GPOs Showing Solidarity –Putting Device Makers Under a Microscope

The largest medical device buyers, including the GPOs on behalf of their members, are protesting as they see an increasing number of manufacturers directly shifting the cost of the 2.3% medical device excise tax (MDET) onto hospitals and other healthcare providers. Going into effect this year, the 2.3% tax –which will be levied on gross revenues, not profits— is intended to generate $20 billion in support of insuring the uninsured over the next decade.

Using Stryker’s “offset math,” the tax will raise a little more than double its cost in industry restructuring ($20 billion in tax revenue versus $7.5 billion in restructuring costs/lost jobs over the same period). But that math only makes sense if the cost of the MDET isn’t passed on to consumers. And when was the last time that didn’t happen?

The Healthcare Supply Chain Association (HSCA) last week issued a sternly worded press release chiding some medical device makers for “shifting the burden of the medical device excise tax directly to American hospitals and other healthcare providers.”

“HSCA and its group purchasing organization members will continue to monitor the device marketplace for evidence of cost-shifting onto hospitals, and encourage our hospital partners not to enter into contracts that bill them for the device excise tax,” president Curtis Rooney said in prepared remarks. “We urge all manufacturers to immediately stop passing the medical device tax on to American hospitals, and ultimately to patients and taxpayers.”

HSCA wasn’t alone in refusing to accept the burden of the medical device tax, a 2.3% levy which took effect at the start of the year despite industry objections. Last week group purchasing organization Novation issued a “firm stance” of its own, accusing unnamed device makers of shifting their tax burdens onto an already stressed healthcare system.

“While most device manufacturers are taking responsibility for this tax, there are some manufacturers attempting to pass their obligation on to hospitals,” Novation president & CEO Jody Hatcher said in prepared remarks. “This tax should be the responsibility of the manufacturers, and Novation is dedicated to ensuring that member hospitals are impacted by it as little as possible.”

The tax was designed to ensure that medical device makers help cover the cost of reform. Healthcare providers committed $155 billion over 10 years and the pharmaceutical industry committed to $80 billion, so the MDET is considered “fair” by those who voluntarily “stepped up” to help finance the Act.

Indeed, according to a Novation statement, it was because the Medical device manufacturers refused to make similar commitments voluntarily that “resulted in the government imposing the Medical Device Excise Tax –to cover their portion.”

Wow. Did any of you see this coming?

“American hospitals have already lived up to their shared financial responsibility for national healthcare reform, and now face mounting budgetary strain as they continue to deliver affordable and effective patient care with fewer dollars,” Rooney said.  ”As hospitals, long-term care facilities and other healthcare providers continue to stretch their budget dollars, they will continue to rely on their GPO partners to reduce healthcare costs and deliver the best medical products and services at the best value.”

That’s code for: We won’t tolerate the medical device-makers baking-in their tax burden into a new set of higher consumer prices. Like Novation, Premier has made the same point. In fact, it has argued for IRS oversight/protection.

I don’t know if this is a “pot calling the kettle black strategy” on the part of everyone but the medical device manufacturers, or if the device-makers themselves are “restructuring” a little too conspicuously and inviting the backlash.

What I do know is this: When the GPOs, with next to no effort, can make themselves look like the “good guys” in a battle over a few percentage points, the Medical Device Manufacturing Association (MDMA) should consider firing its PR firm. In all seriousness, it’s good to see lines being drawn, because for far too long that was the essential problem (i.e. there weren’t any lines).

—Tom Finn

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