Yet More Fuel for the Fire to Repeal the Device Tax National discussion of the healthcare reform

Yet More Fuel for the Fire to Repeal the Device Tax

National discussion of the healthcare reform law’s medical device industry tax continues to heat up after a new report from Battelle released by the Advanced Medical Technology Association (AdvaMed). The report gives a detailed breakdown of what kind of costs the medical device industry and its consumers can expect in terms of hard dollar amounts—and it doesn’t look good.

Battelle is a non‐profit independent research and development firm focused on laboratory management; national security; health and life sciences; and energy, environment and material sciences.

Battelle’s analysis shows that the medical device technology industry is responsible for generating just under 1.9 million jobs in the United States, more than $113 billion in personal income for U.S. workers, $191 billion in value-added activities, and $381 billion in national economic output. Battelle modeled a scenario or “economic event” whereby a change in the operating environment in the United States might result in the medical technology industry declining by $3 billion. The decline, the report predicted, also could result in the loss of approximately 39,000 jobs and more than $8 billion in economic output. According to the group’s numbers, the hardest hit states would be California, Minnesota and Florida.

Battelle echoes the concerns medical device industry insiders have been voicing for some time: Namely that the excise tax (2.3 percent) to be levied against medical devices in 2013 will stifle a vital industry. The report calls the medical device industry one among “a select group of ideal industries.” The report deems it as such in terms of the industry being R&D driven and therefore advantageous for U.S. producers and somewhat impervious to international competition; creating exportable products; providing “high, family sustaining wage levels;” and being a nationwide rather than geographically niche industry. The report lauds medical device companies as preservers of American autonomy, innovating at such a high level as to exclude the possibility of competition and maintain America’s position as a leader in technology. The report also relies on a lot of hypotheticals in terms of projected effects of the tax. Defenders of President Obama’s tax argue that medical device companies will be protected because most devices are covered by insurance, which doesn’t respond much to price changes. Because it mandates coverage for all citizens, healthcare reform also will add many more people and dollars to the insurance rolls which will help offset the excise tax. Also hypothesized are the predictions of industry growth in the report’s conclusion. Tying the report back to the notion of the “ideal industry,” Battelle points to inevitable anticipated growth due to “increased national demand for new devices to assist in prevention, diagnosis, and treatment of medical conditions coupled with an
increase in global demand—led by an expanding global population, increasing global wealth, increasing access to healthcare, and an aging population in leading developed nations.

The end of the report effectively equates the excise tax with a discouragement of R&D investment and a hindrance to profitable business operations. This tax will go toward funding the $2.6 trillion healthcare law over ten years. It is yet to be seen what the actual effects of the tax will be—or if, considering the recent hearings in the Supreme Court regarding the reform, there will be any changes to the law and tax before it goes into effect in 2013.

“It’s a critical time for our economy, and medical technology companies can be an engine of economic recovery and growth,” said Stephen J. Ubl, president and CEO of AdvaMed. “But for advanced medical technology companies to create the jobs needed to help power America’s economic future, we need to operate in a business environment that will lead to tomorrow’s treatments and cures after investment in research and development.”

Ubl said the tax will send the device industry and the U.S. economy in “exactly the wrong direction,” and he urged the repeal of what he termed an “anti-competitive, counterproductive, job-killing tax.”
Originally slated to generate $20 billion over the course of 10 years, the excise tax could cost a great deal more. According to estimates released as part of the White House’s Office of Management and Budget fiscal 2013 federal budget analysis, the tax would generate $30.4 billion by 2022—just slightly north of 50 percent more than originally outlined. Plus, there was no provision in the legislation for the device tax to “sunset.” So, the long-term affect beyond 10 years is unknown. A vote on legislation to repeal the tax is expected in the U.S. House of Representatives, but the issue doesn’t have nearly as much momentum in the Senate.

Unique Identifier System Requirement Proposed in the Senate
Four U.S. senators have introduced legislation that would require unique identifiers for implantable medical devices and ongoing monitoring of the devices for safety issues.

Sens. Jeff Merkley (D-Ore.), Charles Grassley (R-Iowa), Michael Bennett (D-Colo.), and Herb Kohl (D-Wis.), introduced the Ensuring Safe Medical Devices for Patients Act on March 15.

The legislation would require the U.S. Food and Drug Administration (FDA) to issue a final rule by the end of this year, requiring implantable devices to carry a unique device identifier, commonly referred to as a UDI. This is an issue that has been discussed for years by device makers, regulatory officials and lawmakers.

The “Ensuring Safe Medical Devices for Patients Act” would require FDA to issue a final UDI rule by the end of 2012, requiring implantable devices to carry a unique numerical identifier so products can be tracked through the distribution chain and once they are being used with patients. The UDI program was created nearly five years ago but FDA has not yet implemented it.

Last July, the FDA submitted a proposal calling for such an identifier to the Office of Management and Budget (OMB), which reviews regulations before they go through the final approval process. The OMB has yet to release the rule. The senators claim that UDIs would make it easier to track down devices that are harmful or defective. They noted that harmful or defective devices were associated with the death of almost 5,000 Americans in 2009.

In its proposal submitted for OMB review, the FDA noted: “A unique device identification system will help reduce medical errors; will allow the FDA, the healthcare community, and the industry to more rapidly review and organize adverse event reports; identify problems relating to a particular device … and thereby allow for more rapid, effective corrective actions…”

The proposed law also would add medical devices to the FDA’s post-market surveillance initiative, an electronic system that now monitors prescription drug safety after FDA approval.

“Strong post-marketing surveillance of medical devices will ensure that those that are defective or cause harm can be quickly identified, patients and their physicians can be notified, and dangerous products can be removed from the market,” said Sen. Jeff Merkley, the bill’s chief sponsor, in a statement.

The bill is similar to one released in December called the “Medical Device Patient Safety Act.”

A Popular Subject …
The medical device industry has been a “hot” topic lately in the halls of Congress. During a recent Senate Health Education Labor and Pensions Committee hearing about the renewal of the FDA’s medical device user fee program, Republican Sens. Richard Burr (R-N.C.) and Tom Coburn (R-Okla.) touted the results of a recent report from the Government Accountability Office (GAO) that claims the agency is meeting its review time goals under existing user fee legislation, but that those review times exclude the time it takes companies to comply with the agency’s requests for more information.

“The GAO oversight report released today confirms a disturbing trend: The FDA is taking longer and longer to make final decisions on life-saving medical devices,” the senators said in a joint statement. “This report makes clear that reporting only on the user fee performance goals negotiated by industry and the FDA does not paint a full picture of FDA’s performance. GAO’s report shows that FDA’s final decisions on devices are taking longer due to more review cycles and requests for additional information.”