Saturday, September 26, 2009

Just the Facts M'am, Just the Facts!

No the Spine Blogger is not talking about Sergeant Joe Friday of Dragnet fame. As the device industry accelerates its opposition to the modified Baucus healthcare plan, aka Finance Committee Reform Plan, it will be interesting to watch this shake out over the next few months. This plan includes a $4 billion dollar per year device tax proposal that was initiated by Baucus over the Labor Day weekend. Obviously, our industry does not have the "chutzpah" to stand up to a Senator that has taken in over $2.8 million in insurance lobby money this year. If the answer is AdvaMed, we stand no chance.

Under the proposed plan, each company would be taxed based on their share of total U.S. sales of qualifying devices in the preceding calendar year. So here is how the provisions in the bill would work.

  • Your initial $5 million in sales would not be counted toward the calculation
  • Sales between $ 5 million and $25 million would be assessed a tax on 50% of that value, Example: if you generate $9 million you would be taxed on $2 million of the $4 million in revenues.
  • Class I devices would not be subject to the fee.
  • The fees could not be deductible from US income tax
Based on the recent analysis in OTW, the Medical Industrial Complex needs to look at this as an opportunity to increase revenue rather than be punished by a tax. The facts M'am, just the Facts! Legislation that mandates the uninsured and underinsured to acquire coverage makes this a win-win situation for the industry in the long run. So why all the angst and rancor? Simply Put: SHORT-TERM THINKING, GREED and SELFISHNESS! But you know the Spine Blogger's credo; "You have pay to play!"

Physicians and Industry Professionals have spent too much time dissecting unimportant healthcare rhetoric. Since Consumer Driven Healthcare hasn't worked, a single-payer system, with a central payment center to force private insurance to play in a true competitive market would be a bold move. Free markets don't exist when there is collusion amongst the insurance industry. Just look at how they use data to their advantage. Yet, I do not spend my time getting caught up in public discourse when the POTUS makes a statement about physicians. Besides, why are surgeons so thin skinned? Does anybody really care what NASS, AAOS or CNS has to say? Contrary to what these organizations believe, they do not have the same financial power as the insurance lobbying industry because physicians are a divided profession by specialties. The insurance industry has more financial clout, more lobbying power, and until the Anti-Trust Laws are reformed (spend more time on ATL reform), physicians will never have any recourse! Who cares if AdvaMed came out against the bill! It's nothing more than a lame duck organization, sucking money out of device companies to subsidize their own existence. Besides, AdvaMed doesn't have any legal power to keep our industry accountable for their indiscretions.

But the real question is, why should companies that play in the industry be taxed? Let's look at the facts. The Gross Margins in our industry have always made us one of the most, if not the most, lucrative industry to invest in. Where else can you manufacture a screw for $65-$85 dollars and sell it for $1200? Where else can a distributor broker a surgeon, as a consultant, to make more money? Somewhere along the way the industry has lost its moral compass. In 1965 when the Lyndon Johnson enacted Medicare no one complained about government reimbursement. Today, as insurance companies, hospitals, and buying groups attempt to cap pricing, everyone cries foul. We are in a state of inertia. If we are to survive, everyone will need to make concessions for the betterment of our country. I am sure that there are many tax breaks that benefit the Spine Cartel. So, why am I so harsh on the industry?

Let's start off with manufacturing, as more and more companies look to increase shareholder value, it has become in vogue to take manufacturing jobs overseas (thank you MBA's). It started as far back as the late 90's when Stryker went to Ireland, and Medtronic went to Puerto Rico (cheap labor). Today, other company's look towards India, Malaysia, China, and Korea. Why? Cheaper labor, less taxes, more profits for its shareholders! So as companies cry out for better tax benefits, they keep moving jobs overseas, costing working class Americans their livelihood. All because they are more interested in serving their master, Wall Street.

The next group to be effected will be the distributors and sales people. If you think this will never happen, our readers are in for a surprise, because, it has happened in every industry in a free-market economy. Companies have, or are modifying their business models. Recently, one of our sources reported that an early-growth stage company terminated their largest distributor's contract, hired scrub-technicians in their place, and cut commissions, because by eliminating the distributor, they would increase their operating income. Would you want to work for a company like that? The fact remains, companies know that distributors and salespeople are commodity products.

Today, start-up and early-growth stage companies are looking to create their own brand of gainsharing by selling directly to large influential physician groups or physician owned specialty hospitals, radically changing the landscape for distribution models. Regardless of those who don't agree, the fact remains that many companies are evaluating this as a viable prospect for the future.

So as we head into the home stretch of fiscal 2009, it will be interesting to see what really materializes. As the industry continues to drive itself in the hope of creating more emerging technologies, resulting in higher medical costs, the government, insurance companies, and hospitals look to drive the delivery of healthcare down, resulting in two opposite forces working on the same linear path. In the end no one really knows what will happen. The Spine Blogger wants to know what its readers believe?


  1. All this "emerging technology" and the results are not getting better. All the R & D wasted on creating another spine gizmo that achieves essentially the same result as the last. Huge margins, lots of whining and shenanigans with surgeons. "Me too" products everywhere. It's all pathetic.

  2. will all these spinal implant products fall into the Cardinal Health morning delivery to the OR?

    what effect will the "legal" surgeon-invested distributorships have on this model?

  3. It's obvious that the current business model is for companies to distance themselves form buying the business. Today, we have more convoluted surgeon/distributorship, surgeon/distributor business models that it doesn't pay to attempt to break into the market. Until this is cleaned up, there is no free-market economy in spine. Distributors are brokers for surgeons resulting in sociopathic behavior.