There’s been a heightened level of chatter surrounding the medical device tax thanks, largely, to the recent GOP-heavy outcome of the recent races. It’s worth taking a look at the Congressional Research Service‘s economic analysis of the tax, whic provides a pretty transparent look at how the tax is playing out.
The folks over at the Incidental Economist wrote an interesting piece on the economic arguments for and against the medical device tax:
There are reasons to dislike the tax. It’s not a particularly efficient one since it is levied on a narrow base. And, it’s not a particularly socially important tax. After all, the intent of medical devices is to help, not harm, individuals. Therefore, discouraging the use of them with a tax isn’t something that we, in general, should welcome.
But we shouldn’t get too worked up. In the scheme of things, it’s not a large tax. CRS estimates the net effect on the industry is $29B over 10 years. It therefore won’t have a large effect on health care spending, estimated to be about $40T over that span. ($29B is less than 0.1% of $40T.) By the nature of the market and the fact that half of it is exempt from the tax, it won’t lead to substantial job losses, 0.2% of medical device industry jobs at most. And it won’t hurt U.S. competitiveness, since the tax is levied on imports as well as domestically produced devices.
The actual economic principles driving the efficacy – or lack thereof – of the medical device tax are pretty convoluted, but the blog does lay it out nicely for the economist’s brain. Supply and demand, elasticity and inelasticity, figures that look like this:
Head over to the blog itself to read up on the economic nitty-gritty. The piece concludes:
This leaves us with a puzzle. It’s easy to see how something like the medical device tax can become a political football. We’re accustomed to politics existing in an evidence-free space, unfortunately. But given that consumers (mostly through insurance) will pay the lion’s share of the cost of the medical device tax and given that there are not likely to be other substantial effects on the industry, why is the industry so opposed to it?
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
It does, however, concede:
UPDATE: One reason the industry might oppose it is that the market analysis described in this post doesn’t apply to administered pricing systems, like Medicare, Medicaid, and the VA. For those, costs can’t be passed on to consumers because the government pays fixed prices on their behalf. The way device manufacturers get more money is through a political process, which justifies some vocal opposition and lobbying. H/t to Aaron for raising this point. The CRS report did not do so, unless I missed it.
