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ACA’s 2013 medical device tax has already killed jobs & expansion plans

Posted by Jessica Hartman DeVore on Thu, Apr 19, 2012 @10:02 AM

The Patient Protection and Affordable Care Act (ACA) includes a new 2.3% tax on the U.S. sale of medical devices beginning in 2013. The tax was included to raise $20 billion in revenue to partially offset the cost of the new, $1 trillion health program. The 2.3 percent tax is imposed on revenue, not profits, so that the tax applies to devices regardless if they are sold at a loss.
This particular financing measure is now the target for repeal by a growing number of Members in Congress because of its impact on patient access to life-saving therapies, American jobs, and medical innovation in the United States.

Regardless of how the Supreme Court rules on the ACA, there are many claims about the tax that are inaccurate and do not reflect existing realities about its impact.

Jobs and investment will suffer
 
Claim: The new tax will not shift employment offshore because the tax does not create an incentive to move production overseas.
Reality: Even without going into effect until 2013, the device excise tax has already caused companies to lay-off workers, grow device manufacturing jobs outside the U.S., reduce investment in research and development, and eliminate capital investment in new U.S. facilities. The device excise tax applies to the sale of medical devices in the U.S.

This is on top of our federal tax rate at 35 percent and state and local taxes. Combining these U.S. taxes with a slow and cumbersome approval process, the excise tax adds tremendous disincentive to companies wanting to stay in the U.S. and compete in the global marketplace. Compare Ireland’s tax of 12.5 percent of profit and Canada’s national tax of about 15 percent of profit for most companies to the existing U.S. tax rate of 35 percent that many companies face.
 
Tack on the new federal tax of 2.3 percent of sales, which equals about a tax of 15 percent on profit for most companies, and U.S. manufacturers in 2013 will pay a tax of about 50 percent for every dollar earned. Companies operating outside the United States will be at a distinct competitive advantage as those taxes start from a significantly lower base.
 
It’s disingenuous to say that that level of taxation will not lead companies to locate new factories and research and development arms outside of the U.S. Foreign manufactures have a clear price advantage by paying a tax bill that can be half what a comparable U.S. firm will pay. Academic claims that the tax will not have an impact on U.S. jobs is naive and does not match reality. Medical device companies have signaled a warning for several months now.
 
Here are just a few examples:
-Stryker Corporation announced a layoff of 1,000 workers due to the tax
-Boston Scientific built a $35+ million research and development center in Ireland instead of North America
-Boston-Scientific is also girding for a $100+ million charge to earnings in 2013
-Zimmer plans to lay off 450 and take a $50 million charge against earnings
-Cook Medical has shelved plans to build a medical device factory annually in the U.S.
 
No windfall for the device industry
 
Claim: The ACA will insure millions of people and therefore device companies will benefit from new business through the sale of more devices.
Reality: Reducing the number of uninsured will not increase the number of patients seeking medical devices. Most of our medical technologies are either used today by patients in emergency situations or by elderly patients who are already insured by Medicare. There will be no windfall for our industry just because more, non-elderly patients have access to insurance.

 
Here’s why: In the emergency room today, patients receive our technologies regardless of whether they have health insurance or not. These devices that are used in this setting include drainage catheters, tracheostomy tubes, intubation devices and myriad of other devices to maintain life. Federal law requires that all patients in need of emergency services be treated regardless of their ability to pay or whether they have health coverage. The ACA does not change this paradigm.
 
Further, the administration has stated that the demographic group that will most benefit under the ACA are the non-elderly. Young people tend not to be in need of stenting or other vascular or organ repairs for aging related conditions. Most of the patients that use our products are elderly and today they are either treated in the emergency room without regard to health insurance or covered by Medicare that already reimburses hospitals for medical devices.
 
This analysis is borne out in Massachusetts, which has a similar universal health care approach. Internal analysis shows that medical device sales did not increase beyond the increase expected prior to enactment of the Massachusetts new health law.
 
Devastating impact on medical innovation

Claim: Tax will have little effect on medical innovation.
Reality: The device excise tax will have a real and serious impact on medical innovation in the United States as research, development and manufacturing move overseas as a result of the existing tax and regulatory systems in this country. While the medical technology industry has helped to fuel the U.S. economy in recent years, its position as a global leader may erode over the next decade.
 
This will no doubt affect: 1) the ability of Americans to access future break-through medical advancements; and, 2) the growth of U.S. jobs. In the future, China, India and Brazil will experience the strongest gains in developing next-generation products. Without changes to U.S. policies, gains may lead to an exodus of capital, jobs and research away from the U.S. toward these growing markets. (Source: ’Medical Technology Innovation Scorecard: The Race for Global Leadership,’ PwC, January 2011.)
 
