Sunday, September 13, 2009
[Bumped all day Sunday. Scroll down for more recent posts.]
As we have long predicted on this blog, the health care "reformers" propose to finance at least part of the "savings" or new benefits -- it is impossible to know which -- by decreasing the rate of return on medical technology. There are many ways in which this might be done, but the Senate Democrats are proposing to do so directly, by levying a "value added tax" on medical device companies according to their proportion of U.S. sales. This tax would be without regard to profitability, so it would amount to a capital tax on start-ups and a massive income tax surcharge on profitable companies, varying as net margins do. In the case of my own mid-sized company, the tax would be the equivalent of a roughly 20% surcharge on our net income (in all likelihood raising our economic tax rate well above 50%) or 50% of our research and development budget, depending on how you want to look at it.
Any way you look at it, the proposed tax is a calculated effort to divert capital from the medical technology industry to other uses in the economy, because new medical technology drives costs that are now going to be assumed by the government (or at least will be if the Senate leadership gets its way). Of course, innovative medtech also extends and saves lives, and makes them more comfortable and more productive. Which is, after all, the point of medicine.
Our industry association, ADVAMED (which not surprisingly is not fighting the Obama administration on the concept of reform), has distributed some talking points, and created on an online form that you can use to express your displeasure to your elected representatives. I've reproduced the talking points below, and hope that you click through the link and make your opinion known. Even if you support health care "reform" and the attendant massive new expenditures, should not the financial burden be spread across the economy rather than specifically trashing the incentive to innovate new medical technology?
Medical Device and Diagnostics Value Added Tax
If you agree, please tell your Senators and Representative to stop trying to take the profit out of new medical technology.
They always believe that there is someone out there somewhere who is making money by gouging the rest of us. To most Democrats, and an unfortunate number of populist Republicans, it is not only allowable, but a positive moral good to identify these people and make them pay something back to the rest of us.
One level deeper, it is an extension of the animosity toward the unseemliness of making money in business or "in trade," as the British elites used to say. Government is seen as "public service," the helping professions, academia, advocacy, and the arts are seen as inherently noble professions which contribute to the public weal. Commerce is seen as inherently ignoble, leading to a net loss to society.
Such ideas must be pulled out root and branch.
This post has been linked for the HOT5 Daily 9/13/2009, at The Unreligious Right
Hey, TH, just wait until the payment for medical devices is based on a given pool of medical device money divided by the number of devices sold. Sell twice as many next year, the pool of money increases by 1/2%, the device is reimbursed at 50%. These bureaucrats know how to run a business, eh, run folks out of business.
I want to know which Senator on the finance committee came up with this ridiculous scheme! This goes against the basic principle of free market enterprise. A tax on innovation--Obama will LOSE my vote if this passes!
TH, I've been waiting for you to start writing about the impact of the Obama administration on R&D in medical devices, biologics, and pharma. I am a patent attorney so I have a particular interest in government policies which affect research and development and innovation.
The mind boggles when, as in health care, government policy categorizes live-saving technology advances as a problem which must be curtailed.
Americans may spend more on health care than other countries, but we also obtain better outcomes in most treatments precisely because of treatments available in the U.S. from technological advances.
However, government accounting only counts costs, not benefits. In the eye of a socialized medicine bureaucrat, medical R&D companies like yours are part of the problem, not the solution. Make no mistake, the intent of Obama's program is to put may companies like yours out of business. Your taxes will increase and your revenues will decrease as government bureaucrats reduce reimbursement rates. The resulting margin squeeze will drive many medical products and pharma companies out of business. This is all part of the plan.
The board of any medical products company should be making contingency plans to relocate the company outside the U.S. if Obama's health plan passes.
Hold on! The VAT suggestion has been made by DEMOCRAT Senators. That usually means it is a request for bribes, kick backs and payoffs by the targets.
Why should Dodd, Rangel, Pelosi and Obama's wife be the only ones making convenient cash from earmarks and influence?
How about a couple of thousand shares of stock in the next 20 IPOs for each of the children and grandchildren of every Democrat Senator. Should be easy to hide and aught to put this issue to rest, at least for a while. My preference would be to start with Franken.
I keep reading about the cost of these, and other, taxes being passed on to the consumer.
