Thursday, October 17, 2013

The Medical Devise Industry And High Healthcare Costs In The US

The Affordable Care Act includes a small tax on medical devises.  The tax, along with other taxes and cost savings, helps to fund the ACA without requiring additional support from taxpayers (This is not well known.  Most Tea Partier's think that ACA will raise their taxes.)  In any case, the medical devise industry lobbied Congress to remove the tax from ACA.  The GOP, which pretends that it is concerned about deficits, supported the industry, along with  handful of Democrats, during the recent negotiations about the debt ceiling.  This article, describes the unusual way in which the medical devise industry prices its products.  They do not have a list price on their products.  Each hospital negotiates a price and agrees to keep the price that they paid a secret.  Free marketers who believe that price competition is at the heart of any market ignore this practice.  That is one of the reasons why medical devises cost 50% more in the US than they do in the rest of the world.  They have been able to guarantee high profits by successfully lobbying in Congress.  This is one example of how capitalism works in the US.  The lobbying industry is one of the fastest growing industries in America.  It is an essential arm of most large corporations.  Each corporation seeks competitive advantage by winning favors from the government.  They compete against each other in Congress to win concessions that give them an advantage in their markets.  In turn, our politicians compete for the funds that the lobbyists provide.  This is a highly competitive market.  It would be nice if the medical devise industry were as competitive. 

Fortunately, the lobbying effort to remove the medical devise tax from ACA was unsuccessful.  It remains in the ACA.  We will have to see how this plays out in the future.  John Boehner, who is the Speaker of the House, represents an area in Ohio which contains a number of medical devise firms.  He has been one of the most active in Congress in support of the industry's efforts to avoid the tax.

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