AdvaMed, an American medtech industry association, recently sponsored a study evaluating the evolution of medtech costs over the last two decades. The study found that costs associated with medtech expenditures have risen at very moderate pace relative to other components of health care expenditure. While the Medical Care Services and Medical Care Consumer Price Index (CPI) for medtech costs rose at an average of 5.0% and 4.7% annually from 1989 to 2010, medical device prices rose a mere 1%. Compared to the national CPI of 2.7% over the same period, these figures are evidence that medtech has had a modest impact on the health care costs in the US that have otherwise been rising rapidly.
The results of this study will very likely play into AdvaMed's ongoing lobbying efforts against the 2.3% excise tax on medtech sales, mandated by the Patient Protection and Affordable Care Act (PPACA aka Obamacare), and due to go into effect in 2013. It is a commonly held economic belief that excise taxes tend to put upward pressure on prices. That, many would argue, is likely to exacerbate already rapidly rising health care costs in the US. Some suggest that this is yet another powerful argument the medtech industry can use in its efforts to repeal the medtech tax medtech might not be having a huge impact on rising health care costs right now, but why make it part of the problem Plus, the industry might argue that if they aren't causing the problem, they shouldn't be punished for rising costs in other sectors of the health care system.
Proponents of the medtech industry's cause should be careful not to overuse this argument, however. Cost reduction has been front-and-center of almost all health care reform efforts and the PPACA is no laggard in this regard. Indeed, one of the pillars of the legislation is to make reimbursement for medical services more stringent and outcome-oriented. This is likely to limit how much medtech manufacturers can charge for high-end devices without definitive clinical evidence to prove efficacy. Notably, the tax will not apply to Class I and II devices sold directly to consumers at retail for more than $100, which likely make the tax's cost impact minimal for the general public. It is very likely that, tax or no tax, medtech companies will be constrained in upward pricing in an Obamacare world. This, of course, means that medtech companies will shoulder the costs of the tax. Given how well the industry has done in terms of earnings over the past decade or so, advocates of the tax may very well turn the argument into one focused on making the industry pay its dues.
Cost reduction is therefore not a line of argument that the medtech industry is likely to win. Rather, the industry should continue to focus on the more traditional arguments against the tax. Medtech is a very important industry in the US and is comprised of more than half of the world's leading medical device manufacturers. The industry directly employs about half a million Americans and almost four times as many indirectly. Accounting for just over $156 billion in expenditures, the industry also makes up 6% of total health care expenditures in the US. It is also one of the few American industries that consistently exports more than it imports. Perhaps most importantly, the industry has a proud tradition of R&D that has led to medical innovations transforming health care worldwide. Since the tax is focused on revenues as opposed to profits, it could very well stifle many start-ups working on new breakthrough products, once again part of a tradition of innovation the industry takes great pride in.
The numbers making rounds in lobbying and policy circles these days certainly do not seem to be lining up in favour of the medtech tax. AdvaMed asserts that the industry will lose up to $30 billion in revenues and 43,000 American jobs. Moreover, the additional tax would raise the effective corporate tax rate for medtech manufacturers in the US by nearly 50% to the highest rate in the world.
The loss of competitiveness, global leadership and jobs are arguments that have much broader appeal than cost control. They are also easier to win. What's more, this theme places the medtech industry squarely within the narrative of American economic champions a position they rightly deserve.
[Editor's note: Ah yes, the medical device tax, still making waves. Check out our previous blogposts on the topic here.]