[caption id="attachment_2120" align="alignleft" width="300"] Laws and the law of unintended consequences[/caption]
Device makers are rightly concerned about the viability of Medicare in the coming decades, but there’s a tremendous amount of pressure on the program right now. For instance, budget sequestration will shave 2% off the monies paid out for Medicare by the end of March unless our elected officials can come to some agreement, but we no longer talk about least costly alternative (LCA) because it’s purportedly kaput.
The idea that LCA is kaput, however, might not be accurate, and there are a couple of reasons industry should stay on top of this particular issue in this new year.
As many will recall, the current and previous occupants of the White House each lost a lawsuit to Ilene Hays, the first titled Hays v. Leavitt, decided in 2008, and the second decided the following year, Hays v. Sebelius. The lawsuit was over coverage of the use of a nebulizer designed to simultaneously provide two treatments for the patient’s COPD rather than two separate treatments. The U.S. District Court for the District of Columbia determined that because the notion of cost is not found in the statute that gave us Medicare, cost could not be used to determine coverage of treatment.
And so LCA was no longer the law of the land starting in early 2010, when the Centers for Medicare & Medicaid Services issued a policy bulletin to its regional administrative contractors instructing them not to take cost into consideration as had previously been done.
Fast forward to November 2012, when the Office of Inspector General at the Department of Health and Human Services published a report addressing LCA for cancer drugs covered under Medicare Part B. The report recommends that CMS “consider seeking legislative authority to implement LCA policies for Part B drugs under appropriate circumstances.” And it’s tough to believe it would stop there. OIG notes that LCA policies “may be a useful tool for conserving taxpayer funds,” a huge area of emphasis these days.
The Independent Payment Advisory Board, which came into being thanks to the Affordable Care Act, may play a role in all this, too. IPAB will start making recommendations to Congress regarding ways to constrain Medicare spending in January 2014, and the OIG recommendation cannot have been lost on anyone who is likely to sit on the IPAB panel. Remember that the IPAB recommendations must by law be addressed by Congress either by enacting the recommendation or proposing and enacting an alternative to provide the same net effect on Medicare spending, assuming Medicare spending growth outstrips GDP growth by a percentage point.
Republicans in the House of Representatives reacted recently to this issue in the form of a rules document authorizing the House to more or less ignore IPAB, so clearly the House at least recognizes the attendant hazards. Still, the rules change only forestalls the requirement to address IPAB recommendations. It does not wipe out the requirement. Should IPAB back the OIG recommendations, there’s going to be a huge fight on Capitol Hill, the outcome of which could change the landscape drastically for patients and device makers alike.
As the saying goes, stay tuned.
[caption id="attachment_2108" align="alignleft" width="148"] Only 348 days left in 2013![/caption]
The new year is in full swing, but just as the Treaty of Versailles left a big mess to be resolved in another bloody conflict a scant 20 years later, the end of 2012 was anything but the end of several contentious issues that could plague the device industry in 2013.
As is the case with wedding gifts, this list includes something old, something borrowed, and at least one of these is sure to leave device makers blue.
Pre-emption back in play
We had discussed previously that a change of faces on the Supreme Court might endanger FDA’s pre-emption of state law for PMA devices, and it appears that the U.S. Court of Appeals for the Ninth Circuit has provided an avenue for a reconsideration of pre-emption at the Supreme Court.
According to a Jan. 16 posting at the website for the Washington Legal Foundation, the case of Stengel v. Medtronic (yes, Medtronic is yet again the defendant) was re-heard en banc after a three-judge panel ruled in the company’s favor. This setback for Medtronic was over a failure-to-warn claim based on injuries said to have not been reported in connection with the Synchromed EL pain pump.
I’ll let others spell this out in more detail, but I’m pretty sure the Supreme Court is the only avenue left for Medtronic to pursue if it wants to win this case. If, on the other hand Medtronic loses …
What will the new CED look like?
We recently reviewed the proposed overhaul of the coverage with evidence development process at the Centers for Medicare & Medicaid Services, so there’s no point in rehashing the details. The two big issues as best I can tell are whether CMS will allow local Medicare contractors to employ CED, and what sort of coverage gap will ensue at the end of a CED study.
