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ObamaCare: Stifling Innovation
The New American
Michael Tennant
4/9/2015
Excerpt:
“The overwhelming majority of the world’s health-care innovation occurs in the U.S.,” Dr. Scott Atlas noted in an October Wall Street Journal op-ed. “This includes ground-breaking drug treatments, surgical procedures, medical devices, patents, diagnostics and much more.... A recent R&D Magazine survey of industry leaders in 63 countries ranked the U.S. No. 1 in the world for health-care innovation.”
One big reason for the United States’ lead in healthcare innovation is that despite much government intervention, until recently our healthcare system — unlike those of many other countries — retained at least some ties to the free market. The way to profit in the free market, of course, is to meet the needs of consumers; and in the healthcare arena, that means coming up with newer, better, and less expensive treatments for the myriad maladies that afflict the human race.
ObamaCare changes all that. The misnamed Patient Protection and Affordable Care Act (ACA) distorts the healthcare market with its taxes, subsidies, cost controls, and other regulations, causing resources to be directed toward political rather than economic ends.
The effects of the ACA have already been felt in the insurance market, where premiums have increased and choices have been restricted, and in employment, where companies are shedding staff and shrinking employees’ hours to avoid the law’s mandates.
The law’s effects on other sectors have, however, been largely overlooked by most media outlets. One of “the least noticed” of these effects is ObamaCare’s “threat to innovation,” declared Atlas, a physician and senior fellow at Stanford University’s Hoover Institution. Atlas is hardly alone in sounding the alarm over the ACA’s impact on medical innovation. Many experts concur that the law is likely to slow innovation in the United States, which will surely have negative, though often difficult-to-detect, consequences for Americans’ health.
Device-ive Tax
Perhaps the most blatant anti-innovation provision in the ACA is the tax on medical devices. In an effort to partially pay for the law’s massive spending hikes, Democrats included a 2.3-percent excise tax on revenue — not profit — from the sale of medical devices.
That tax, which took effect in 2013, “has taken a heavy toll on the [medical-device] sector, hurting pricing decisions of companies and subjecting them to tremendous margin pressure,” according to a December report from Zacks Investment Research. The 2.3 percent skimmed off the top has “wip[ed] out almost a quarter of the profit” of device manufacturers, the website said, noting that there has been “a slew of divestments” in the sector, many of them “specifically to offset the tax.”
“It’s clearly without any comparison the most difficult situation we’ve had to face in 34 years,” Fred Lampropoulos, CEO of Utah-based device maker Merit Medical Systems, told Salt Lake City’s KSL-TV in 2013.
At the time, Lampropoulos estimated the tax would cost his company as much as $7 million a year.
“You take that kind of money out of a company and something has to give,” he said, “and it’s basically research and development or marketing, and those are jobs.”
A survey taken at the end of 2014 by the Advanced Medical Technology Association (AdvaMed), a trade group, found that 18,500 device-industry workers had already lost their jobs as a result of the tax and that the industry plans to forgo hiring nearly 20,500 employees over the next five years. Citing a 2007 report by healthcare consulting firm the Lewin Group claiming there were four indirect jobs in the general economy for every direct job in the device industry, AdvaMed calculated that the device tax could cost as many as 195,000 jobs. And that may understate things: 46 percent of survey respondents “said they would consider further reductions in employment if the tax is not repealed.”
The survey also found that more than half of respondents had reduced their R&D spending as a result of the tax and that three-quarters “said they had taken one or more of the following actions in response to the tax: deferred or cancelled capital investments; deferred or cancelled plans to open new facilities; reduced investment in start-up companies; found it more difficult to raise capital (among start-up companies); reduced or deferred increases in employee compensation.”
“The reduction in R&D is especially troubling as investments in research today are the cures and treatments of tomorrow,” Stephen Ubl, president and CEO of AdvaMed, said in a press release accompanying the survey results. “The effects of this tax could have a damaging ripple effect for decades to come if left unaddressed. This tax is not just a tax on medical technology companies. It’s a tax on medical progress.”
Indeed it is. According to Atlas, between 2012 and 2014, U.S. R&D spending growth averaged just 2.1 percent, slightly more than a third of the average over the previous 15 years, while R&D spending in other countries increased more rapidly. Not all of that can be blamed on Obama*Care, but certainly a significant amount can: The CEO of one of the largest U.S. healthcare companies told Atlas that his company’s 2013 device-tax bill exceeded its entire R&D budget. That’s wealth transfer, not investment in the future.
The tax harms device makers both big and small, said Robert Grajewski, president of Edison Nation Medical, a company that helps medical inventors bring their products to market. Big companies are wary of investing in early-stage innovations “because they know it’s going to cost them significantly to bring these products to the market, and [the device tax] is just another arbitrary tax and toll on that process,” Grajewski explained in an interview with The New American. Instead, he said, they’re waiting for others to prove out their innovations and then buying them up at that stage.
