Labor Day has come and gone and President Barack Obama has engaged in the healthcare reform debate in a meaningful public way for the first time, leaving a glimmer of hope that the silly season of political posturing and partisan gamesmanship is coming to an end.
And as general principles are reduced to clear legislative proposals, we may be able to make some sense of the potential impact of reform on the medical device industry.
For all the noise we had to suffer through during the Congressional recess, there was, it seems, work going on in some offices.
Most notably, Senator Max Baucus (D-Mont.) produced, and this week distributed to the small bipartisan group he has been working with, a “framework” (PDF) for a Senate Finance Committee reform bill. He also made a commitment to bring a bill out of his committee in the near future: Good news for the reform process, as every relevant congressional committee will then have a concrete legislative proposal on the public record and ready for a vote.
Furthermore, the Baucus framework is an interesting effort to integrate Republican ideas with the guiding principles laid down by the president. The effort to accommodate the needs of the few centrist Republicans on the committee is evident in:
• Reliance on voluntary not-for-profit consumer operated and oriented plans (co-ops), rather than a public entity, as competition for private insurers. Federal loans would be available for startup and to allow plans to meet state solvency requirements, but plan operations would need to be self-sustaining;
• Provisions to create multi-state ‘health care choice compacts” to allow insurers to sell non-group health policies across state borders.
No government takeover of the health care system here. The only consensus Republican proposal not in the Baucus framework is malpractice tort reform, and that can be easily added – especilly now that it has at least lukewarm support from Obama.
But except for the absence of a public option, Democrats will have little to complain about. All of the other touchstones of the reform initiative are represented:
• Universal coverage
• Employer mandate
• Personal responsibility
• Elimination of pre-existing condition exclusions
• Pay for performance
• Coverage of preventive services
• Provisions to encourage innovation in cost control.
The Baucus framework also addresses a number of existing and persistent problems with Medicare. The framework calls for re-basing or a re-evaluation of a number of fee schedules, a commission to address long-term Medicare program solvency issues, a “fix” for the dysfunctional Medicare Advantage managed care program and substitution of a 0.5 percent increase in 2010 physician fees for the 21 percent reduction mandated by the perverse arithmetic of the “sustainable growth rate” provision of current law. Seniors would lose nothing, and the program would be improved and made more efficient in a number of ways.
Will the Baucus proposal be the principal blueprint for the final product of the reform effort? Time will tell if he’s done enough to get one or two Republicans to vote on the merits, rather than out of knee-jerk opposition to the president.
And time will reveal whether Obama can do enough to hold moderate “Blue Dog” Democrats in line.
Perhaps most importantly, time will tell if the current industry coalition assembled by the president will hold together in the face of some unwelcome financing provisions.
The device industry, through AdvaMed, has been an early, clear and strong supporter of reform efforts. Of all life science industry segments, the device industry – because it sells its products primarily to service providers, rather than directly to insurers – has the most to gain from health system stabilization and the market expansion that comes with universal coverage, and the least exposure to direct insurer payment rate reductions. Device companies are, of course, subject to indirect margin pressures, as their customers’ revenues are hit by payment reductions.
So when the President announced the reform “contributions” promised by pharmaceutical manufacturers, doctors, hospitals and insurers back in May, AdvaMed was a participant, but with no price tag attached. The market would, later in the game, determine the financial impact of reform on device companies.
Enter Baucus and a price tag for the device industry, however, and it is a big one: $4 billion a year in medical manufacturers’ fees, allocated “according to market share.” And the industry’s response has been rapid and predictable. AdvaMed’s position, in a detailed statement from CEO Steve Ubl, is essentially that a direct fee charged to device companies, on top of the margin pressures those companies would suffer on account of the financial impact of reform on providers and physicians, would essentially constitute a double tax – and, for all effective purposes, a counterproductive “tax on innovation.”
It would also, Ubl makes clear, be poor payback for AdvaMed’s unequivocal support for comparative effectiveness research and other elements of the reform agenda.
Baucus is proposing similar fees of differing amounts from pharma, clinical laboratories and the insurance industry. How they would actually be implemented is unclear – as is whether the concept will survive the legislative process. And it’s notable that AdvaMed, while opposing the particular provision in the strongest possible language, does not threaten to abandon its commitment to reform this year – a signal, perhaps, that support for reform from industry has staying power.