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A deal that allowed private pathology labs to claim government rebates up to 20 times for one procedure has contributed to the startling collapse of the testing system. By Rick Morton.

The sweetheart deal that caused testing to collapse

A private pathology worker at a testing clinic in Sydney in December.
A private pathology worker at a testing clinic in Sydney in December.
Credit: Jenny Evans / Getty Images

As 2021 was drawing to a close, private pathology providers across Australia were counting up billions of dollars in profit, having met unprecedented demand for laboratory results during the Covid-19 pandemic.

The simple trick of pooling multiple samples before conducting polymerase chain reaction (PCR) tests had allowed these companies to maximise profits and capacity while giving the illusion that the nation’s Covid-19 testing regime was capable of flexing should a new wave of infections break through as restrictions eased in most jurisdictions ahead of Christmas.

But the reverse was true.

Pooling samples is tacitly endorsed by the federal government’s regulatory agencies and the temporary Medicare rebate that applies to Covid testing. It is a common practice within pathology labs – public and private. When done appropriately, testing samples in batches of two, three, four or more can save time and resources, especially by reducing use of the assays and reagents on which the chemical tests are conducted.

But private pathology businesses took a more cavalier approach. By combining up to 20 samples per test, companies such as Sonic Healthcare and Healius were able to claim the temporary Medicare rebate of $100 up to 20 times on the same cost base. In the last financial year, before Omicron made it into Australia, Sonic Healthcare more than doubled its net profit to $1.3 billion. Healius almost tripled its underlying result for net profit after tax to $148 million.

A high-ranking source within the Covid-19 testing sector, who cannot be named as a condition of their employment, tells The Saturday Paper that this scenario, while expensive to taxpayers, didn’t pose any significant problems when community transmission was low.

“If you go back to March 2020, the private pathology lobby managed to get double the public rate from the [federal] government and they started going after work. It became a free-for-all,” the source says.

“They were competing with public labs for samples and testing sites. In fact, they opened more and more sites as a way to collect more samples.”

In a world where pooling became this lucrative, pathology labs run by the private sector could make more and more money if they had more and more samples. The moment test positivity rates increase, however, the system collapses.

By way of example, if a lab pools 10 samples on a single run and the result is negative, then 10 people can be sent their results. But if the pool returns a positive, each of those 10 samples must be retested individually to root out the positive cases.

“Once positivity rates get above 5 per cent, it kind of falls apart,” the testing source says. “And once it hits 10 per cent, it completely collapses.”

In New South Wales, for example, massive testing queues developed in early December, largely as a result of increasing community transmission of Covid-19 and demands from other jurisdictions, such as Queensland, for pre-departure testing. Even so, until December 20 the test positivity rate in NSW was still below 2 per cent. By Boxing Day it was almost 6 per cent and before the end of the month the rate had climbed to more than 12 per cent. On January 8, the test positivity rate in the state hit 38 per cent.

“There was no plan B,” the source says. “We absolutely should have seen this coming. Even without Omicron, the Delta variant is ridiculously transmissible and we were opening up in almost every jurisdiction. We had the Boxing Day Test, the tennis, families getting together for Christmas. It was always going to happen.”

For his part, Prime Minister Scott Morrison has pretended ignorance, blaming a “frustrating summer” on the new coronavirus variant with a transmissibility profile beyond even that of Delta.

“It’s been incredibly frustrating. You’ve seen queues. You’ve seen rising cases. You’ve seen pressures on hospital systems. You’ve seen disruption of supply chains, you’ve seen shortages of tests. You’ve seen all of these in all of these countries all around the world. That is what Omicron has brought,” he said on Wednesday.

“But that is of no comfort to Australians who have had a frustrating and difficult and highly concerning summer, and that is something that we must continue to work together to push through.”

Rapid antigen test (RAT) kits, which can be used by individuals without lining up for PCR tests and without laboratory analysis, have been relied on around the world when case numbers rocketed and testing systems collapsed. When Scott Morrison was asked about apparent delays in securing RAT supplies for the country, he shifted blame.

“Rapid antigen tests for the Commonwealth government … are a responsibility to provide them in aged-care sectors, and that’s why, as you rightly say, we were doing that in August,” he said.

