Medical Device Tax Jeopardizes Innovation And Patient Care

Thomas P. Stossel Visiting Scholar, American Enterprise Institute
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Advances in medical device technology have been major contributors to improved longevity and increased quality of life for patients. Unfortunately, damaging “conflict-of-interest myths” are hampering medical progress in general and device development in particular. Conflict-of-interest myths falsely debase the medical products industry and healthcare professionals who interact with it. And the real victims of this ill-conceived crusade are patients.

Here’s why we should encourage device development: Replacement of degenerated hips with prostheses now rapidly returns previously disabled pain sufferers to their athletic activities. The hips came first, but now knee, elbow and other prostheses have become available and are constantly improving. A frequent complication of heart diseases is compromise of the electrical circuitry that governs our hearts’ normal “lub-dub” pumping that keeps our blood circulating.

When I was in medical training 50 years ago cumbersome boxes with attached paddles that could be applied to patients’ chests in order to deliver electrical currents and restore the circuitry had just appeared, and users had to be careful not to electrocute themselves. Now, far simpler and safer “AED” devices that anyone can use are ubiquitous in public places. Implanted current sensors and emitters that automatically allow patients with heart disease to survive without seeking — possibly too late — hospital intervention for heartbeat deviations. When I was in training, we had no way to restore circulation to a heart compromised by having its arteries blocked, thereby preventing delivery of oxygen-carrying blood. Today, we have artery-opening “stents” that not only restore but also preserve — by releasing artery-protective drugs — the life-saving blood circulation.

Here are two of the conflict-of-interest myths that compromise device progress: One is that when medical product companies pay healthcare professionals for research or education activities, the payees shed concerns for their reputations and perform flawed research and inappropriately biased teaching to please commercial sponsors. Almost no evidence supports this myth and, in fact, partnerships between industry and medicine are responsible for most clinical advances, especially device invention. Yet accommodation of the myth has engendered regulations in medical schools limiting and banning such partnerships.

Another myth, that medical product companies do not really innovate, but simply expropriate university research to make devices for which they overcharge, is the basis of a relatively obscure component of Obamacare, known as the Medical Device Tax. It imposes a 2.3 percent levy on the sale of all medical devices ranging from Band-Aids to surgical robots. The myth is simply wrong.

The vast majority — around 80 percent — of medical products originate in companies, not universities. And medical product development is incredibly difficult. More than 85 percent of all products that enter clinical trials in humans are never approved for use in the United States. The average cost of developing a new product is now in excess of two billion dollars, in large part because of this failure rate and the cost of obtaining capital to fund such high-risk research.

America is currently the world leader in medical device invention and development. Many states, such as mine, Massachusetts, contain vibrant medical device sectors, including many startup and fledgling companies with potentially paradigm-shifting products. A 2.3 percent tax on sales can easily mean the difference between commercial success and bankruptcy: borderline profits become losses and investors flee to less risky ventures. Brute force taxes destabilize the fragile innovation ecosystem. While lost jobs and reduced profits are the immediate results of this tax and similar measures, in the long term all of us are harmed. We will all eventually become patients and these companies are currently creating the next generation of medical devices, devices that may diagnose our cancer, restore our mobility, or convert our faulty heartbeats to a healthy rhythm.

Dr. Stossel is American Cancer Society Professor of Medicine at Harvard Medical School and a Visiting Scholar at The American Enterprise Institute. His book, Pharmaphobia: How the Conflict of Interest Myth Undermines American Medical Innovation is being published by Rowman & Littlefield in April.