Durable Medical Equipment - Essay Example

Durable Medical Equipment Public policy is the process by which the government, through its political system and legislations, handles a public problem; it involves the state’s intentions and eventual enactments. The government may include several groups such as governors, judges, and Members of the Congress amongst others (Anderson, 65). Public policy undergoes several stages such as the problem identification and setting of the agenda, formulation of the course of action to be taken, adoption of the action, and implementation of the course of action decided upon. Moreover, public policies have both advantages and disadvantages, and constitute a significant portion of the public environment (Anderson, 65). This paper will discuss the implication of Medical Device Tax as well as arguments for exemption. Much of the political discussion in Washington recently has been based on innovation, job creation, and competiveness of US sectors on the global arena. Mere politics without the elected representatives enacting important policies will not be of much help; a case in point is the recent enactment of public policy regarding medical devices. In the US, the medical device manufacturing is among the active and vibrant industries. It is an innovation that has placed the country among the world leaders in medical technology and provided American citizens with jobs totaling to almost a half million directly (Miller par1). Instead of the American government safeguarding this industry with good policies, the current Obama Administration has resorted to increase tax charged on medical products’ sales to help the government pay for the presidents’ health law - the Affordable Care Act. a 23% excise tax was imposed on the sales of medical devices from January 2013 (Miller par 1).The reason behind this increase in taxation was that there would be an upsurge in the sales of medical devices from patients who had been insured by the newly created Affordable Care Act. They argued that, what the medical device industry would have lost in margins would be recouped in the large sales volume (Miller par 1). Nevertheless, it is important to take into consideration the economic-cost benefit before implementing the law. The Government, through this act, intentionally ignored the fact that most of the American citizens were already in use or covered by the Medicare, Medicaid and other private insurance covers. This would not lead to the upsurge or little increase in sales of the medical devices assumed by the state to enable the companies offset the added cost of nearly $30 billion that was expected to accrue in this industry as per Congressional Budget office foresight (Bayh par 1). The company’s bottom line is that, the tax cannot be passed to the buyer, as most of those devices are directly sold to public hospitals, physicians, and other health service providers through long-term contracts signed, which locked the prices. A 2.3% tax on the company’s sales is equal to almost a 15% on the normal tax on profits, and if this added to the mandatory 35% corporate tax, it totals to 50% as the eventual tax imposed on the industry. This severely affects these companies, as they have to pay this excise tax whether they are making sales or not (Bayh par 2). Therefore, it would have been much simpler to peg the tax on profits rather than on sales revenue. Other players in the industry such as the medical software developing companies, which are small and numbering to hundreds, are the worst hit by this legislation. Their products, Apps, have a potential for revolution in raising the practice of medicine in the US and globally (Bayh par 2). The effect of this taxation is already manifesting itself; for instance, according to Bayh, in the Indiana state, Cook Medical company has cancelled its plans of expansion by building one new facility annually in the US in the future, whereas another company known as Zimmer is laying off almost 450 of its employees(Bayh par 2). Another firm in the state of Michigan is planning to lay off 1000 its workers. This tax with the evidently loss of jobs, is reducing the chances of other future inventions of medical devices due to this adverse environment created by states policies (Bayh par 2), which subsequently affects our CVS Pharmacy too. Therefore, it seems many consultations are needed in order to prevent potential economic problems resulting from reduced income to citizens and increased cost of health care. The fight against Medical Device Act has garnered formidable support from different sections of the political side, both congress and senatorial. Indeed, the Governor of Indiana, Mike Pence, recently sent a letter to President Barack Obama requesting him to side with the Congress in their repeal on the imposed 23 percent excise tax. He reiterated the negative impact the tax had on jobs and the economy in the federal state of Indiana and the country as a whole (Pence continues to seek repeal of medical device tax par 4). Pence argued that the tax was being levied on