Medical-device industry leaders are bracing for the impact of new taxes on medical devices proposed in the healthcare reform package that US lawmakers are now considering.
As reported by heartwire on November 7, the House passed a major health system overhaul bill that includes a 2.5% tax on medical devices beginning in 2013. Multiple industry sources say this tax would cost device manufacturers about $20 billion over 10 years. The proposed tax and how it's being managed by the major device trade organization are already producing rifts among cardiovascular device manufacturers, prompting one company to quit the organization altogether.
Device manufacturers maintain this tax will harm innovation and drive more medical-technology development outside the US. In a November 19 statement, Medtronic CEO Bill Hawkins claimed that a special medical-device tax or fee will "invariably impact our investment decisions on new therapy development, jobs, and global competitiveness. Most important, this can serve to diminish patient access to new, lifesaving medical technologies. While we will work our level best to minimize these impacts, they are real, and they should not be overlooked. [1]"
Although the major cardiology professional societies have yet to release official opinions on the device tax proposal, the advocacy committee cochair for the Society for Cardiovascular Angiography and Interventions (SCAI), Dr Mark Turco (Washington Adventist Hospital, Takoma Park, MD), told heartwire, "What many of us are concerned about is that the medical-device manufacturers are going to have to figure out where that $20 billion actually comes from. . . . It's very unlikely that the companies are going to go the route of increasing the cost of devices, because they'll find that not acceptable in the current [economic] environment. So I worry just as much for the patient, because if the money comes from a cut in the research and development budget, fewer clinical trials will be performed."
Turco points out that any impact on innovation resulting from the device tax comes at a time, at least in the field of cardiovascular medicine, "when we've had such great patient outcomes with devices. This is a very difficult time to cut the research and development budgets, and that's likely where that $20 billion is coming from."
He continued: "Given the fact that we are utilizers of very high-end technology, [cardiologists] have been earmarked within this [health reform] process as a subspecialty that can ultimately save healthcare dollars. There is, in all likelihood, some fat in there that can be saved. But we need to be careful about where that comes from," he said. As previously reported by heartwire, the cardiology professional societies are also fighting the Centers for Medicare & Medicaid Services' plans to make major cuts to Medicare physician fees for cardiovascular imaging.
Although device-makers oppose a new specific tax on medical devices, they are at least glad the House did not follow the suggestion of the Senate Finance Committee, which previously proposed a tax on devices that would have cost manufacturers about $40 billion over 10 years beginning next year. The current health reform bill would cost about $20 billion over 10 years.
Since the tax now seems inevitable, the industry's largest Washington advocacy group, AdvaMed, is pushing legislators to structure the tax so that it reflects the wide variety of products regulated as medical devices and the thousands of companies that develop and produce them.
An industry insider—who asked not to be quoted—told heartwire that AdvaMed will ask legislators to structure the device tax with different tiers based on the device's FDA classification. Simpler devices such as arm slings and surgical instruments are generally less profitable than complex devices such as implantable defibrillators and replacement heart valves. AdvaMed also wants small manufacturers with less than $100 million in annual gross receipts to be exempt from the tax or eligible for a rebate. The organization also wants provisions in the bill for "adjustments" if the 2.5% tax rate generates more revenue than anticipated.
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