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WASHINGTON, D.C. – As the Baby Boomer generation enters retirement it may find one of its most needed surgeries will cost a lot more. Beginning in 2013, due to President Obama’s signature Affordable Care Act, medical-device manufacturers will pay a 2.3 percent tax on sales of products needed for hip and knee replacements.
The tax is designed to raise funds needed to cover the uninsured and affects everything from wheelchairs, to oxygen tanks, to surgical tools. Experts say the tax will have a disproportionately high impact on joint replacements. According to the American Academy of Orthopaedic Surgeons, such procedures rose by 26% from 2005 to and 2010. With the number of Americans reaching retirement age in record numbers, the demand for such surgeries is expected to increase by 673 percent before 2030.
Critics of the health care bill have already noted that the tax would add hundreds of dollars to the cost of each joint-replacement procedure. Dave Blaszczak, senior health policy analyst at the nonpartisan Potomac Research Group, notes, “By having taxes that go into effect for health care companies, you’re actually increasing the cost of health care in the country.”
Medical-device manufacturers see problems running much deeper than the 2.3 percent tax. The initial tax would amount to $230 on the cost of a $10,000 medical device. But several medical companies say the added fees would take a bite not only out of profitability but their research and development budgets. Orthopedic device maker Stryker, for example, says that it plans to cut more than $100 million from its annual pretax operating costs next year.
Some companies will probably discontinue specialized models that are less profitable leaving doctor and patient with fewer options. Julie Stralow, an orthopedics analyst at Morningstar, says this could force doctors to be more hesitant before recommending joint-replacement surgeries altogether.
The Whitehouse, however, contends that these experts are overstating the potential impact of the tax. A statement from the Whitehouse says, “The medical device industry, like others, will benefit from an additional 30 million potential consumers who will gain health coverage under the Affordable Care Act starting in 2014. This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion.”
Other insiders believe horror scenarios like the ones the companies describe might not come to pass. “The manufacturers up until now have made a big profit on this, so there’s some room to bargain,” says Dr. Peter Mandell, chair of the American Academy of Orthopaedic Surgeons council on advocacy. “This market is never going to go away.”
Nevertheless Mandell says he and other surgeons are concerned about the possibility of a cutback in research; he cites, in particular, the danger that companies will fail to develop joint replacements for children and tumor patients, a generally unprofitable niche.
