Device Industry Puts Its Feelings In Writing

“The economy.” It’s a common phrase these days, uttered when people are assigning blame or pinpointing reasons for less-than-stellar job hunts, pay raises and of course, business growth opportunities. No one can say the government has been ignoring the problem—in fact, current administration officials have been vocal about their ideas for job creation and the restoration of America’s image in the global marketplace. So when word came that the device industry was going to be hit with a billion-dollar excise tax, industry professionals not only were angry, but surprised.

Why? The device industry is responsible for the employment of more than 400,000 people nationwide. It generates approximately $25 billion in payroll, pays salaries at 40 percent more than the national average, and invests nearly $10 billion annually into the research and development that helps steady the country’s position as a leader in innovation (which has become somewhat precarious, depending on who you ask).

More than 400 companies kicked off the week with a big statement. Identical letters sent Monday to top lawmakers in the U.S. House of Representatives and U.S. Senate urged the repeal of the $20 billion medical device excise tax, which is set to take effect in 2013. According to Congress, the tax was passed to help pay for the health care overhaul’s expansion of coverage. Manufacturers are to pay 2.3 percent of a product’s gross sale price. The tax originally was intended to raise $40 billion over 10 years, but aggressive lobbying cut it in half. But most in the device industry still are not satisfied with the compromise.

“We believe that implementation of this $20 billion excise tax will adversely impact patient care and innovation, and will substantially increase the costs of health care,” the letters, also signed by the Advanced Medical Technology Association (AdvaMed), stated.

“If this tax is implemented in 2013, it will undermine our industry’s ability to create and maintain good jobs in the United States, and worse, will lead to higher costs for patients, undercutting one of the primary goals of health care reform,” said Stephen J. Ubl, president and CEO of AdvaMed.

Congress has cited demand for medical devices as a way to justify the tax, a point that AdvaMed and signing companies disputed in the letters.

“The tax will not be offset by increased demand for medical devices,” the letter stated. “Unlike other industries that may benefit from expanded coverage, the majority of device-intensive medical procedures are performed on patients that are older and already have private insurance or Medicare coverage.”

The week before the letters made their way to Capitol Hill, AdvaMed released a study that showed prices for medical technology have been rising at a slower rate than those in the overall economy for the past 20 years, and less than one-fourth the rate of prices for other medical goods and services. Data show the average annual medtech growth rate is 1 percent, compared with the Consumer Price Index (CPI) increase of 2.8 percent, the Medical Care CPI increase of 4.7 percent and the Medical Care Services CPI increase of 5 percent.

Furthermore, spending has increased only slightly. Over the past 21 years, spending on advanced medical technology has gone from 5.3 percent of national health expenditures (in 1989) to 5.9 percent (in 2009), and has remained virtually constant since 1992.

“It’s important for policymakers to understand that patient access to medical technology saves lives and improves quality of care,” said Ann-Marie Lynch, executive vice president of Payment and Health Care Delivery Policy for AdvaMed. “Medical devices and diagnostics are central to medical practice, but spending on advanced medical technology is consistently a small and growing portion of national health expenditures.”

There is no word yet on whether the letters—which described the device industry as a “unique American success story”—appealed to Congress’ sensibilities, but it’s quite clear that regardless of the outcome, the industry will continue to strive to do what they urge lawmakers to consider in the letter: “encourage and promote research, development, investment and innovation.”