Obviously you are not waiting for the other shoe to drop. This is a radical left wing administration, supported by a very left wing Congressonal leadership.
Price controls may be on the horizon.
We may see VAT taxes on a whole host of things. Liquor and cigarettes have long been a favorite target.
If so, there'll be a lot of politics of what gets covered and what doesn't. Once again, a good lobbyist is your highest ROI
Hey, your're the guys who figured that getting behind Directive 10-289 would be good for business.
Your're the guys who hired your own Tinky Holloway to trade some favors to come out ahead.
Now you're angry that the Unification Board is double-crossing you?
There's the bed. Time to lay down on it.
Truly insane. Real madness.
Question: How would this work for *imported* medical devices? If they drive Medtronic out of business and Siemens picks up the slack, would pacemakers made in Germany but sold in the U.S. be taxed at the same rate as ones made in the U.S.?
Brutal! Just a brutal and ham-fisted approach to health care that is already on display elsewhere. The results are predictable. New and worthy devices will be much more expensive to develop and sell. Fewer citizens will have these devices available to them, either by pricing or wait list rationing or both. Simple and predictable.
As an early stage developer of a novel orthopedic device to treat arthritis I can see the writing on the wall should the Democrats prevail. After all, I am a Canadian and a surgeon. There is no free lunch and when it comes to health care, ultimately politicians care about cost, not quality of care. You're getting the "Change" that was promised but the "Hope" is a non-starter. Very sad.
These taxes wouldn't be neccessary if they just collected all the taxes that have gone unpaid by the likes of Rangel, Geitner, Daschle, Sebelius, et al. The entire cost of "healthcare reform" might well be covered. Hell, with the fines and penalties we might be able to retire the national debt.
The wife just pointed out that a little truth in advertising is in order.
The effort to re-brand health care destruction as health care reform needs to be addressed directly.
Not only is this health care destruction but those who propose it are vandals intent on plundering what should arguably not have been labeled an industry to begin with.
"Just words" have granted others undue access and control of a fundamental requirement for survival much as has happened with food, shelter and clothing.
Wresting control of the dialog back from the vandals should be of the highest priority.
Sorry, Avamed lost me here:
"AdvaMed strongly supports the Committee's health care reform efforts and has worked cooperatively with Congressional leaders to advance the goals of health care reform; however this medical device tax is bad policy that AdvaMed opposes."
They decided to travel with the scorpion, and are now surprised that they've been stung.
Google "medical innovation in Europe" the first three articles that come up point up how the US outpaces Europe in all R & D aspects of medicine to the benefit of US citizens and the rest of the world. We provide Europe's military and medical defense.
If we in the US become more like the Euros who will bail us out?
NPR commented on something like that in Morning Edition today with a quote “The Pirate Party wants to reform copyright law, abolish all patents…”
Talk about your short-sighted idiots. The elimination of patents would make Sweden an international pariah on matters of trade. Medicine, engineering, publication, etc, would flee the country in droves, resulting in a much poorer nation (but with free music, whoopee).
That is unless NPR meant to say something like “modify patent law with respect to digital recordings…”, in which case only the music industry would flee the country.
The first thing I thought of when I heard this was how easily the Democrats in this country could turn this kind of thinking into a short-term “fix” for the medical cost issue, with long-term disaster down the road. (Sarcasm Warning) Simply invalidate all patents for medical devices and drugs in this country, and allow the unlimited importation of devices based on those now-invalidated patents. Within months, the US market would be awash with inexpensive medications and such life-saving devices such as pacemakers and stents, all produced in the same high-quality Chinese factories that have been providing the US with such quality toys such as the Lick Me Lead Train Set, and Milk Powder (Now with Extra Plastic Flavor!). The cost of medical care would go down, those old people who take so much of the health care dollar would have “unfortunate consequences”, China would be happy and continue to buy our debt, and the Congress could continue to collect their bribes…err…contributions. The only losers would be the US taxpayers. Again.
>>> Any way you look at it, the proposed tax is a calculated effort to divert capital from the medical technology industry to other uses in the economy
Actually, its an effort to kill more Americans so the federal government can skip out on its Social Security obligations.
Once you reach the age where you no longer produce tax revenue for the government, they need you to die.
