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Medical Device Makers: Stop Griping and Embrace Healthcare Reform

Lee Perlman, for HealthLeaders Media, June 15, 2010

During the national healthcare reform debate, many in the medical device industry strenuously objected to contributing their "fair share" to reform through a new tax on their devices. While other healthcare stakeholders accepted the notion of shared sacrifice and agreed to give up collective hundreds of billions of dollars, device companies warned that a new tax would force them to pass on the additional cost to hospitals and patients.

Putting aside the troubling idea of a highly profitable industry raising prices when so many hospitals are struggling just to break even, their protests worsened an already difficult and contentious process. In the end, the law included a 2.3% tax on medical devices beginning in 2013.

But the protests haven't stopped. While the thoughts of the rest of the healthcare community have pivoted to the challenges of implementation, the Massachusetts Medical Device Industry Council released a national survey of nearly 100 medical device companies.

One of its findings was simply astonishing: Even though medical device companies have weathered the recession far better than most—in good times and bad, people never stop getting sick—a large majority of the survey respondents said the new device tax will "stifle innovation" and make it more attractive to move businesses to other countries.

And consider the comments of Ernie Whiton, chief financial officer of Zoll Medical Corp, a Massachusetts medical device company. The health reform bill's device tax "is a jobs killer," he said. "We could be forced to move overseas if we can't pass along these costs to our customers."

Just a few weeks later, Zoll announced that its revenues for the second quarter of fiscal 2010 increased 15% to $107.1 million.

I respect and admire the medical device industry, but on this issue I believe I speak for the entire hospital community when I ask, "Are you kidding?"

Can you possibly be serious that a 2.3% tax on your immensely profitable industry will kill a single job, restrain one iota of innovation, or move a single company overseas?

Make no mistake: When the tax is implemented medical device companies will continue to thrive, simply because of the industry's profound lack of price transparency. Far too often, hospitals are contractually prohibited from sharing the prices they paid for high-cost medical devices, preventing the kind of "comparative shopping" that inevitably drives down prices in truly competitive markets for items such as flat-screen plasma TVs and the latest mobile technologies. And it's no secret that "physician preference items"—non-commodity supplies such as implants, stents, and orthopedic devices—are a significant driver of healthcare costs.

Consequently, medical devices enjoy an abnormal product lifecycle that largely shields their makers from profit downturns.

A 2.3% tax will not change that.

My message to the medical device industry is simple: Enough is enough. You are a thriving, dynamic, critically important industry, and you are better than this. You are compromising the spirit of healthcare reform and creating consternation among healthcare stakeholders and leaders in Washington who worked so hard to achieve equitable sacrifice across all healthcare sectors.

Hospitals, for example, will be cut by $155 billion over the next 10 years—a lot of money by any measurement, but particularly for an industry whose average bottom lines pale in comparison to those of medical device companies. But rather than complain we are hard at work figuring out how to do more with less and making adaptations that won't compromise quality care.

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