But where are the startups going to get their capital? Since Obama signed the ACA into law, Atlas wrote, “private-equity investment in new U.S. health-care startups has also diminished.” And those that can obtain capital have another problem. “With these startup companies, revenue is king,” said Grajewski. With companies “typically starting at a loss,” he argued, “every dollar is important,” so “just arbitrarily taking two percent, three percent away from a company … certainly is not helpful.”
The device tax, he maintained, “ultimately hurts innovation. It hurts the delivery of care.”
Penny-pinching Provisions
While the device tax’s effects are easy to understand and observe, other ObamaCare provisions may have even more far-reaching but less obvious consequences.
“The Affordable Care Act, from my perspective, has really put front and center the shift in healthcare from a fee-for-service business to one that’s more around population housing, keeping a population healthy based on providing a set amount of capital from which then you are in charge of administering that kind of healthcare,” stated Grajewski.
That, of course, is the model employed by every “universal” healthcare system in the world, and it inevitably leads to poorer care and rationing in an effort to control costs. ObamaCare, not surprisingly, is loaded with such cost-cutting measures.
For instance, the ACA assigns the secretary of Health and Human Services (HHS) the task of “mak[ing] recommendations” that certain insurers be excluded from offering plans on the exchanges “based on a pattern or practice of excessive or unjustified premium increases,” even if those rate hikes are applied only to plans sold outside the exchange. Since the law doesn’t define “excessive or unjustified premium increases,” insurers are at the mercy of HHS, which has decided that an annual premium increase of 10 percent or more will put an insurer on the “naughty list” and may ultimately mean the company’s exclusion from the exchange.
This policy “has significant impacts on what insurers offer … inside the exchanges as well as outside,” Burke Balch, J.D., told The New American. Balch, director of the National Right to Life Committee’s Robert Powell Center for Medical Ethics, noted that “many of the plans in the exchanges are narrowing their networks dramatically,” cutting down on the number of providers, most especially “leading centers of medical innovation.” That’s because the high-quality research hospitals tend to be among the most expensive.
“These are the research centers, these are the teaching hospitals, these are the places where the toughest and most difficult cases get sent, and these are the places where medical innovation very largely takes place,” Balch said. “So over time, if you basically are excluding these top-flight, cutting-edge medical centers from the plans that people are able to get through the exchanges and also creating a disincentive for insurers even to offer such plans outside the exchanges … there’s going to be insufficient demand to sustain these cutting-edge medical centers, to sustain these specialists. What happens when that occurs?... They start to go out of business, they start to cut back on the advanced, experimental procedures, and so medical progress slows to a crawl.”
.................................................. .
View the complete article at:
http://www.thenewamerican.com/usnews...ing-innovation
The New American
Michael Tennant
4/9/2015
Excerpt:
“The overwhelming majority of the world’s health-care innovation occurs in the U.S.,” Dr. Scott Atlas noted in an October Wall Street Journal op-ed. “This includes ground-breaking drug treatments, surgical procedures, medical devices, patents, diagnostics and much more.... A recent R&D Magazine survey of industry leaders in 63 countries ranked the U.S. No. 1 in the world for health-care innovation.”
One big reason for the United States’ lead in healthcare innovation is that despite much government intervention, until recently our healthcare system — unlike those of many other countries — retained at least some ties to the free market. The way to profit in the free market, of course, is to meet the needs of consumers; and in the healthcare arena, that means coming up with newer, better, and less expensive treatments for the myriad maladies that afflict the human race.
ObamaCare changes all that. The misnamed Patient Protection and Affordable Care Act (ACA) distorts the healthcare market with its taxes, subsidies, cost controls, and other regulations, causing resources to be directed toward political rather than economic ends.
The effects of the ACA have already been felt in the insurance market, where premiums have increased and choices have been restricted, and in employment, where companies are shedding staff and shrinking employees’ hours to avoid the law’s mandates.
The law’s effects on other sectors have, however, been largely overlooked by most media outlets. One of “the least noticed” of these effects is ObamaCare’s “threat to innovation,” declared Atlas, a physician and senior fellow at Stanford University’s Hoover Institution. Atlas is hardly alone in sounding the alarm over the ACA’s impact on medical innovation. Many experts concur that the law is likely to slow innovation in the United States, which will surely have negative, though often difficult-to-detect, consequences for Americans’ health.
Device-ive Tax
Perhaps the most blatant anti-innovation provision in the ACA is the tax on medical devices. In an effort to partially pay for the law’s massive spending hikes, Democrats included a 2.3-percent excise tax on revenue — not profit — from the sale of medical devices.
That tax, which took effect in 2013, “has taken a heavy toll on the [medical-device] sector, hurting pricing decisions of companies and subjecting them to tremendous margin pressure,” according to a December report from Zacks Investment Research. The 2.3 percent skimmed off the top has “wip[ed] out almost a quarter of the profit” of device manufacturers, the website said, noting that there has been “a slew of divestments” in the sector, many of them “specifically to offset the tax.”
“It’s clearly without any comparison the most difficult situation we’ve had to face in 34 years,” Fred Lampropoulos, CEO of Utah-based device maker Merit Medical Systems, told Salt Lake City’s KSL-TV in 2013.
