Obama's Massive 86% Tax Increase on Medical Device Companies

One of the many taxes in Obamacare is a 2.3% excise tax on medical device manufacturers. While 2.3% doesn't sound like much, you have to remember that this 2.3% is taken from the revenue line, not the bottom line, magnifying it's impact as net margins for the medical device industry are in the teens. According to the Advanced Medical Technology Association, the industry had $13.7 billion in net income in 2006, paying $3.1 billion in taxes for an effective tax rate of 22.6%. When this new tax goes into effect, they estimate they will have to pay an additonal $2.67 billion in new taxes. If you use 2006 values that means that their tax burden would increase by 86% and their effective tax rate would be a whopping 42.1%! What is worse is that companies will have to pay the tax even if they have no profit. $600 million of the taxes will be paid by companies that are losing money! This will have a few major negative impacts:

1. Job losses. Less profits means less money to go around for employees. Just what we need, more unemployment!

2. Less investment in medical device companies. When you try to figure out the value of a potential investment, you look at the net present value of the future cash flows, basically the income after taxes. If that income dives, the value of that potential investment goes down significantly and you are less likely to invest in it. This will slow the development of new revolutionary treatments. Again, just what we need, less innovation!

3. Less competition. Some of the smaller companies, especially those that have no profits and will have to pay $600 million of the excise tax, could be forced to exit certain markets or have to declare bankruptcy. Do we really want less competition?

I'm sure some would argue that medical device companies can simply raise prices. There are a few problems with this argument. First, reimbursement for medical devices is often fixed by third party payors, so whether your device costs $25,000 or $2,000, the doctor/hospital receives the same reimbursement. This limits the ability of medical device companies to raise prices since if a hospital or doctor doesn't make money on a procedure they will just do less of them. So unless reimbursement rates go up as well, many medical device manufacturers are SOL. Also, there is heavy competition in many spaces so your medical device is one of many and you are constantly seeing price deflation in many major markets, be they coronary stents or ICD's due to this competition. There just won't be the room to raise prices so medical device companies will have to bear much of the burden themselves. And finally, even if they did pass on the full cost of the tax, wasn't the point of Obamacare to make the costs of healthcare cheaper not drive them up further?

It's very easy to take your eyes off the prize with everything that is going on but we need to remember that we have to get rid of Obamacare, one way or the other.

What I would do (and what these device makers will do)?

Raise prices by 5% and tell all buyers - “sorry, its a requirement of Obamacare and with additional compliance costs - our hands are tied.”

If anyone thinks that these cost increases, and then some, won’t be passed on to consumers, they are fools.

Since I first heard of this outrage, I wondered to myself, "Obama and his minions are claiming they're trying to lower the cost of medicine, and doing it by increasing the cost of medical devices. Must be a leftist thing, to make something cost less by raising the cost of it."

Mark

“If anyone thinks that these cost increases, and then some, won’t be passed on to consumers, they are fools.”

In a normal market you would be correct, but healthcare isn’t a normal market with the government setting prices irrespective of the costs involved. It’s extremely Soviet in that regard, many of the reimbursement levels have zero basis in reality. A vascular surgeon can spend 6 hours in an operating room elbow deep in blood fixing an anyeurism and get paid less than for a 15 minute out patient procedure to fix someone’s vericose veins. It is totally messed up.

"Must be a leftist thing, to make something cost less by raising the cost of it."

Actually, they intend to lower the cost of medical care by making many drugs, courses of treatment, and supportive devices unavailable except within the special hospitals the nobility use. That way those costly items will vanish from the cost sheets along with the people who were kept alive or lived longer due to those things being available. If people are dying, that doesn't increase costs so, let them die and make the average cost fall. That's the plan and anyone who listened during the great Obamacare propaganda campaign knows it.

They're reducing costs by denying treatment and allowing people that can be easily treated to die. Prolonging the useless lives of those the fascist nobility doesn't need is sure to reduce costs. If you're older than forty and not someone the nobility finds useful, watch your ass because you may not even be able to get an inexpensive antibiotic by 2014.

Yeah, except that it doesn't work that way. Remember, patients don't pay for their stuff directly most of the time; they have insurance or, more likely in the medical equipment arena, Medicare. Medicare pretty much sets the baseline for reimbursement in the whole industry and Medicare isn't going to pay more just to offset the government's own taxes. (That'd kinda defeat the point.)

No, it's the manufacturers, doctors, and clinics that'll get squeezed.

Shalom

The device manufacturers can do whatever they wish. The fact that medical devices will now be priced ABOVE the breakeven point for a variety of personal services means:

(1) R&D in medical devices will be held back,

(2) More lower skilled third-world medical personnel will need to be imported to do the personal service part.

For what it's worth, Obama and his running dog lackeys fear the future.

Ironically, just a little more than a decade ago, there was a doctor surplus. In 1996, a committee of the Institute of Medicine warned that the United States had a surfeit of doctors caused by foreign-trained physicians coming here to work and recommended freezing med-school class sizes and limiting first-year residency positions. A year later, Slate ran an article on an alternative strategy for reducing the number of doctors approved by the federal Health Care Financing Administration. Under the Graduate Medical Education Demonstration Project, 41 teaching hospitals received $400 million in exchange for not training between 20 percent and 25 percent of the medical residents they would otherwise have trained over the next six years.

http://www.slate.com/id/2217146/

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