The Potential Cost Of A Medical Device Tax

Two weeks ago I wrote an article titled U.S. Healthcare By The Numbers, in which I stated that politicians need to be less sensitive about the changes we make to our healthcare system in an effort to reform the industry. In hindsight, this statement was misguided and a bit hypocritical. For instance, I obviously have some strong opinions about healthcare reform, why shouldn't I expect others to have passionate (and opposing) viewpoints on the subject? We should be sensitive about the changes we make to our healthcare system and scrutinize every aspect of a proposed reform package. Otherwise, we run the risk of passing a reform bill simply to succumb to political and societal pressures rather than passing a bill that will actually work.

To be clear, I'm not retracting my previous article. I'm still in favor of acting with urgency to reform healthcare and still feel there are some glaring weaknesses in our current healthcare system that need addressed. However, there are some aspects of the proposed healthcare reform package I feel warrant debate before ushering the bill into law. For example, the healthcare reform package that passed through the house calls for $20 billion tax on manufacturers of pacemakers, stents, heart valves, insulin pumps, and other medical devices to help pay for the cost of healthcare reform. This tax would be issued annually over a ten-year time period and would consume nearly 1/6 of the industry's annual profits.

The rationale for the medical device tax is that increased coverage of uninsured patients will lead to greater sales of medical devices. However, little evidence exists to support this claim. For example, the state of Massachusetts passed a healthcare reform law in 2006 that requires all of its constituents to obtain health insurance coverage. To date, most medical device manufacturers report no significant increase in sales in the state since this law was enacted. Furthermore, as referenced in a previous Health IT Outcomes article titled Telehealth On The Rise, coverage for many medical devices (e.g. remote patient monitors, biosensors, etc.) are sketchy at best. How can reform contribute to a surge of medical device sales if they aren't clearly covered by insurance plans?

The Risks Of Medical Device Taxation
Even if healthcare reform were to contribute to an uptick in medical device sales, I'm still uneasy about the prospect of taxing companies that develop products and technologies designed to prolong and save lives, while providing recurring cost savings to the healthcare system. For example, insulin pumps allow diabetics to manage the disease themselves from home, reducing annual doctor and hospital visits. Likewise, implantable defibrillators are 98% effective in treating the ventricular arrhythmias that can lead to sudden cardiac death — an affliction that kills 233,000 individuals annually. How will these and other technologies be impacted by a medical device tax? Well, there is a real risk that the tax will force device manufacturers to significantly cut their R&D spending, limiting the advancement of these devices and stunting the innovation of new life-saving technologies. The tax could also force some medical device manufacturers to layoff employees, negatively impacting the overall economy. Furthermore, the tax could force medical device manufacturers to raise the price of their products, making the technologies costlier for patients to acquire.

There's no escaping the fact that we need to find a way to help pay for healthcare reform so that it doesn't add trillions to our national deficit, but isn't there a better way to secure these funds than taxing companies that are developing life-saving medical devices? For example, a bill proposed by Senate Majority Leader Harry Reid calls for an excise tax on elective cosmetic surgery. I find this tax a lot easier to swallow. More than $10 billion is spent on cosmetic surgery in the United States. If an individual is willing to spend $400 for a Botox injection or $7,000 for Liposuction, why wouldn't they be willing to add a 5%, 10%, or 15% healthcare reform tax to the tab? You could take this tax a step further and apply it to cosmetic-related prescription drugs (like LATISSE for eyelash growth) or ED (erectile dysfunction) treatments like Viagra and Cialis. The ED market alone is estimated at more than $3.5 billion annually. While many may still view taxes like these as unfair, I'd be more comfortable with taxing the cosmetic side of medicine than the companies making crucial life-extending medical devices.