 

That's in part because of the expiration last month of a deal struck by the White House with select retailers to sell test kits at-cost for 100 days, prompting distributors to hike prices on Abbott's BinaxNow test to roughly $12 a test. Quidel's QuickVue rapid test and others retail for roughly the same pice.  

Medically minded entrepreneurs are also making high-tech kits that allow consumers to administer more sensitive molecular-based tests from home. Those products, which work by detecting genetic material from the virus, cost even more. Detect, for example, which makes a PCR-quality test for at-home use, sells one test and one processing hub for $75. Additional tests cost $49. 

Windfall profits for test makers

Not surprisingly, COVID-19 test manufacturers are seeing their profits soar in tandem with consumer demand. 

Abbott Laboratories‚ maker of the BinaxNow test, one of the most popular at-home screening devices — notched $1.9 billion in third-quarter sales related to COVID-19 testing, up 48% compared to the year-ago period. The BinaxNow test alone was responsible for $1.6 billion in sales.

Quidel, which makes the QuickVue test, sold at major pharmacy chains and other retailers across the U.S., reported revenue of $406 million from its COVID-19 tests in the third quarter of 2021. Riding the same wave, molecular COVID-19 test maker Cue Health public in September at a valuation of close to $2.3 billion. 

Labs that process PCR tests, the main diagnostic tool for detecting COVID-19, in bulk are also benefiting. Labcorps and Quest Diagnostics have both seen profits spike as the two testing companies are inundated with samples to process. 

Drugstore chains like CVS and Walgreens are profiting handsomely, too. Both retailers raised their annual profit forecasts following strong sales of over-the-counter COVID-19 tests.

Fight for kits and services

Rapid tests remain in short supply in many parts of the U.S. They are also not accepted as proof of a negative test result by many entities, including for travel overseas.

Meanwhile, some consumers are having to shell out hundreds of dollars for faster test results, given the lag in turnaround times. In New York City, for example, a number of clinics — including CareCube, Clear19, MedRite and others — tout same-day PCR tests for people who need prompt results, such as for international travel.

For $225, CareCube, with 20 testing sites across the Big Apple, guarantees test results within eight to 10 hours. Sameday Health, also based in New York, guarantees a PCR test result in one hour for $250. For a fee of $400, My Doctor Medical Group, a private practice in San Francisco, says it will deliver a PCR test result by 9 a.m. the day after the test is administered. 

Carri Chan, a health care professor at Columbia Business School, likened these services to a "priority queue at the airport where gold or platinum members get to cut the line." 

"Bad guys" or just business?

A White House initiative requiring that private insurers reimburse members for the cost of at-home rapid COVID-19 tests will soon take effect. Demand for COVID-19 test kits is expected to rise in the short term as the highly infectious Omicron variant spreads and drives virus cases to record levels.

And when demand for a given good or service outstrips supply, consumer prices will rise. 

"It is hard to know precisely what the cost is to manufacturers — estimates put it at a couple of dollars — and we see the tests sold anywhere from $14 to $35 to crazy markups beyond that as well," Chan said. "This is due to the mismatch between supply and demand. Demand is through the roof right now, it is very challenging to find tests and when they are available they get snapped up right away."

Some critics have questioned the ethics of test manufacturers turning such large profits amid an unprecedented public health crisis. But Chan noted that pharmaceutical and other medical companies have invested heavily in developing and manufacturing tools designed to keep the public safe, without any backstop or guarantee they would be purchased. 

"I think it's easy to make manufacturers out to be the bad guys, but they also had to take on a lot of risk themselves. They didn't know what demand was going to be ahead of time — and, in fact, six months ago the sense was there wasn't going to be demand for these products. It was not a big part of the U.S.'s COVID strategy," she said. "So they had to take a risk to ramp up production. If there wasn't any demand, they would have to eat all that cost themselves."