The United States is suffering from a lag in medical innovation, and our healthcare system is bogged down by unnecessary regulations and taxes which affect the lives of everyone in this country. While taxes are necessary the increase in taxation is negatively affecting medical companies under the ACA.
Coupled with the complex route regulatory approvals take, the healthcare system in this country is flailing under the pressure to keep up with high demand and low payout. Patients are treated, often without paying anything for expensive procedures, and the companies who are meant to innovate, foot the bill.
It is time to rethink the cost, time, and effort taken to attain FDA approvals for drugs, medical devices and procedures. Unfortunately, this alone would not signal the end of the trouble for healthcare oriented companies in this country.
A complex combinations of issues needs to be addressed:
- The burdensome overhead which affects businesses ousts innovative startups which could discover the cure for cancer.
- The legal system in this country leads to the practice of defensive medicine whereby doctors perform multiple costly tests on patients to avoid the risk of litigation.
- The taxes which affect these companies isolate them from creating new products, since they’re constantly caught in the cycle of cutting losses.
- Reduced government funding in Research and Development will lead to the lack of innovation in the healthcare sector and around the world. Many of the innovators in our country are leaving for greener pastures overseas, in Canada, China or the United Kingdom, as a result.
The root of the issue appears to stem from the unfair taxation under the Affordable Care Act and the apparent loss of faith in R&D – after all, the United States government has decreased its funding for medical research and development over the course of several years. Currently, it’s at a low point, and will only decline from here.
The ACA: Taxing the Companies Which Help Us Most
Since 2013, the sales of medical devices, including those of pacemakers and surgical equipment have borne a tax of 2.3 percent. This means that for every dollar a medical company makes, they must pay 2.3 cents to the government regardless of whether they made a profit on the sale – i.e. it’s based on gross sales rather than gross profit.
Currently, there’s a moratorium on the Medical Device tax, but that is set to end in December 2017 – the tax will come into full effect as of January 2018 once again.
Taxes likes these usually apply to cigarettes, where discouraging people from consuming them and thus companies from producing them is the goal. But the government isn’t benefitting anyone with this tax – these are surgical or medical devices which prolong the lives of ordinary Americans.
Because of the taxation of these companies, profits fall and the money budgeted for research, development, and innovation falls by the wayside. Medical device manufacturers can no longer afford to create new products while making a loss because of the taxes. This has a snowball effect on how their companies operate. Higher taxes, means higher manufacturing costs. They should make up the shortfall somehow, either by decreasing pay to their employees and losing them, or increasing the cost of their products.
Instead, a lot of these companies have chosen (and will choose as of 2018) to move their factories overseas, and countries such as China or Canada benefit as a result. Losing these companies is a huge blow to the American economy and its healthcare system.
And to compound matters, it’s true to say that the device tax has to be accounted for by these companies somehow.
A Severe Lack of Investors in R&D Thanks to Taxation
To make matters even worse, the U.S. currently spends less than five cents of each health dollar on Research and Development. This means that funding is at an all-time low, and the brand name pharma companies – who receive a tax on their drugs – and medical device manufacturers who are already struggling with the 2.3 percent tax don’t have sufficient government funding to innovate.
Why is this important? Because these are the companies who are researching treatment for illnesses and diseases like Alzheimer’s or Diabetes. They’re the ones who are helping save the lives of American citizens. Private funding alone isn’t enough to help these companies develop the products required to deal with outbreaks of Zika, and the lack of funding has discouraged major pharma companies like from actively researching a vaccine.
With low confidence in the medical sphere thanks to the lack of funding by the government, and the higher taxes on manufacturers, potential investors who stand to profit from the production of drugs are discouraged from putting their money into companies who research – as the companies producing drugs lose money or are unfairly taxed, market confidence drops significantly. After all, research is costly and time-consuming, and the pay-off is long-term.
In truth, scientific work is hardly profitable to investors. Many projects are abandoned because they don’t make the profit expected, or do so fast enough. The incentive for investing in R&D is already low, and with the added external pressures now applied by the ACA, it’s likely to fall further.
How the ACA Affects Pharmaceutical Innovation
The pharmaceutical companies in this country are no longer able to control the prices of their products, to compensate for the investments they make in research under the Affordable Care Act. Why? Because the federal and state funds fall short in aiding them, and they’re submitted to unfair taxation and stringent regulatory processes which only slow production and thus profit.
Without the ability to create wealth for their companies, pharmaceutical research and development will fall behind and consumers bear the burden. Some reports indicate that the tax on pharma companies may have led to the rising cost of brand name drugs.
This is an alarming thought, considering what they’ve achieved with the right funding.
Consider the fact that not long ago an HIV Positive diagnosis meant death rather than treatment. The creation of antiretroviral drugs and treatment revolutionized the lives of the afflicted. Anti-depressants and anti-anxiety medications have saved lives. Anti-psychotics have helped the mentally ill live productive lives.