Medical Device Tax Suspension – Impact on Patients and Providers

The latest spending bill will finally suspend the medical device tax established as part of the Affordable Care Act.

This tax break is going to decrease the cost and increase the profits of medical device manufacturers who will no longer be subject to the excise tax rate of 2.3 percent of the sale price of the device. And we can expect to see a boost in the stock price of these companies once the new law goes into effect.

Of course, none of us need to feel sorry for many medical device companies who have enjoyed record profits even during the time that this excise tax has been in place. In New York Times bestseller, America’s Bitter Pill, author Steven Brill points out that Medtronic records double the gross profit margin of Apple!

While it would be nice to imagine that medical device companies would give their customers a price break related to the suspension of the excise tax, who really believes that is likely to happen?

The argument against the excise tax has always been that smaller medical device companies, innovators and manufacturers struggled to maintain decent profits while under the burden of the tax and that the tax was effectively de-incentivizing innovation in the medical device field. That rationale may be valid and at least partially accurate.

But there is certainly no shortage of medical devices being purchased and utilized in the U.S. healthcare market. There are 31.5 MRI machines per million people in the U.S. This number dwarfs the MRIs available in any other country in the world.

While some in the healthcare community will argue that this is an indication of the vastly superior medical capabilities and resources available to U.S. healthcare consumers, there are numerous studies showing that the healthcare industry is the only industry where technology advances have actually increased costs instead of reducing them.

This hits the healthcare consumer in two ways. First, the out-of-pocket cost to the American healthcare consumer continues to increase as employers shift more of the burden of healthcare cost to the employee in the form of high-deductible plans. Premiums, copays and coinsurance payments continue to increase regardless of the deductible.

The “affordable” in the ACA is and has always been intended to make healthcare accessible to low-income, uninsured Americans. But the healthcare insurance lobbyists who wrote or influenced large portions of Obamacare made sure that they would continue to achieve high profits through risk corridors written into the ACA as well as no limitation on the ability of insurance companies to increase premiums year-over-year.

That brings us to the second way that the U.S. healthcare consumer gets hammered. Constantly rising healthcare costs represent a large portion of our federal deficit. And who pays the price? U.S. taxpayers, of course.

So how does the increased cost of healthcare for non-Medicaid U.S. consumers impact physicians and health systems? There is already significant evidence that more U.S. consumers are deferring healthcare due to the higher out-of-pocket cost. This is particularly true for medical procedures and services that are considered elective, but many surgeons and other physicians report a greater resistance and postponement of what they consider necessary treatment that the patient chooses to consider as elective and deferrable.