A fair deal for device makers

Medical manufacturers helped get us into the health care mess, but will benefit from reform.

Kyle Weimann

Yesterday, House leaders unveiled their final health care plan, which would provide coverage to 36 million uninsured Americans, prevent insurance companies from dropping coverage or screening for pre-existing conditions, and âÄî importantly for students âÄî allow children to remain on parentsâÄô insurance plans through age 26. Highly-monopolized insurance companies would face competition from a self-funded public option that negotiates prices directly with providers. Overall, the plan would cost about $1 trillion over the next ten years, an amount which is fully paid for with reduced Medicare cost growth, additional taxes on the superwealthy, and a 2.5% excise tax on medical devices. It is this last item, which would raise $20 billion over the ten years, that has many lawmakers in Minnesota riled up. Medical devices are big business here; Medtronic and St. Jude Medical are headquartered in the Twin Cities and Boston Scientific produces heart stents and other cardiac devices at several plants in the metro area. In a rare display of bipartisanship, Senators Klobuchar and Franken have joined Governor Pawlenty in opposition to this tax. Responding to these concerns, the final House plan cut the total tax in half from that proposed earlier by the Senate Finance Committee. Indications are that Senate Majority Leader Reid is considering a similar move in the Senate. Despite these efforts, fears remain and are largely misplaced. The medical device industry is highly profitable, with margins ranging from 7 to 10 percent on basic stents to over 20 percent for artificial joints and high-end imaging devices. On top of this, their volume stands to increase considerably as the broader health care industry absorbs 36 million more paying customers. Device manufacturers also have not been innocent bystanders as health care spending has skyrocketed in recent years. Expenditures equaled 6.2 percent of the health care market in 2006 and were growing considerably faster than overall medical inflation. Dr. Steven Nissan, chief of cardiovascular medicine at the Cleveland Clinic explains this partially through the companiesâÄô aggressive marketing techniques, including confidential payments, to drive up demand. âÄúGiven the way they have encouraged over-utilization, it makes sense that some of that should be given back to help bend the cost curve,” he told the Washington Post. Worse, although spending on medical devices is far higher in the United States than other countries, health outcomes are no better. Given that the industry spent $15.9 million lobbying Congress in the first half of 2009, in addition to the thousands of direct campaign contributions from employees, it is little wonder that our lawmakers are rushing to their defense. However, they should remember both the benefits that will come from the broader reform and the role the manufacturers themselves have played in creating the overpriced health care system. Surely an industry with $2 trillion in anticipated revenues over the next decade can afford to pitch in $20 billion for much-needed reform. Kyle Weimann welcomes comments at [email protected]