The economics of this highly competitive sector are not static and several policies have driven American medical device companies to seek clinical data and launch new products outside of the United States. The new, 2.3 percent excise tax on the selling price of a device will leave companies no choice but to reduce research and development and capital investment in the U.S. It will lead companies to migrate to lower cost tax jurisdictions and tax start-up companies, whether those firms have profits or not.
 
The new tax will force companies to limit research budgets to test new products and ideas – the lifeblood of growing device companies. When these resources are curtailed, patients pay the price with more limited medical treatment and a reduced chance of survival.
 
In addition, the tax will limit capital investment in new facilities. Boston-Scientific projects a $100+ million annual hit to earnings from the tax. Cook estimates it will cost $20 million a year ’ about what we had planned to invest annually in new factories across the Midwest, factories such as the plant that opened 1n 2010 in Canton, Ill., or the expanded plants opened in 2009 in Spencer, IN.
 
Wages from those jobs ripple through and strengthen the local community. This new device excise tax will deny patients access to life-saving medical technologies because companies will be forced to move jobs and research facilities overseas. It is fool-hardy to believe that U.S. companies will be able to compete globally when their competitors do not face the tax and regulatory burdens here in the United States. We are already seeing the impact of the medical device tax and this is just the beginning if this tax is not repealed. Americans deserve access to these break-through technologies.

MEDCITY – Devices
April 16, 2012
By Kem Hawkins (President and CEO of Cook, Inc.)

Tags: hospitals, healthcare suppliers, IDNs, integrated delivery networks, medical devices, market research, Center for Medicare and Medicaid Services, Affordable Care Act, ACA, market forecasting, sales

3.5 Game Changers for Critical Access Hospital Radiology & Imaging Service

Posted by Stan Schroeder on Wed, Oct 26, 2011 @03:59 PM

Boy, have things changed for Critical Access Hospital Radiology & Imaging Services in the last few years.  There was a time when mobile routes were really the only way for rural and Critical Access Hospitals (CAH) to gain access to modern technology within the larger imaging modalities.  With limited patient volumes, the cost to mobilize, transport equipment and technologist from site to site just made more sense than carving out a space, purchasing a system and staffing an in-house technologist. 

Fast forward to today… 3.5 game changers that flipped this rural hospital strategy on its head:

1)     Deficit Reduction Act  

Ouch. A segment known as free standing imaging centers is nearly wiped away.  The reimbursement gap forced hundreds to sell or close, leaving only the largest and most well connected centers.  The immediate impact is of course increased volume for CAHs, leading to increased revenue for those facilities able to shift gears and service the expanded marketplace.  

    2)     Refurbished Imaging Equipment

    A 25%-50% change in capital outlay on the front end changes everything.  Bringing MRI and CT “in-house” became far more compelling with this reduction and the elimination of shoe string costs (trucking, technologist travel, etc.).  It’s a win-win both in terms of the financial upside and higher level of patient care. 

    If you are considering refurbished equipment for the first time, be sure to check out Block Imaging’s “6 Questions to Ask Before Buying Refurbished Medical Equipment”.

    3)     Third Party Service Options

    Engineers are now located around the country who are fully capable to provide top notch imaging equipment service.  Equipment that was once deemed “end of life” has years of quality imaging that remains.  Whether time and materials coverage, parts only, shared risk or even full service coverage, beyond simply having more options, it’s also had a significant impact on OEM service pricing. 

     

    3.5)  Quality Replacement Parts

    Don’t forget quality medical equipment parts.  Whether coils, injectors, boards or other components, parts accessibility no longer makes “list” price the only option.  No pressure to sign the full service coverage or even a parts only plan so you’re not over a barrel with a part.

    As you can see, much has changed.  Block Imaging exists to serve you as you navigate the ever changing waters of Imaging.  Whether buying, selling, looking for a FMV or even want to discuss strategic ways to balance your economic and clinical needs, we are here to help

     

    Author –  Josh Block

     

    Tags: Essential Healthcare, hospitals, healthcare suppliers, Affordable Care Act, defecit reduction act, critical access hospitals, radiology

    Final Rules for Accoutable Care Organizations

    Posted by Stan Schroeder on Tue, Oct 25, 2011 @01:35 PM

    The Department of Health and Human Services (HHS) released its final rules for Accountable Care Organizations. Initial impression? Less restrictions and more flexibility for physicians and providers wishing to participate. Look for complete coverage, insight, analysis and commentary regarding the final rules in upcoming issues of ACO Insights (www.acoinsights.com). Here are some initial thoughts:  

    • The risk-reward of the final rules is much more favorable toward providers.

    • Providers will be able to participate in an ACO and the Medicare Shared Savings program without the risk of losing money with one of the tracks provided.