equipments, pacemakers, artificial hips and other devices, which the manufacturers sold directly to hospitals, but it did not apply to medical equipment such as hearing aids that were sold directly to the public (Pence continues to seek repeal of medical device tax par 6). Several Indiana lawmakers have advocated for the elimination of the tax, as Indiana is the home of many manufacturing companies for medical device. Despite Governor Pence’s efforts, the legislation managed to move to the president’s desk and its legislation is most probably imminent, hence we foresee a disadvantaged position as per its eventuality (Pence continues to seek repeal of medical device par 3). All in all, if manufacturers are forced to pay the tax despite most of them having not recouped their investment in research and innovation of the devices, it may lead to economic crisis in most states, especially if the manufacturers decide to relocate to other countries where tax regime is favorable. Despite the efforts of negotiations for the repeal and subsequent elimination of this Affordable Medical Tax Act, they have encountered stiff opposition from several Congress members and the Government. Their argument is that the medical device industry can afford the tax without compromising on their operations. The tax is part of the reforms in the medical industry, which had been bedeviled by anticompetitive practices that have previously driven up medical device costs. Topher Spiro adds that the medical device industry has faced no price competition in the past because of the confidentiality of the contracts and agreements that they sign with the hospitals (Spiro, 2). There is no transparency in sharing of the price information among hospitals and this puts a doubt on whether the hospitals are getting a good deal or not. Such anticompetitive practices coupled with conflict of interest have generated a wide variation in prices of medical devices, and has led to the higher prices of those devices in general. This further fuels the existence of abnormal profits that can easily make them accommodate the tax, and continue with their research and innovations without resorting to extreme measures of layoffs (Spiro, 2). Nevertheless, there is need for negotiation between all stakeholders who are affected by the tax, whether positively or negatively, in order to come up with a compromise solution that will benefit everyone. One alternative policy that our company, the CVS Pharmacy, would opt for to solve the effects of the medical device tax involves delaying the implementation of the tax policy, as the Obama administration looks for other ways to find revenue to fund the health care system. This would also give enough time to formulate strategies either to continue operating within the country or take operations elsewhere. At the same time, it would give the company time to lobby among the political avenues such as the congressmen and senators to create bills to either amend the Act or do way with it completely (Gravelle & Lowry, 5). The second alternative is to employ off shoring of operations to areas with lower operation tax, either within the country or within neighboring countries (Gravelle & Lowry, 6-7). This will enhance growth and sustenance of our company in long-term, as losses will be reduced with prospected higher profit margins from tax that is favorably lower in those countries compared to the American standards. Our company, the CVS Pharmacy, chose the interest group politics under the Wilson Matrix by using the policy of delaying the implementation of the Act. We can describe the Wilson Matrix as the categorization scheme that employs relative concentration of benefit and harm produced by issue (Wilson 436). The use of the interest group politics can be described as the non-profit voluntary organizations whose individuals have a common objective of influencing public policy, without necessarily opting for political control. It involves lobbying members of the legislative bodies through contribution and support in political parties. The types of interest groups include trade unions, chambers of commerce, and professional associations such as physicians, doctors, special interest groups amongst others. Their sole objective is to defend a cause and take advantage of opportunities that arise from open policy windows to push for policy formulation and implementation (Kingdom 166). In relation to our problem, the interest group politics will try to look for ways of the amendment of Affordable Medical Act through appeals in the Congress and house of Senate, and lobby for the Government at Washington to look for other ways to fund the Health Act. Another reason why our company chose the interest group of politics policy is that through the lobbyists, the government would employ other measures to increase its tax base without necessarily increasing taxes on the medical devices (Kingdom 170). Advantages of affordable health devices would outweigh the tax benefited from the costly medical devices, as fewer patients would afford them; subsequently, low