“I, we accept our share of the responsibility when it comes to providing the tests that we are responsible to provide. States and territories have always had the responsibility providing those tests in their states, just like the PCR tests …

“But you make some assumptions about what demand would be back in June or August. In June or August we were in Delta. In June or August we were not in Omicron. And Omicron completely changed all of the expectations. All of them.”

But that wasn’t true, either. In October, before Omicron was discovered, The Saturday Paper reported plausible assumptions from the government’s Covid-19 modelling consortium, led by the Doherty Institute, that cumulative cases could still hit 750,000 in a six-month period. In just three weeks the country has instead recorded more than one million cases. At the time of publication more than half a million of these were active.

A cornerstone of the Doherty modelling – repeated over and over again by government officials and the media – is test, trace, isolate and quarantine, or TTIQ. Modelling assumptions varied on whether this TTIQ system was optimal or suboptimal. The effect of TTIQ settings is measured and reported by the Commonwealth.

The reality is that this system failed. Once the test component collapses, the rest falls apart as well.

 

On January 10, the Morrison government entered into a series of contracts worth more than $60 million for the supply of RATs. The tenders were limited “due to extreme urgency or events unforeseen”.

This was the same approach the government used in September, days after the third Indigenous person died following Covid-19 infection in NSW, when it entered into contracts to boost First Nations vaccination rates due to “extreme urgency
or events unforeseen”.

Morrison now concedes that he had responsibility to secure tests for the aged-care sector, but even there the situation borders on disastrous.

The Commonwealth controls access to the national medical stockpile, which includes rapid antigen tests, but as infection rates soar aged-care providers have reported delays in receiving kits and personal protective equipment such as gloves, masks and gowns.

As of January 14 there were 3208 active Covid-19 infections among aged-care residents, more than 3800 cases among workers and 1203 facilities that had experienced an outbreak.

“You cannot get a RAT for love nor money,” Sean Rooney, the chief executive of Leading Age Services Australia, tells The Saturday Paper.

“It’s a big deal. We are sending through desperate pleas to the department on an hourly basis from services that are running low on RATs and PPE and they are saying we only have 24 hours’ or 48 hours’ supply. We’ve put our orders in and haven’t had a response from the stockpile.

“What do you do? You have got to test people and you have got to have PPE to keep people safe. The government says they are triaging and there is more supply coming and it is slowly getting resolved, but it gets back to this starting point, you know: What have you guys been doing?”

On Wednesday, an alliance of aged-care sector groups and unions called for the Australian Defence Force to be brought in to help an exhausted workforce, in part broken down by serious disruptions in testing and the furloughing of staff.

“Aged-care providers and unions have united to call on the prime minister to deploy the Australian Defence Force (ADF) to provide emergency support and assistance to overwhelmed aged-care workers at nursing homes across the country,” the joint statement says.

“Providers and unions also want the federal government to fund additional direct payments for staff to secure the workforce … Other measures are already well behind schedule, like freely available rapid antigen tests, PPE, consistent isolation rules, and visitation guidelines that balance social needs and infection control measures.”

Gerard Hayes, national president of the Health Services Union, said the sector is in the middle of an unprecedented crisis and requires immediate assistance.

“Conditions for both staff and residents are deteriorating rapidly as Covid cases in aged care continue to rise,” Mr Hayes said. “We are hearing horrific reports from our members. Some facilities are so short-staffed residents aren’t being showered for days. Others are experiencing food supply issues.

“The majority of staff are exhausted and many are quitting. It is an unmitigated catastrophe.”

On Tuesday, Minister for Health and Aged Care Greg Hunt announced the government is “activating” the private hospitals agreement, which he said “will see up to 57,000 nurses and over 100,000 staff made available to Omicron-affected areas around the country”.

“And that will mean there will also be assistance available where necessary in any aged-care facilities that require that additional workforce,” Hunt said. “It’s one of five actions that are available for workforce support within the aged-care sector.”

But as hospital systems in the two largest states are stretched to critical levels equal to the worst of the pandemic, or beyond in some cases, aged-care operators are not convinced they will be at the front of this queue.

