Critics of the 2.3-percent excise tax on medical devices have made false and exaggerated claims, as we have previously written. A recent article in The New York Times provides further evidence that the impact of the tax will be minimal.
The article tells the story of a Colorado man whose health insurance wouldn’t cover his hip replacement because it was considered a pre-existing condition. His local hospital quoted him an unaffordable price of more than $78,000. So he had his hip replaced in Belgium, where it cost him a grand total of $13,660.
The artificial hip itself is one component of the overall price of the procedure. While an artificial hip costs about $350 to produce in the United States, the Times reports, device manufacturers charge vastly more. The Belgian hospital paid about $4,000, and American hospitals typically pay over $8,000 for the same model.
Opponents of the medical device tax have contended that it will harm innovation. The Times reveals, however, that three major manufacturers of artificial hips and other joints sold more than $1 billion of joint implants in 2011 but spent only 5 percent of those revenues on research and development (R&D). At the same time, each of these firms paid their CEOs over $8 million.
Clearly, this segment of the medical device industry can easily absorb a 2.3-percent tax without raising prices or cutting R&D.