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NYTimes reminds us why most don’t care about the medical device tax

August 6, 2013 7:23 am by | 2 Comments

money mapIn a rough U.S. economy, the NYTimes showed why medical tourism isn’t crazy: it can be just as efficient as American healthcare and jaw-droppingly cheaper–much in thanks to the device industry.

A recent New York Times post makes a case for greed on the part of device makers, particularly the ones that make joint replacements. The article fashions Warsaw, Ind., the orthopedics capital of the world, a Gatsby-style town thriving on expensive joint replacements. It further goes on to call the industry “a cautionary tale.” The article focuses on the story of a man – with health insurance – in search of a hip replacement that by one account costs about $350 to manufacture in Warsaw, IN.

Maybe these high price tags and profit margins (not to mention aggressive business practices) are the reason the industry has been unable to gain traction repealing the device tax. With profits like these, it seems to the average citizen that the industry can afford the tax.

Quotes that hurt:

  1. “The number of hip and knee replacements is expected to roughly double between 2010 and 2020, according to Exponent, a scientific consulting firm, and perhaps quadruple by 2030. If insurers paid $36,000 for each surgery, a fairly typical price in the commercial sector, the total cost would be $144 billion, about a sixth of the nation’s military budget last year.”

  2. “When Dr. Daniel S. Elliott of the Mayo Clinic decided to continue using an older, cheaper valve to cure incontinence because studies showed that it was just as good as a newer, more expensive model, the manufacturer raised its price.”

  3. “(Michael Shopenn) remembers in particular a ‘surreal’ discussion with a ‘very nice’ administrator about a $750 bill for a surgical drain, which he called ‘a piece of plastic in a sealed bag.’”

  4. “But do Americans want medical devices priced like smartphones? ‘That,’ Dr. (Peter M.) Cram said, ‘is a different question.’”

  5. “While Mr. Shopenn was offered an implant in the United States for $13,000, many privately insured patients are billed two to nearly three times that amount.
    “An artificial hip, however, costs only about $350 to manufacture in the United States, according to Dr. Blair Rhode, an orthopedist and entrepreneur whose  company  is developing generic implants.”

But it’s not just the quotes that hurt; it’s the math. Innovators complain the tax (and regulation) will send companies overseas, but what about the outsourcing of American patients caused by high prices? Sure, the tax may not be smart business, but why would anyone outside the industry, particularly those swimming in medical bills, listen?

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Lindsey Alexander

By Lindsey Alexander

Lindsey Alexander is an Indiana-based freelance writer and editor covering the medical device industry. She earned a degree in journalism from Indiana University and a master's from Purdue.
Visit website | More posts by Author

2 comments
Bob W
Bob W

In seeking controversy over content, journalists consistently fail to note that medical devices amount to about 3% of healthcare spending. This article then confuses the cost of surgery with the cost of devices, failing to recognize that 70% of the in-hospital cost is labor-related. Maddeningly, the author makes a false connection between cost of goods and price, without acknowledging that price is set by market conditions, and cost of goods is only relevant to the profit motivation. Repeating uninformed opinion does not inform, nor does lack of insight provide insight.

Richard
Richard

If the cost of an implant system to the hospital is $3000-$3600, the implant is not the first or event second driver of price to insurer/consumer.  The reporter/author should investigate  elements of "cost" in a hospital's pricing for this procedure.  The article as written is substantially misleading.