U.S. tax on knee or hip replacement devices provokes a debate

Published date : 20 August 2012
Article date : 20 August 2012

The many baby boomers considering hip or knee replacements in the coming years are likely to have to pay more for them. The debate is, how much more will this be and could could the problems stretch beyond a higher price tag?

Under the Affordable Care Act, the Obama administration's signature health care reform law, medical-device manufacturers will pay a 2.3 percent tax on sales of such products starting in 2013. That tax will affect everything from surgical tools to oxygen tanks to wheelchairs. It is one of several features of the law designed to raise money to cover the uninsured. It is expected to raise an additional $20 billion by 2019. 

However, experts predict that the tax may have a particularly big impact in the world of knee and hip replacements. Such operations increased more than 26 percent to more than 1 million procedures in the U.S. between 2005 and 2010, according to the American Academy of Orthopaedic Surgeons. With the American population hitting retirement age in record numbers, demand is likely to surge. The number of knee replacement procedures alone is expected to increase 673 percent, to nearly 3.5 million, in 2030, according to a study presented at the annual meeting of the orthopedic academy.

Some critics of the tax estimate that the expense could add hundreds of dollars to the cost of each joint-replacement procedure, as the manufacturers of the joints pass the cost along to patients. 

Medical-device manufacturers contend that while the tax may seem relatively small, it would amount to $230 on the sale of a $10,000 medical device. Several medical companies say that the surcharge would eat into their profitability at the expense of their research and development budgets. Orthopedic device maker Stryker says that in anticipation of the tax, it plans to cut more than $100 million from its annual pretax operating costs next year. Smaller device maker Zoll Medical says the new surcharge will raise its overall rate above 50 percent and use up its entire R&D budget. 

"If companies focus just on products that generate higher sales volumes, they may discontinue specialised models, leaving doctors and consumers with fewer options", says Julie Stralow, an orthopedics analyst at Morningstar. 

No industry likes to face a tax increase and some advocates of the health-care act say that manufacturers are overstating its potential impact. Other insiders are optimistic that scenarios like the ones the companies describe might not come to pass. Until the tax takes effect, its impact on consumers will remain unclear. It may well be that for some patients, the physical pain prior to surgery is so high they may regard the additional cost of the solution is worth it. 

Source: Jen Wieczner, SmartMoney,com, 17 August 2012 (U.S.)

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