Louis Jacques might not want to hear this, but the first of these two is not a serious proposal at all. Nobody in their right mind will go to multiple Medicare contractors for CED studies. It’s too unwieldy. As for the coverage gap, CMS is basically telling industry to make their FDA pivotal studies big enough to generate Medicare-type evidence unless you want to conduct study after study after study.
Let’s not forget that CMS indicated it would use CED to re-evaluate existing coverage, but they already do that. It’s just that they’re going to do it more often, but the agency promised to use CED more often generally speaking anyway. If you like coverage/reimbursement hurdles, 2013 could become the year that Edwin Moses becomes a hero of sorts for the medical device industry.
Corporate income tax rates: Up, down, or just different?
It’s tempting to think Congress and the White House recognize the need to fix the corporate income tax rate because of the need to bolster GDP growth in the U.S., and many economists would agree, assuming you want to keep the economy moving fast enough to avoid being swamped by Medicare and Social Security.
On the other hand, when you look at the tax fight just completed and the Obama administration’s emphasis on revenues versus reductions in mandatory spending, it’s not at all hard to imagine that corporate income taxes will go up in the net, regardless of what they do with rates. The Senate assiduously avoided passing any spending bills at all last year as a means of sidestepping some nettlesome fiscal issues, and the White House is late on the budget proposal for fiscal 2014.
The net message is that the administration is not eager to show the red ink and will do everything in its power to boost revenues. Even liberal pundit Kirsten Powers acknowledges that President Obama “didn’t run on cutting government, really, he ran on raising taxes.”
Will device makers find any relief from the device tax in the next corporate income tax rate setting? Maybe, but if they do, they’d be the only winners in what may prove to be a net loss for the American private sector in 2013’s tax wars.
[caption id="attachment_2101" align="alignleft" width="222"] He'll get his, but what will you get?[/caption]
I come not to praise the effort to repeal the device tax, or even to criticize it. I’m just here to give it a proper burial because it has been one heck of an effort. Industry continues to assert it will do everything it can to peel this tax monkey off its back, but there are a number of reasons I believe it’s just not going to happen.
But that doesn’t mean all is lost.
The first reason I see the device tax repeal as a goner is that President Obama has already made it clear he has zero interest in a repeal or even a suspension of the device tax. While it’s true that Congress starts bills, it’s also true that the White House finishes bills, both in the sense that the president signs a bill or delivers a coup de grâce to the legislation. It’s pretty clear which way this administration leans on this tax.
Another reason I think the device tax is here to stay is that there aren’t enough Senate leaders interested in erasing it from the books. Senate majority leader Harry Reid is a close ally of the White House as his remarks in the presidential campaign of 2012 make clear, and Max Baucus, the father of the device tax, is still the chair of the Senate Finance Committee. It’s tough to say what the incoming chair of the Senate Budget Committee might think about it, but if Congress is stingy enough to hold $50 million a year in patent fees from the Patent and Trademark Office, how on earth will our elected officials keep their mitts off $2 billion a year to help finance the Affordable Care Act?
The third and final reason I think the device tax is dead is that Congress and the White House have yet to hash out the budget sequester and the debt ceiling, and there are those who believe these two issues will prove at least as contentious as the income tax issues just “resolved.” By the time they hammer those two out, it will be time to take up the corporate income tax issue. And that’s where things might get interesting.
The advantage to making up the device tax via the corporate income tax is that it’s not just device makers who argue the U.S. corporate income tax is too high. It’s just about everyone who pays the tax. Device makers won’t have to go it alone on this argument, which will be taken up by industries that government actually likes, such as green energy.
Some might think that raising one tax and lowering another is just a shell game, but the cash in the Treasury isn’t always as fungible as one might think, at least not politically. This is especially true where the Affordable Care Act is concerned, the accounting for which was regularly criticized by Rick Foster, the outgoing chief actuary at the Centers for Medicare & Medicaid Services.
If anything, all the accounting improbabilities – which would land a corporation in court with the Securities and Exchange Commission draped around its neck – make it even more compelling for Washington to keep the device tax and make it up someplace else.
Hence, I conclude the device tax repeal effort is dead. Long live the new corporate income tax rate.