Please, please, please. Let's start by calling it what it is:evil, evil, evil.
The culture of death doesn't do nice things to people they consider to be just inconvenient commodities. As John Paul told us: call black, black; white, white; and evil, evil!
To the Stalinists, health, as is wealth, is a zero sum game. To them no new thing of value is ever 'created' and therefore, their only soluition is that all (these things) are subject to their progressive taxation tyranny.
But really, who among us surprised at this......? Didn't we know Obama before the elction? Shame on us.
It's not just medical devices - according to the copy of the proposal I found here each sector of the health care market will have an annual 'fee' in the $Billions that gets assigned out by market share.
There's also a 35% 'excise tax' for insurance plans above a certain premium, which sounds like a typical soak-the-rich scheme until you look at the numbers and realize the tax hits plans that cost about 30% over the national average. That's going to kill employers in expensive areas or whose employees have above-average medical needs. Oh, and these penalties are indexed to inflation (not health care costs), which is kind of important when premiums have more than doubled over the past decade.
Beyond that there's a kaleidoscope of 'solutions' to cost issues that basically amount to crude price controls with painfully obvious moral hazards and predictable consequences. This is probably the first time I've ever been literally sick over legislation, this is going to be a disaster.
The Healthcare bill would raise taxes first, and then expand benefits two or three years later. This is not a small point when you're touting that it won't raise the deficit over the course of a decade, and quite misleading.
Obama & Co are in the habit of submitting legislation to the CBO for cost analysis, and then changing the bill significantly later on the eve of a vote. Expect it to happen with Healthcare.
Value Added Tax (VAT) is the stupidest thing in the world in its own right. You can sell three things - raw materials, upgrades to materials, or services. Upgrades to materials is the only element where you generate new value and efficiencies in how natural resources and human resources (our time) is spent. Whatever you tax you get less of, so VAT essentially screws anyone attempting to make things better or more efficient in any endeavor. Europe has used them for years and even without huge defense expenditures has lagged the US in all fields except civil engineering (your VAT dollars at work).
To introduce ANY VAT tax to the US is economic suicide.
I'm beginning to think the first rule of Obama is "If anything American is 'the envy of the world' (medical technology, human spaceflight, econonomic opportunity, etc.), either destroy it outright or lay the groundwork for its destruction over time."
Why should Dodd, Rangel, Pelosi and Obama's wife be the only ones making convenient cash from earmarks and influence?
Dodd is chairman of the Senate Finance Committee, where the device VAT is being considered.
I just read this, and have *called* the DC office of my two Senators (I'm in Albuquerque NM FWIW).
I worked in the Senate for two years as a professional staffer on the Commerce Committee (space expert, FWIW) and six years in the House. I've been a lobbyist too. Here's how things are paid attention to by staffers, in ascending order.
Last, and very very very very much least, is email. It's too easy; no one who emails cares too damn much, is the attitude about it.
Next up are faxes. Lazy folks; can't they take the time to write a leter, or what?!
Moving up the priority list are letters. Hey, they actually took the time to write and mail something...even better is if it isn't a form letter; someone took the time to actually WRITE something.
Next up, is phoning the office. You can get the phone numbers off the Intertubes. You ask to speak to the appropriate "L.A." (Legislative Assistant; you use the phrase "LA," you are obviously one of Those Who Know How Things Work) and they'll put you through to their...voicemail, probably. But hey, it's more important that you've taken the time to call. You looked up the phone number, spent the time to call, *and* you knew to ask for the "LA."
If you actually do talk directly to the LA in question, even better!
Folks, if you DO talk to an LA, or get their name, you should share the information around.
There's also a 35% 'excise tax' for insurance plans above a certain premium
With the blurbs I've seen about essentially outlawing high-deductible insurance plans (which would also destroy everybody's eligibility for a Health Savings Account, but I digress) and mandating small out-of-pocket maximums along with no limits on lifetime costs, such a tax would likely be on every insurance plan were such rules to be made law.
I love how a 2% tax on a product, goes to 20% by this industry. We all know the industry will just pass on the 2% cost to the public. They will not see any profits suffer. We all see how much the reinvest to medicines that actually cure, after all there's no money in curing only in keeping the poor suffering fool on the meds until they die. That's the way we keep profits high and costs low.