News | December 30, 2014

Medical Device Tax Debate Distracting from Urgently Needed Reforms, says GlobalData Analyst

Urgent reforms needed to lower healthcare costs

Business, Obamacare, GlobalData

December 30, 2014 — Medical market analyst firm GlobalData said the medical device tax has been a distraction to the overall goal of lower healthcare costs. Rob Littlefield, MSc, GlobalData’s analyst covering medical devices, said Republicans in the United States Congress are expected to move quickly to revoke the medical device tax, which was imposed two years ago as part of a suite of fees on the healthcare industry to fund Obamacare.

The tax took effect in January 2013 on everything from hospital beds to heart pumps, with the hope that it would raise an additional $29 billion over the next 10 years. Lawmakers argued that the consumption of healthcare would increase as previously uninsured patients receive health plans with Obamacare, a rise which would provide windfall profits.

“Unlike the pharmaceutical sector, which had a seat at the table in early negotiations over healthcare reforms with Obama, the device industry had no such negotiation or deal-making opportunities prior to the implementation of the tax, which became a sore spot for manufacturers,” said Littlefield. “Additionally, device companies claim they have not seen profit growth with Obamacare because most of their payments come through Medicare, which does not grow under health reform but continues to cover the exact same population it always did.”

He said some experts argue that the device industry can easily afford the tax without compromising innovation, and that anticompetitive practices are what really drive up medical device costs unnecessarily. The belief is that the tax could be a distraction from reforms in the industry that are urgently needed to lower healthcare costs across the board. The United States currently has the highest-costing healthcare system globally, largely because confidentiality agreements mask actual device prices, impeding hospitals from sharing pricing information to reach a good deal.

“Additionally, manufacturers frequently maintain personal, and often profitable, relationships with the physicians who dictate hospital-wide purchasing, which eliminates any chance of bargaining,” said Littlefield. “Only through increased pricing transparency, discouragement of physician conflicts, competitive selling and cost bundling will hospital and patient charges decrease. However, pricing is still shrouded, cost-effectiveness research funding is lacking, device registries are non-existent in many cases and physician education for informed choices is limited. While the device tax may be on death row, only sweeping industry-wide changes would be likely to successfully drive device prices down significantly.”

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