COVID-19 testing costs billions, and that will only reinforce the long price war on labs
Even pre-COVID the lab sector was battling against decreasing tariffs as policymakers grew wary of automation and its higher margins. With EBITDA all but doubling for the largest players on the continent, that old feud is going to resurface soon. In some cases it already has.
France has just dropped its PCR pricing late last week by 40-50% following negotiations: data from its payor showed that spending on labs grew 47% in 2020, pushed largely by extensive COVID-19 testing. The country had been due to impose a 2% tariff cut around May last year that has been pushed back while the sector expanded testing capacity for the crisis.
All of Europe’s largest lab groups have seen huge increases in revenue and profits. EBITDA doubled for Sonic’s lab business last year and nearly doubled in Q3 for Cerba, Synlab and Unilabs with Q4 results yet to be announced, but one source is expecting an even bigger boost.
Such a significant increase in spending, while necessary, is not something that European payors will want to sustain when many had been seeking to slow it down. We expect to see tariff cuts of similar magnitude elsewhere despite the new-found lobby power of the market. Prices in Finland, Sweden, Austria and Switzerland remain comparatively high (see PCR pricing here).
PCR volumes are also likely to continue to decline and slowly be replaced by cheaper and point-of-care rapid tests: Germany is using less and less of its capacity every week. At the moment it’s only testing about 1.1m a week when it has capacity for 2m. The drop in PCR volumes has been even more drastic in the UK, where the vaccination programme is well underway.
One source says COVID-19 volumes are likely to sustain for another five years but this will be largely driven by policy in schools, hospitality, events and travel. “Pricing of COVID testing is likely to come under pressure but volumes should remain supportive,” says the source.
Payors will also be aware how much the pandemic pressure has led to even better automation and streamlining of workflows that have further bolstered margins.
It won’t be long before the battle cry of the price war is heard again.
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