The testing source who spoke with The Saturday Paper said, as a general rule, if PCR test results are coming back within 48 hours then RATs are not needed.

The common operating picture for Covid-19, which analyses national data and is published by the federal Department of Health, was last updated on January 10. It discloses that in the week before just 37 per cent of PCR tests were returned within 24 hours of sample collection, up just 1 percentage point from the end of December. At the end of November, this figure was 85 per cent nationally.

In the lead-up to Christmas, Morrison was spruiking “personal responsibility” and abandoning a “culture” of government getting in the way of people making decisions about their own health and wellbeing.

Being able to test for the virus to ensure it does not spread is crucial.

While the federal government intends to make its RATs available free to some people on low incomes and concession card holders, the suppliers with which it has entered contracts now have no stock.

The seven types of rapid tests available from AM Diagnostics online, and for which the government paid almost $33 million, are listed as completely sold out.

On Wednesday, a 27-year-old man faced Central Local Court in Sydney charged with stealing 42,000 Covid-19 RATs worth about half a million dollars from a freight depot in Botany. He was granted bail.

Meanwhile, health authorities in multiple states have warned people not to call triple-0 or fake medical conditions in order to gain access to Covid-19 testing. In one case, a person was admitted to hospital in Victoria for chest pains but was ultimately there because they could not get access to a PCR test.

 

On January 14, more than 90,000 Victorians received messages from private pathology companies operating in the state, informing them that their tests could no longer be processed. Tens of thousands of others in NSW received similar notifications over the summer break.

Having opened more testing centres to capitalise on demand, private pathology providers were overwhelmed by sheer numbers. One company, 4Cyte, told the ABC that in late December it received 100,000 phone calls in a single day from people complaining or trying to find out when their tests would be returned.

Rather than continue to add to a backlog of frustrated Australians, dozens and dozens of private centres simply closed or temporarily shut down. There have been 54 such examples in Victoria alone.

Closures are not an option available to those working in the public sector.

Public Pathology Australia chief executive Jenny Sikorski tells The Saturday Paper the sector “has been increasing its capacity during the pandemic”.

“But it takes many weeks by the time equipment is sourced and delivered and staff are recruited and trained,” she says.

“I think most were surprised by the speed at which Omicron took off. We have been dealing with sporadic reagent shortages during the pandemic and are competing in a market where there is global demand for supply, and that will continue during the pandemic.”

Sikorski said that early on public laboratories were also pooling samples but only in small batches. That is no longer an option. This has contributed across the board to supply shortages in the assays and reagents used to conduct PCR tests.

“There have been some labs that have had to stop using certain machines because they ran out of assays,” the sector source says.

“Others are calling suppliers saying they have just two days’ worth of reagents to conduct the tests. It is very touch and go.”

Sikorski said that, unlike private laboratories, public pathology providers “do not control the number of samples that are delivered to them, as this occurs under the clinical service mandate”.

“Private pathology providers are able to cease testing when it is apparent that they will not be able to turn around the work within an acceptable time frame under 48 hours,” she said in a statement on January 10.

“After this time, the result is of little utility, and the patient is left in limbo for days without knowing a result and is likely to leave isolation, placing further risk on the community.”

Each aspect of the TTIQ controls meant to put downward pressure on case numbers in Australia is linked. Without testing there is ineffective tracing and without tracing there is ineffective isolation and quarantine.

One pathologist involved at a high level in the sector estimates that the 1.3 million Covid-19 cases recorded since the end of November are a significant undercount. The real number could be closer to four million people infected with the virus.

It is a missed opportunity, the source says, because once a person has contracted Omicron there is little evidence they will get the variant again. Someone with a previous Delta infection can get reinfected with Omicron, but until a new variant arrives – and it will – Omicron is the end of the line.

“If we knew those people had tested positive, it would nearly certainly have been Omicron and we wouldn’t have the same need to test and test again during this phase of the pandemic,” the pathologist said.

“That would have dramatically reduced pressure on isolation requirements and furloughing of staff in critical industries. But we are not in that position right now.”

This article was first published in the print edition of The Saturday Paper on Jan 22, 2022 as "The sweetheart deal that caused testing to collapse".

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Rick Morton is The Saturday Paper’s senior reporter.

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