At the time, Lampropoulos estimated the tax would cost his company as much as $7 million a year.
“You take that kind of money out of a company and something has to give,” he said, “and it’s basically research and development or marketing, and those are jobs.”
A survey taken at the end of 2014 by the Advanced Medical Technology Association (AdvaMed), a trade group, found that 18,500 device-industry workers had already lost their jobs as a result of the tax and that the industry plans to forgo hiring nearly 20,500 employees over the next five years. Citing a 2007 report by healthcare consulting firm the Lewin Group claiming there were four indirect jobs in the general economy for every direct job in the device industry, AdvaMed calculated that the device tax could cost as many as 195,000 jobs. And that may understate things: 46 percent of survey respondents “said they would consider further reductions in employment if the tax is not repealed.”
The survey also found that more than half of respondents had reduced their R&D spending as a result of the tax and that three-quarters “said they had taken one or more of the following actions in response to the tax: deferred or cancelled capital investments; deferred or cancelled plans to open new facilities; reduced investment in start-up companies; found it more difficult to raise capital (among start-up companies); reduced or deferred increases in employee compensation.”
“The reduction in R&D is especially troubling as investments in research today are the cures and treatments of tomorrow,” Stephen Ubl, president and CEO of AdvaMed, said in a press release accompanying the survey results. “The effects of this tax could have a damaging ripple effect for decades to come if left unaddressed. This tax is not just a tax on medical technology companies. It’s a tax on medical progress.”
Indeed it is. According to Atlas, between 2012 and 2014, U.S. R&D spending growth averaged just 2.1 percent, slightly more than a third of the average over the previous 15 years, while R&D spending in other countries increased more rapidly. Not all of that can be blamed on Obama*Care, but certainly a significant amount can: The CEO of one of the largest U.S. healthcare companies told Atlas that his company’s 2013 device-tax bill exceeded its entire R&D budget. That’s wealth transfer, not investment in the future.
The tax harms device makers both big and small, said Robert Grajewski, president of Edison Nation Medical, a company that helps medical inventors bring their products to market. Big companies are wary of investing in early-stage innovations “because they know it’s going to cost them significantly to bring these products to the market, and [the device tax] is just another arbitrary tax and toll on that process,” Grajewski explained in an interview with The New American. Instead, he said, they’re waiting for others to prove out their innovations and then buying them up at that stage.
But where are the startups going to get their capital? Since Obama signed the ACA into law, Atlas wrote, “private-equity investment in new U.S. health-care startups has also diminished.” And those that can obtain capital have another problem. “With these startup companies, revenue is king,” said Grajewski. With companies “typically starting at a loss,” he argued, “every dollar is important,” so “just arbitrarily taking two percent, three percent away from a company … certainly is not helpful.”
The device tax, he maintained, “ultimately hurts innovation. It hurts the delivery of care.”
Penny-pinching Provisions
While the device tax’s effects are easy to understand and observe, other ObamaCare provisions may have even more far-reaching but less obvious consequences.
“The Affordable Care Act, from my perspective, has really put front and center the shift in healthcare from a fee-for-service business to one that’s more around population housing, keeping a population healthy based on providing a set amount of capital from which then you are in charge of administering that kind of healthcare,” stated Grajewski.
That, of course, is the model employed by every “universal” healthcare system in the world, and it inevitably leads to poorer care and rationing in an effort to control costs. ObamaCare, not surprisingly, is loaded with such cost-cutting measures.
For instance, the ACA assigns the secretary of Health and Human Services (HHS) the task of “mak[ing] recommendations” that certain insurers be excluded from offering plans on the exchanges “based on a pattern or practice of excessive or unjustified premium increases,” even if those rate hikes are applied only to plans sold outside the exchange. Since the law doesn’t define “excessive or unjustified premium increases,” insurers are at the mercy of HHS, which has decided that an annual premium increase of 10 percent or more will put an insurer on the “naughty list” and may ultimately mean the company’s exclusion from the exchange.
This policy “has significant impacts on what insurers offer … inside the exchanges as well as outside,” Burke Balch, J.D., told The New American. Balch, director of the National Right to Life Committee’s Robert Powell Center for Medical Ethics, noted that “many of the plans in the exchanges are narrowing their networks dramatically,” cutting down on the number of providers, most especially “leading centers of medical innovation.” That’s because the high-quality research hospitals tend to be among the most expensive.
“These are the research centers, these are the teaching hospitals, these are the places where the toughest and most difficult cases get sent, and these are the places where medical innovation very largely takes place,” Balch said. “So over time, if you basically are excluding these top-flight, cutting-edge medical centers from the plans that people are able to get through the exchanges and also creating a disincentive for insurers even to offer such plans outside the exchanges … there’s going to be insufficient demand to sustain these cutting-edge medical centers, to sustain these specialists. What happens when that occurs?... They start to go out of business, they start to cut back on the advanced, experimental procedures, and so medical progress slows to a crawl.”
.................................................. .
View the complete article at:
http://www.thenewamerican.com/usnews...ing-innovation