sales equals to low income and an effect to the tax base of the country. The policy to delay the implementation of the Affordable Medical Tax on medical devices received wide support, ranging from political sides and other pressure group affected by this kind of policy. Both the Republicans and Democrats in both chambers who particularly come from states that have manufacturing companies dealing in Medical devices have so far been on the forefront to seek for the repeal of the Act or at least, delay in its implementation (Pence continues to seek repeal of medical device tax par 3). Senators from areas such as Indiana, Massachusetts, and Minnesota, and others who include Senators Susan Collins who is a Republican from Maine, Angus King who is a Democrat, Orrin Hatch who is a Republican from Utah, and Amy Klobuchar, a Democrat from Minnesota among others have pushed for the repeal through legislation to lift the debt ceiling and subsequently reopen the government. In one circumstance, the Republican-controlled house passed a bill to scrap the tax including recent efforts of passing a legislation that encompassed delaying the implementation of the health law by at least one year (Pence continue to seek repeal of medical device tax par 3). Despite of their effort not being effectively binding, it showed their support to our company’s resolved method of dealing with this problem. Despite receiving immense support from people in position of power and a political section from both Republicans and the Democrats, our suggested policy also has encountered stiff opposition, with the first to oppose being the Whitehouse. They are stressing that the medical device tax is designed to expand the scope of health insurance coverage whose effect will expand sales of those particular products due to boosted abilities of consumers who previously were unable to afford such devices due to higher costs. Washington including the Senate majority leader, Sen. Harry Reid, further reiterated that its’ part of the reforms that the government has to put in place to transform health industry in the United State (Miller par 1). Transparency and the exploitation of the medical devices companies through unregulated pricing previously had led to price disparities, other people in the position of power opposed to this include, Sen. Ben Nelson, a Democrat of Nebraska, and Mr. Joe Lieberman of Connecticut (Bayh par 2). Practitioners, for instance, Mr. Chip Kahn who is president and chief executive officer of the Federation of American Hospitals, an association of for-profit institutions, was also opposed to this repeal and further delay to the implementation of this act. Bayh adds that Mr. Kahn’s argument is that, if the tax on medical devices is not implemented, the same should be done to change the circumstances under which manufacturers and hospitals price their products to regulate pries or to introduce the aspect of transparency such as broadcasting the cost of some of those items via platforms such as the internet (Bayh par 4). Therefore, the support of law aims at protecting consumers or citizens from exploitation by medical device companies through unregulated prices. Another opponent to this policy of delaying and repeal argued that if such measures were taken, other industries would also seek the same in a bid to level the playing grounds. Congressmen and senators such as Senators Mr. Ben Nelson a Democrat –Nebraska, and Mr. Joe Lieberman of Connecticut suggested that the medical device companies have been spending a small percentage of their profits in research, and they are capable to pay the tax through unregulated sale of their products and the enormous profits earned (Gravelle & Lowry 4). However, the competitiveness of industries in the US will be hampered, as other players will complain of favoritism. They argued that taxing the medical device companies would increase the tax base, boost the US economy, and subsequently open the American debt ceiling. The hospitals, through which the medical devices sign confidential contract, should strive to get good deals and this taxation would contribute to that. With taxation in place, manufactures will be forced to supply standard and better products, as there would be transparency(Gravelle & Lowry, 4). Therefore, if the tax is likely to improve quality and standard of health care, then it should stay. This year, the proposed Affordable Health Act will most likely pass trough and be legalized as par the foreseen environment in the US politics. America is the global leader in medical device invention, production, and their eventual sales. In 2013 alone, the industry earned U.S. $ 5.4 billion in exports, far more than it spent on imports (Radnofsky, par 3). Domestically, the industry is important to the average American, with its primary role being saving and sustaining lives. The industry’s inventions have promoted advancements in several health areas such as the provision of artificial hips and knees, devices for cancer treatment, vascular surgery, fertilization aids, and enhanced cost saving