Medical Device Makers: Stop Griping and Embrace Healthcare Reform

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.

Instead of vilifying a tax that is three years down the road, medical device companies should focus their collective talent, energy, and resources on the opportunities that healthcare reform will offer.

At a minimum, they will soon have a vastly expanded marketplace. Healthcare reform will bring insurance coverage to 32 million Americans who currently lack it. That's 32 million potential new customers for a dazzling array of indispensable, lifesaving products. That alone should inspire device companies to celebrate reform and develop even more products that consumers and hospitals will eagerly embrace.

Wall Street clearly agrees that the medical device industry's future is bright. In the wake of healthcare reform's passage most device company stock prices have remained strong.

But far more important than new customers is the unprecedented opportunity healthcare reform offers for hospitals and device companies to work together to improve patient care and facilitate meaningful price transparency for consumers. In a 2008 Health Affairs article, University of Pennsylvania Wharton School professors Mark Pauly and Lawton Burns wrote that hospitals are "disadvantaged in their bargaining with medical device manufacturers" and "the absence of disclosure of the range of prices…does not seem to make sense."

As healthcare reform is implemented, I believe it will be those device companies that recognize and embrace the need for complete price transparency that will benefit the most—especially smaller companies struggling to bring their products to market.

The time is now for hospitals and the device industry to embrace comparative effectiveness research that will help identify which treatment works best, for whom, and under what circumstances. We need more competition and evidence in the medical device market, and price transparency and comparative effectiveness can put both within our reach.

Rather than protest a modest future tax, we can collaborate now on what matters most: getting the right product at the right price to the right patient at the right time.

That is the true promise of healthcare reform, and the medical device industry—with its remarkable companies and immensely talented individuals deeply committed to improving patient care—is indispensable to getting us there. The time is now for device makers to step up and be healthcare reform champions.