Wednesday, June 09, 2010

A short note on the double-barreled attack on medical technology 

A short summary of the new excise tax on medical device companies:

A 2.3 percent excise tax on companies that supply medical devices like heart defibrillators and surgical tools to hospitals, health centers and ambulance services will cost medical device manufacturers an estimated $20 billion in new taxes over the next decade. And they say that will force them to lay off workers and curb the research and development of new medical tools.

The Democrats in Congress who pushed this tax argued (and still argue) that device companies would get a windfall from all the new patients entering the system. Well, some will and some will not. To the extent that more Americans can purchase elective procedures because they will now have insurance, companies that cater to those procedures will probably sell more of their products. But most medical devices, in dollar terms, support procedures that are not elective or barely so, and are handled by providers as charity cases now. Sales of those products will not increase because there are more patients "in the system," so the tax will reduce rates of return.

As the linked article only implies, the tax has a much bigger impact on start-ups than on established profitable companies. Because the tax hits revenues, it makes it harder for start-ups to become profitable at all. That simple fact will make venture capitalists and angel investors less willing to fund med-tech, and that will reduce both innovation and employment. Perversely, less innovation from fewer start-ups will also reduce future competition for established companies, and less competition gives the big companies more leverage in negotiating with hospitals. This is obviously not what the Democrats were hoping to get from the tax, but it is an almost absurdly predictable "unintended" consequence.

Of course, the much more aggressive posture of the Obama FDA toward new medical devices -- requiring clinical data where none would have been required in years past, for example -- will have an even greater impact on new innovation, or the availability of new products to Americans. American device companies are already deciding to launch new products in Europe first and so they can judge whether they warrant the much greater investment now required to license them in the United States.

Fortunately, all these new products and excellent surgery performed by American surgeons "on holiday" will still be available at a very reasonable price.

In India, for people with the means to go there.


By Anonymous Edward Lunny, at Wed Jun 09, 01:42:00 PM:

" that device companies would get a windfall from all the new patients entering the system." Of course the constraint of fees and profits by the government will have no effect on this assinine supposition. Bags of silicone and saline may be elective for some; artificial hips, knees, pacemakers, etc are not. And, for the record, John Kerry is a giant walking self flagellating douchebag, which is also not elective, but, undenialable.  

By Anonymous Hammerhead, at Wed Jun 09, 07:11:00 PM:

A thought: just because there will be "new patients entering the system", a point I am not sure is actually accurate to begin with, does NOT mean the insurance these new patients will have will actually cover such procedures... or ANY procdeures for that matter.  

By Blogger MTF, at Thu Jun 10, 08:13:00 AM:


By Blogger MTF, at Thu Jun 10, 12:11:00 PM:

One more thing to be thankful for: at least you are seen as a wallet and not a target. How would you like being CFO today of an oil company, a bank, or a health insurance company?  

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