A grand bargain on medical device tax
In exchange for repeal of tax, let's have price transparency on high-cost devices
ONE PROPOSAL TO CHANGE the Affordable Care Act would repeal the law’s 2.3 percent tax on sales of medical devices. On June 2, the House Ways and Means Committee voted, once again, to rescind the tax and a vote in the full House is expected soon. Even progressive Democrats such as Massachusetts Sen. Elizabeth Warren and Sen. Al Franken of Minnesota, who hail from states where the medical device industry is strong, support repeal. But repeal is a bad idea on principle and impact. If Congress insists on repeal, they should at least demand something in return for the public, namely, an end to the medical device industry’s secrecy clauses and gag rules.
The medical device tax is one of many revenue increases included in the ACA so that the law does not increase the federal deficit. Pegged at $29 billion in new revenues over ten years, it embodies a principle called “shared responsibility.” To achieve comprehensive health reform, every system stakeholder contributes something to make reform succeed, and nobody gets off the hook. Who else pays? Insurance companies, hospitals, home health agencies, drug companies, businesses, labor unions, hospices, consumers, tanning salons(!) – just about every constituency connected to health care pays something to achieve the coverage and system improvements in the law.
The medical device tax has been in effect since January 2013 with no disastrous effects. More than 75 percent of it is paid by the largest 1 percent of firms such as Johnson & Johnson and Medtronic. (J&J actually opposes repeal.) But the medical device lobby has focused on repeal like a laser beam gaining support among members of Congress to accompany their tens of millions of dollars in campaign donations.
If Congress is determined repeal this tax, members should demand something from the medical device industry to improve the health care system as an alternative form of shared responsibility. Here is an idea: Congress should ban the practice common among medical device makers requiring that hospitals never disclose to anyone how much they pay for the devices they purchase, especially implantable medical devices such as hip and knee implants, coronary drug-eluting stents, and pacemakers. The price secrecy clauses written into contracts forbid hospitals from even telling their own surgeons the costs they incur and pass onto patients.
Medical device companies have proven themselves ready to sue hospitals and others based on pricing secrecy violations. Because of close relationships between device makers and individual surgeons, hospitals often find themselves pressured to agree to higher prices or risk losing the services of physicians who deliver surgical patients to their facilities.
Imagine you were seeking to buy a new car or television and unable to find any price information. Then imagine the salesman declaring that you’re getting the best price – and that you’d get an even lower price if you signed a contract promising never to reveal the price to anyone. Welcome to the world of medical device pricing.
The ACA is moving the US health system away from an inefficient and wasteful fee-for-service financing and toward transparency, accountability, and paying for value and outcomes, putting special pressures on hospitals. These challenges are made more difficult and unfair in an environment in which pricing secrecy limits the ability of hospitals to negotiate fairly.
In 2007, Sen. Charles Grassley, Republican of Iowa, sponsored the “Transparency in Medical Device Pricing Act,” which would have required device makers to disclose their prices to the US Department of Health and Human Services for public release. Unfortunately, he dropped the legislation after one session. Now Sen. Angus King of Maine is declaring his intention to amend any repeal of the ACA’s medical device tax by including medical device pricing transparency.I suspect, given a choice between linking device tax repeal with pricing transparency or passing nothing at all, the US medical device industry would opt for nothing at all. In our new health care environment, we hear lots of lip service paid to transparency and accountability. Let’s put it to the test and see what happens.
John E McDonough teaches at the Harvard TH Chan School of Public Health.