    • ACOs will be able to start sharing in the savings earlier.

    • The number of quality measures was reduced from 65 to 33, and five domains to four.

    • There is no EHR requirement in the final rules.

    • Participants can only be part of one ACO.

    • Beneficiaries will be assigned to an ACO based on how they utilize primary care services, but if they aren't seeing a primary care physician, then they may be assigned based off of services provided by other physician specialties. Providers will be informed which Medicare beneficiaries will likely be a part of the ACO.

    Tell your colleagues to subscribe to ACO Insights for detailed features, news and opinions on accountable care (http://www.acoinsights.com/Subscribe.aspx

     

     

    John Pritchard
    ACO Insights
    MDSI
    1735 North Brown Road
    Suite 140
    Lawrenceville, Georgia 30043
    United States
    (770) 263-5261

    Tags: medical, ACO, Accountable Care Organizations, healthcare suppliers, Regulations on ACOs, ACO Regulations, ACOs and suppliers, HHS Regulations, gpos, Healthcare Service Provider, GPO, Center for Medicare and Medicaid Services, Affordable Care Act

    How Will Value-Based Purchasing Affect Hospitals and Healthcare Providers?

    Posted by Stan Schroeder on Fri, Jun 03, 2011 @11:53 AM

    The Affordable Care Act requires Medicare hospitals and healthcare providers to have in place value-based purchasing (VBP) programs by the beginning of the 2013 fiscal year, which starts Oct. 1, 2012. The initiative is a means of encouraging providers to demonstrate “value” by reducing costs and improving patient outcomes in areas that the Centers for Medicare and Medicaid Services (CMS) have identified for improvement.
     
    Inpatient acute-care hospitals that meet or exceed certain performance standards for a minimum of five measures related to the care of patients will be eligible for incentive payments, or higher Medicare payments. Initially, the program will cover the following conditions or procedures – acute myocardial infarction (heart attack), heart failure, pneumonia, certain surgeries and healthcare-associated infections. Within a year of launch, the program will expand to include “efficiency measures” that have been adjusted for age, sex, race, severity of illness, etc.
     
    The value-based purchasing program initially places one percent of hospitals’ Medicare inpatient prospective payment system payments but increases this to two percent by the 2017 fiscal year. The program marks the first time hospitals will be paid for inpatient acute care services based on care quality and not just the quantity of services provided. According to the U.S. Department of Health and Human Services, it will impact more than 3,500 hospitals across the nation. It is expected that in Fiscal Year 2013, an estimated $850 million will be allocated to hospitals based on their overall performance on a set of VBP quality measures that have been shown to improve clinical processes of care and patient satisfaction.
     
    Next week: How Value-Based Purchasing Will Affect Healthcare Suppliers

    Tags: healthcare, medical, hospitals, Healthcare Service Provider, Quality, Center for Medicare and Medicaid Services, Value-Based Purchasing, Medicare, Affordable Care Act, VBP, patient satisfaction, business growth

    What is Value-Based Purchasing?

    Posted by Stan Schroeder on Wed, May 25, 2011 @11:28 AM

    In January, the Centers for Medicare and Medicaid Services (CMS) proposed policies for implementing a value-based purchasing (VBP) program for Medicare hospitals in accordance with the Affordable Care Act passed by Congress in 2010. Last month, the CMS solidified the VBP program by releasing a final rule that requires performance metrics. The VPB program will go into effect beginning in fiscal year 2013.

    Value-based purchasing is a new concept that focuses on increasing the value that comes from purchasing medical supplies in a tangible way that can be assessed through metrics. CMS has helped identify certain aspects of hospital service that can be measured and improved, including everything from product costs and payment expediency to improving patient outcomes and customer service scores.

    If the metrics indicate that a Medicare hospital has been demonstrating high levels of performance in these areas by purchasing these products, then the hospital becomes eligible to receive higher reimbursement levels, which translates directly into more money for purchasing. Payments made for hospital performance and quality measures will begin in fiscal year 2013.

    So what does the implementation of value-based purchasing mean for hospitals and healthcare service providers? How will it affect healthcare suppliers? As an industry leader in connecting healthcare service providers with purchasers in hospitals, we will be examining the effects of value-based purchasing in respect to quality and cost in the coming weeks.


    Next week: How Value-Based Purchasing Will Affect Hospitals and Healthcare Service Providers

    Following week: How Value-Based Purchasing Will Affect Healthcare Suppliers

    Tags: Essential Healthcare Management, EHM, healthcare, medical, hospitals, healthcare suppliers, Healthcare Service Provider, Quality, CMS, Center for Medicare and Medicaid Services, Value-Based Purchasing, Medicare, Affordable Care Act, VBP, business growth