Medical Device Tax
Medical device manufacturers scream that the medical device tax of the Affordable Care Act tax is unfair and they are willing to spend what it takes to buy politicians to defeat it. This is legal and is called lobbying. Republicans demanding repeal of the medical device tax state the tax will increase healthcare costs and inhibit new methods and ideas.
Johnson & Johnson, owner of DePuy, a medical device manufacturer, earned a total (pharmaceuticals included) of $2.98 billion for the third quarter, compared with $2.97 billion, in 2012. This is in spite of the 2 percent decline of sales in the medical devices division and lawsuits involving metal on metal hip replacement implants. Johnson & Johnson was reported in the New York Times as stating the reason was due to people being reluctant to undergo elective surgeries.
Despite having made millions in profits, Johnson & Johnson has not lowered healthcare costs. Furthermore, what new technology has been introduced?
According to an article on Medical Device Development posted on the American Heart Association’s website, “Although large medical device companies typically develop successive iterations of existing devices, most new device categories are typically developed by venture-backed start-up companies.”
Medical manufacturers spend very little of their total profits in new technology. Most of the time, they simply piggyback reworked devices on prior approval of similar devices. One could even insinuate that medical device manufacturers expect some devices to fail and are willing to pay the cost of the fallout.
Finding out the actual cost of a medical device may require the services of Sherlock Holmes. According to the New York Times, prices are confidential, many times even to the physicians. Manufacturers lobby medical providers just as they do politicians, except that it is legal to provide gifts to doctors and medical facilities. The incentive of gain is enough for healthcare providers to attempt to use one or more medical device manufacturers exclusively. We may not find out how much the devices cost, but we do know that the market mark-up for the United States is higher than many other countries.
The New York Times stated that with Johnson & Johnson’s profit of $7.2 billion in 2012, the medical device tax would have cost them about $300 million, its research and development investment, $1.7 billion, leaving them a a profit of $5.7 billion. Remember, their profit went up this year.
The New York Times reported that Senator Charles E. Grassley, Republican of Iowa, sponsored legislation to post online price information for implantable medical devices. This would encourage competition, something currently sadly missing, between manufacturers.
If manufacturers are so worried about the bottom line, perhaps they should stop spending their profits in Washington, stop rushing reconfigured products through the FDA, and start exercising fair commercial practices.