Cost mech­a­nisms a worry

Sup­pli­ers, buy­ers un­set­tled over cost mech­a­nisms

Modern Healthcare - - Editorial -

Now that the on switch has been flipped, med­i­cal-prod­uct sup­pli­ers and pur­chasers are wait­ing to see how the newly minted health­care-re­form ma­chine per­forms and what ef­fects it will have on their busi­nesses.

The mas­sive piece of leg­is­la­tion con­tains a num­ber of mech­a­nisms meant to place down­ward pres­sure on the cost of drugs and med­i­cal de­vices while also re­quir­ing those in­dus­tries to help pay for the na­tion­wide ex­pan­sion of med­i­cal cov­er­age. They in­clude taxes on both the med­i­cal-de­vice and phar­ma­ceu­ti­cal in­dus­tries and an ex­pan­sion of the Med­i­caid 340B drug-dis­count pro­gram for cer­tain providers serv­ing low-in­come and chron­i­cally sick pa­tient pop­u­la­tions.

Un­cer­tainty over how those mech­a­nisms will work, how­ever, has prompted a mix of cau­tious op­ti­mism, res­ig­na­tion, and “what’s next” strate­giz­ing among health­care sup­ply-chain of­fi­cials.

“I think we all feel like this is a needed step in the right di­rec­tion, but it will be chal­leng­ing,” said Blair Childs, spokesman for the group pur­chas­ing and qual­ity im­prove­ment or­ga­ni­za­tion Premier.

Chief among the many un­cer­tain­ties is the fi­nal tally and pay­out of taxes as­sessed on the med­i­cal-de­vice and drug in­dus­tries.

The leg­is­la­tion calls for de­vice­mak­ers to pay $20 bil­lion in taxes over the next 10 years to help sup­port health­care re­forms. Un­der the bill passed March 21 and signed into law March 23, the pay­outs are sched­uled to be­gin in 2011, and the mar­ket share­based tax will be as­sessed an­nu­ally by the In­ter­nal Rev­enue Ser­vice. But the rec­on­cil­i­a­tion bill the Se­nate passed last week—and which was headed to the House at dead­line for fi­nal pas­sage—would move the pay­out start date to 2013 and change the tax to a 2.3% ex­cise, or sales, tax, which still aims to col­lect a to­tal of $20 bil­lion.

The pro­posed changes are a mixed bag of con­cern and re­lief for providers and de­vice­mak­ers. The two groups are still bat­tling over who ul­ti­mately will bear the bur­den of the tax. Providers fear that de­vice­mak­ers will sim­ply try to pass the tax on through higher prices or by adding a sales tax onto the cost of goods.

Lee Perl­man, pres­i­dent of GNYHA Ven- tures, a group pur­chas­ing or­ga­ni­za­tion serv­ing hos­pi­tals in the greater New York state area, said his group and other GPOs and hos­pi­tals plan to fight any ef­forts by de­vice­mak­ers to pass along the tax. “The pur­pose of this tax was for de­vice­mak­ers to con­trib­ute to the cost of health­care re­form,” Perl­man said. He added that while providers are con­cerned that the ex­cise tax would make it eas­ier for de­vice­mak­ers to try to pass along the costs, the House rec­on­cil­i­a­tion amend­ments also would pro­vide an ad­di­tional two-year win­dow for providers to fight off such at­tempts. “I want de­vice­mak­ers to un­der­stand that our hos­pi­tals will not ac­cept any form of that ex­cise tax be­ing passed along,” Perl­man said. “We’re go­ing to use our com­pet­i­tive forces dur­ing con­tract ne­go­ti­a­tions to make sure it doesn’t hap­pen.”

But as de­ter­mined as GPOs and providers are to avoid pick­ing up the tax, de­vice­mak­ers are equally de­ter­mined not to bear the bur­den. In­dus­try rep­re­sen­ta­tives ar­gue that since de­vice com­pa­nies are not re­im­bursed by in­sur­ers, their prod­ucts have no di­rect ef­fect on the cost of health­care. “The cost of a de­vice is in­cor­po­rated into the pay­ment providers re­ceive” for health­care ser­vices, said Brett Loper, se­nior ex­ec­u­tive vice pres­i­dent of the de­vice in­dus­try lobby group Ad­vanced Med­i­cal Tech­nol­ogy As­so­ci­a­tion. “So in our opin­ion there are bet­ter ways to re­duce costs. Our rec­om­men­da­tion was to look at ways our cus­tomers are paid.”

Loper con­ceded that the House’s rec­on­ciled ver­sion of the tax is less bit­ing than pre­vi­ous ver­sions. “The ben­e­fit we see is that it is clear, more di­rect, and it’s de­ductible from a cor­po­ra­tion’s in­come tax. That’s not to say it will have no ef­fect on our cus­tomers,” he said. “You’d have to ask in­di­vid­ual com­pa­nies what their in­voices will look like, but I sus­pect that some­place you’ll see a 2.3% ex­cise tax.”

Phar­ma­ceu­ti­cal com­pa­nies are also de­ci­pher­ing how their bot­tom lines will be af­fected by the re­form leg­is­la­tion.

Un­der the cur­rent ver­sion of the law, drug-

Hatwig: “If I’m one of those hos­pi­tals, I’m dis­ap­pointed.”

Childs: “Step in the right di­rec­tion, but it will be chal­leng­ing.”

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