With Congress scrounging around to figure out how to pay $1 trillion dollars for health care reform, the real “stakeholders” in this uphill battle—doctors, researchers, patients, and the medical industry that serves them—are beginning to see the problem.
According to the Wall Street Journal, although the House Bill “gives the medical-device industry better breaks, it will cause more problems for drug makers than legislation in the Senate.”
For medical device makers, the Senate Finance Committee bill approved in October would place a $40 billion tax over 10 years on such companies. (This tax is what one gets for insisting that they stay out of the discussions). That figure is halved to roughly $20 billion in the House version. There is speculation that Senate leaders are also preparing to reduce the tax to around that level.
Either way, device makers like Invacare Corp., a leader in making oxygen supply systems and other home medical equipment, asserted that “the tax will eat into profits and lead to lower research spending.” Chief Executive of the company Mal Mixon, called for taxes on profits, not revenues, so that businesses can stay open.
Under the House bill, the 2.5% levy on device makers applies to revenue at the point of sale, though it excludes certain retail purchases. The Senate Finance version would tax device makers according to their share of the market and would go into effect three years sooner.
The House bill specifically hurts the drug industry by giving elderly people who are eligible for both Medicare and Medicaid rebates from the drug makers. The total of such rebates are estimated to cost the industry $60 billion over a decade. The House version, “unlike the Senate version, also allows the federal government to negotiate Medicare drug prices directly with companies, a provision the industry has fought.” Some estimate that the house bill could cost the drug industry as much as $140 billion total, almost double what drug companies offered in June ($80 million).
The impact of such cost for the drug industry "could lead to catastrophic job losses and cuts to Research and Development,” according to Ken Johnson of PhRMA.
One positive provision in the house bill for makers of brand-name drugs creates a way for the Food and Drug Administration to approve generic versions of biologic drugs, complex and expensive medicines derived from proteins. This provision “gives brand-name-drug companies sales exclusivity for 12 years and allows them to extend it with minor tweaks to their formulas.” This would allow industry significant abilities to invest in research and development of new life saving drugs and treatments.
Although supporters of the bill believe the new taxes are warranted by the fact that more Americans will carry health insurance, this does not mean such plans will cover the cost of future drugs or devices.
Many drug and device companies already depend on Medicare beneficiaries for a large percentage of their sales. Adding 10 million young adults who rarely use medicine or devices will not generate enough revenue to offset such taxes, nor will the poor who will need subsidies in the first place to get coverage.
Once again, this attempt to pay for reform at the expense of everyone including companies who take all the risk in saving lives and carrying out research to ensure safe and effective products shows why Congress must reconsider how it will pay for health care reform, at least if they want to see cures for diseases in the future.