The Future of Health Reform - VII - Device / Drug Manufacturer

As more of the US population is insured, Obama's theory was that the medical device and pharmaceutical industries would benefit from more customers. Thus, these industries should help finance the law through taxes.

However, is the situation facing the drug / device manufacturers similar to the one for doctors, where an increase in covered patients means a commensurate increase in business for these manufacturers? Not quite.

Most medical devices are sold to people on Medicare. The passage of Obamacare doesn't change the size of this population. Thus, medical device companies haven't seen the growth in patients necessary to offset the taxes that they must pay.

Some also justified the medical device tax as a way to "punish" medical device companies for excessive pricing. However, a study showed that medical devices only increased at a rate of 1% from 1989 to 2013 vs. 4.5% for the "medical consumer price index" vs. 2.7% for the overall consumer price index.

What's worse, the 2.3% tax is applied to a medical device companies' sales, not profits. This makes the effective tax rate especially high for startups. For example, Signus Medical, a Minnesota-based startup, ended up paying a 79% effective tax rate.

Pharma companies escaped with just a tax on branded drugs. However, Obama and company regard the lack of controls on pharmaceutical drug pricing as their biggest miss of the PPACA. Six years ago when PPACA was being conceived, pharmaceutical drug prices were not as much of a focus as they are now.

So, the benefit of Obamacare on Medical Devices looks to be net negative due to the medical device tax, but the impact on pharma companies is less clear.


Sources:

Let's Repeal The Dumbest Levy Of All Time: The Obamacare Excise Tax On Medical Devices

Medical Device Makers See Opening In Repeal Of Obamacare Tax