A 'mysterious' health care system helps Reditus and others make big money on COVID tests
As WGLT reported previously, Reditus Labs of Pekin saw a sudden and dramatic rise as a leading company providing coronavirus testing throughout the state.
Maybe you’ve wondered how they get paid.
If you drove to a coronavirus testing site sometime in the last two years to get a test, you didn't have to pay a dime. But health care advocates are quick to point out, we all pay every time we swab our nose or spit into a tube — and the companies that run these tests are making big bucks.
In the spring of 2020, COVID tests were in high demand. The supply was low. The supply of companies able to conduct coronavirus testing on a large scale was even lower.
In stepped Reditus Labs, the Pekin company that opened a year earlier to study body organs, blood and tissue to better diagnose disease. Reditus had recently started testing for infectious diseases. Reditus seized on the demand for testing as an opportunity.
Starting with just 10 employees, Reditus began processing thousands of PCR nasal swab tests each day at its Pekin facilities.
CEO Aaron Rossi said Reditus had to ramp up quickly. “We had to hire over 100 employees in less than a year, maybe even more. It’s kind of a blur but we were bringing in people rapidly,” Rossi said.
Reditus got a $100,000 loan from the city of Pekin to expand. Soon, Reditus was conducting coronavirus tests in Bloomington at the Interstate Center and at schools, shopping centers and even prisons across the state.
COVID testing profits
Reditus said it has conducted more than 4 million coronavirus tests since the pandemic began. How much has Reditus made from the tests? It's hard to tell because the funding comes from so many public and private sources even if the federal government is ultimately paying for most of it.
According to COVID financial records the Illinois comptroller's office has posted online, Reditus has made about $222 million from the state for COVID testing. That's just through the state of Illinois. That does not include testing done at private businesses or even public schools.
For example, Illinois State University paid Reditus $2.9 million for tests before it switched to the University of Illinois' COVID saliva tests last year. The university has not yet received reimbursement for those costs, but spokesperson Eric Jome said ISU still expects the federal government will cover those costs.
Reditus has also done COVID testing at Illinois Wesleyan University. The private school would not disclose how much it has paid Reditus.
The $222 million haul also does not include what Reditus gets from the insurance companies or from testing it does in other states. Reditus said it gets COVID specimens from about 15 states.
Reditus is not the only company that has done COVID testing for the state of Illinois. Other companies have fared quite well too. According to financial records posted on the Illinois comptroller’s website, Chicago-based Tempus Labs pulled in $37 million from the state of Illinois on COVID testing. Testing giant LabCorp got $2.4 million from the state for COVID testing during the early months of the pandemic. Simple Laboratories of Chicago made over $1 million on COVID testing from the state.
“COVID has been a big profit-making opportunity,” said Adam Tanner, a writer with the Institute of Quantitative Social Science at Harvard and a contributing editor at Consumer Reports.
Tanner said the costs of COVID tests have varied wildly from less than $30 to more than $1,400. Tanner said companies that can handle COVID testing on a large scale should be able to do it for less.
“They are performing with a machine many tests at the same time, so it should be some price above $29, but not 10 times as much,” Tanner said. “That seems to be what the consensus of experts is.”
But companies that can do testing on a large scale are exactly what the government needed. The Illinois Department of Public Health (IDPH) said it worked with Reditus because it could handle a large volume of tests.
Early in the pandemic, IDPH looked for labs that could stand up testing and handle large volumes, IDPH spokesperson Melaney Arnold said. “We also worked to have labs located across the state and not just one area or region. We’ve worked with numerous labs since the beginning of the pandemic … and continue to work with many of them.”
How they get paid
Reditus doesn't charge someone to get a test. It tries to collect insurance and then bills the state when it can't. The state pays with federal COVID relief funding.
Reditus initially charged the state of Illinois $113 per test. The state later renegotiated the price to $93. The charge to test prison inmates and staff is $90.
Rossi said Reditus used the Medicare reimbursement rate of $100 as a baseline for setting the price. He said the company's costs went down over time.
Rossi said he believes insurance companies should be responsible for footing the bill — not taxpayers, but he said insurers are often slow to pay and he says it's often hard to get the insurance info from people in line.
”Some of that stuff is much more complex than you can imagine, especially at universities. We have college kids that come through,” Rossi said. “I think probably one of the least things they care about is giving us insurance information. They are ready to get back to class and do what they are trying to do.”
When that happens, the government ends up paying for the test.
A study by the American Health Insurance Providers last summer put the average cost providers charge for a test at $130. The insurance trade group recently sent a letter to Congress asking it stop what it called "pandemic profiteers" from gouging insurance companies for costs.
A professor at Johns Hopkins University who has studied COVID testing costs says companies that charge anything over $100 per test are charging too much.
Accounting professor Ge Bai said she blames the high costs for COVID tests on the federal government and not providers. She said when Congress guaranteed insurance companies would pay for the tests — and the public wouldn't have to pay out of pocket, that led to windfall profits for insurance companies.
“That created a perfect opportunity for providers to set a high price,” Bai said. “They have a high negotiated price with the insurance company but without making patients feel the price at the time they receive the tests.”
Bai said ideally, the public should have to cover at least a portion of the cost for COVID tests. She said that would create price competition. “Once the providers understand the patients have skin in the game and the patients do have options to choose, then they will automatically reduce their price and enter a pricing war,” Bai said. “That will end up being the most beneficial scenario for patients and the payer.”
Bai said she understands the government kept the tests free to ensure people wouldn't avoid getting a test if they needed one. She suggested subsidies for low-income families might have helped. She said we will all pay for the tests later with higher insurance premiums.
Price disparities are also apparent when it comes to rapid COVID tests you can take at home. The federal government recently made some at-home test kits available at no cost by mail, but prior to that it was the wild west.
Adam Tanner with Consumer Reports ran a global price comparison. “You could look in Germany or Japan or in the United Kingdom or in the United States and you’ll find that the cost in the United States are often two or three or four times more for these at-home quick tests than they are in some other countries,” Tanner said.
“We manually (quality control) every test with our own eyes."
Bai said some testing companies took advantage of what she calls a "mysterious" U.S. health care system, but she said that gets to an indispensable truth about for-profit health care — money drives innovation.
“Unfortunately, without monetary incentive, not many organizations and willing to sacrifice their time and opportunity costs to do things that very much align with the social welfare and best interest maximization,” Bai said.
Reditus CEO Aaron Rossi said not all testing companies are the same. He said some of the bigger firms in the northeast use robots to process tests, but not at Reditus. He said customer service and quality control are important to him. “We manually QC (quality control) every test with our own eyes,” Rossi explained. “We don’t use analytical software to spit out the results every single time. We are very, very thorough.”
Reditus donated $500,000 to the Unit 5 school district in Bloomington-Normal to help ramp up COVID testing early on. He said Reditus has also invested more than $15 million into its facility in Pekin to meet increased demand. Reditus has expanded three times and now has more than 300 employees.
Rossi said Reditus will have plenty to keep it busy when COVID testing is done. He says are two years of nearly full focus on the pandemic, they are all "sick of it" by now.
Reditus recently scaled back COVID-19 testing to three days a week at the Interstate Center in Bloomington because of a drop in demand.