As the debate over the continuing resolution persists, medical device makers are not the only ones wondering when and how it will end. The device tax repeal has been floated as a condition of a continuing resolution, but it might also be instructive to ask ourselves what the future holds for med tech.
Part of the reason for the partisan nature of the CR debate is that the Affordable Care Act – the legislation that gave rise to the device tax – was itself the most partisan piece of legislation of that size in American history. In fact, the Democratic Party had to use budget reconciliation rules at one point to keep the bill going, but let’s acknowledge that budget reconciliation rules were not put into place for things like healthcare reform. And those who want the Republican Party to be less partisan should ask themselves why they weren’t so concerned about bipartisanship when the ACA was passed.
But the deeper significance of the current stand-off is that our national debt and the federal deficit are a fiscal disaster in the making. Senate Democrat Kent Conrad, who chaired the Senate Budget Committee before retiring in January, announced to anyone who could be bothered to listen that we’re headed for fiscal Armageddon. So it’s not just those nasty Tea Partiers who are terrified about these issues.
The Congressional Budget Office recently projected that federal debt would equal GDP by 2038, and that it currently equals 73% of GDP. Only time will tell whether the CBO forecast will hold, but CBO had to assume several things that don’t pass the sniff test, including that Congress will not provide an iterative or permanent doc fix. CBO also assumes the 2% cuts to Medicare under the sequester will hold, but every time Senate Budget Committee chairman Patty Murray sees a microphone, she insists that the sequester be repealed. Those are not the only reasons to think CBO might be low-balling the problem.
In the years to come, there will be mounting pressure on Medicare spending if only because Medicare spending growth will resume its approximate 6% per annum clip, regardless of the administration’s high fives over the recent slowdown. There are couple of things that may blunt that growth, and none of them will thrill device makers.
One is that Medicare imposes a capitation scheme on accountable care organizations, a notion that Sen. Murray let slip in a recent congressional hearing. Another is that the Independent Payment Advisory Board tells Congress to insert the word “cost” into the statute that gave us Medicare. We all know that the least costly alternative is kaput thanks to Hays v. Sebelius, but a little statutory tweaking would fix that in a hurry.
The net effect is that even without the current mud-slinging over the CR and the debt ceiling, this economy is headed over the cliff without some profound reforms, and device makers will hear even more about achieving a better therapeutic (or diagnostic) target for the same money or hitting the same target for less. There is no other answer short of wishful thinking.
There are a lot of factors that have led us to this state of affairs, but med-tech price pressure is going nowhere but up. Demand will continue to be high, but margins and innovation will both suffer. This is the world we’ll be in for at least a decade. Better get used to it.