in chronic health ailments such as health surgery with the invention of the angio-plastic balloon. This advancement has been threatened by a law that pundits guarantee will be passed into law in Washington this year, 2014, and subsequently cause dire consequences to the industry. However there is a glimpse of hope if what happened in June 2013, where the House composed of 233 Republicans and supported by at least 37 democrats voted for the repeal of the Tax, is repeated this year to delay the Act or scrap it altogether. A boost to our expectation has been seen where a Democrat Senator for Massachusetts, Sen. Edward J. Markey, has come out openly to support the repeal in spite of being in the president’s party (Radnofsky, par 3). This wide support of the repeal means that most leaders have the interest of citizens at heart and would like to ensure affordable healthcare is achieved through reduced tax burden. The CVS Pharmacy, just like other medical device companies, is banking on the goodwill of political decisions and legislations that would be passed by the House in Washington. The rare support our policy received in June 2013 from both the Republicans and a small group of Democrats, gives us hope that our plans for expansion would not be affected by the upsurge tax that is foreseen. One of the supporters of repealing the Act is U.S. Sen. Lamar Alexander, for Tennessee, who claimed that the tax has encouraged layoffs and discouraged innovation in Tennessee, and proposed the “Medical Device Access and Innovation Protection Act” instead (Bahm par 2). Other supporters include Bartlett mayor Keith McDonald (Bahm par 6), U.S. Rep. Erik Paulsen, for Minnesota, who claims the tax is discouraging R&D and pushing manufacturers out of the country (Villmer par 4), and Indiana Gov. Mike Pence, who petitioned the President to repeal the tax (Pence continues to seek repeal of medical device tax). Resorting to layoffs and change of operations to overseas may not be among our plans for this year, but it would only be necessary if what we wish for does not come forth. We are not against the improvement of standards of living of the average American, neither do we fear a competitive playing ground of operations; but what we are suggesting is for enough time to restructure our industry to suit what the government is suggesting. In conclusion, the American Affordable Care Act policy, which implies a 23% tax to be imposed on medical devices should be exempted, as it will bring more damage than good to average American citizens, who are most likely to lose jobs (Bayh par 2). The America’s competitiveness in medical advancement will be affected, as this is most likely to cause players in the industry to shift their bases overseas due to unfavorable domestic business environment. Further inventions and research will also be affected by this taxation, as most companies mostly rely on profits to fund research. From Bayh, Evans’ point of view it can be argued that the taxation would not affect all companies in the industry the same way; the larger companies such Johnson and Johnson, and Welch amongst others may withstand the effect of such policy, but numerous small upstart companies might not be lucky to continue operating. Works Cited Anderson, James E.: Public Policymaking. OH: Cengage Learning Publisher, 2010. Bahm, Carolyn. Sen. Alexander urges excise tax repeal, says 2.3% tax could hurt medical device makers. 27 Mar. 2014 2014. Web. 20 April 2014. http://bartlett-express.com/2014/03/27/sen-alexander-urges-excise-tax-repeal-says-2-3-tax-hurt-medical-device-makers/. Bayh, Evan. “Obama Care's Tax Raid on Medical Devices.” Wall Street Journal, Eastern Edition. 28 Sep 2012: Web. 20 April 2014. http://online.wsj.com/news/articles/SB10000872396390444620104578012281306687070 Gravelle, Jane & Lowry, Sean. The Medical Device Excise Tax: Economic Analysis. 23 Dec. 2013. PDF. 20 April 2014. http://www.fas.org/sgp/crs/misc/R43342.pdf. Kingdom, John. Agenda, Alternatives and Public Policies. Second Edition. (Agenda setting handout). Miller, Henry. “Obama Care's Killer Device Tax.” Wall Street Journal, Eastern Edition. 11 May 2012. Web. 20 April 2014. . “Pence continues to seek repeal of medical device tax.” Indianapolis Business Journal. 31 March 2014. Web. 20 April 2014. . Radnofsky, Louise: “U.S. News: Report Urges New Tax on Medical Care.” The Wall Street Journal. 10 April 2012. Web. 20 April 2014. http://online.wsj.com/news/articles/SB10001424052702303815404577335743996648980 Spiro, Topher. “The Myth of the Medical-Device Tax.” New York Times. 16 October 2013. Web. 20 April 2014. http://www.nytimes.com/2013/10/17/opinion/the-myth-of-the-medical-device-tax.html?_r=0 Villmer, Matthew. Rep. Urges Obama To Back Repeal Of ACA Medical Device Tax. 2014. Web. 20 April 2014. http://www.law360.com/articles/512545/rep-urges-obama-to-back-repeal-of-aca-medical-device-tax Wilson, James, John DiIulio, Jr., Meena Bose. “The Policy Making Process.” American Government: Institutions and Policies. MA: Cengage Learning, 2012. (Wilson bqr chapter). Read More