Politicians love politics, but they don’t always love business. They come to D.C. high on the ideological hog, but when it comes time to solve the pressing economic issues of the day, they employ the brightest minds that never worked in the industries they cover. I mostly associate with academics, and there is a similar culture in our universities: they love to fix other people’s problems. After one week as a new health care policy intern, I’m starting to believe that health care professionals know what they’re talking about, and we should listen up.
Yesterday, the Galen Institute hosted their fourth annual conference on “The Value of Innovation in Health Care”. They held the event at a conference room in Union Station just off of Capitol Hill. Sitting towards the back (and trying to ignore the rumbling of trains under the floor every five minutes), I was treated to my first exposure to all aspects of the health industry. Speakers included three members of Congress, as well as doctors, executives in the pharmaceutical, hospital, and biotech industries, and leading policy researchers from various centers around Washington. Five hours later, I came away with a few pages of notes, a stomach full of free food, and a few ideas about how policy should work in America.
Politicians love to paint rhetoric about what’s right and what’s wrong in social and economic issues. Do they really know if their ideas work in a complicated health care market? Not always. President Obama helped fund an expansion of medicaid with a new tax on pharmaceuticals and biotech devices. His rationale was that the taxes would help cover more Americans with health insurance, which would give the industry more customers and compensate for any losses from the tax. That made a lot of sense to me until I heard Jonathan Rennert speak at the train station. He owns a biotech device company in Massachusetts called ZOLL. They make heart defibrillators that save thousands of lives from cardiac arrest every year. Obamacare is about to increase ZOLL’s effective tax rate from 30% to 50% of revenue, which will likely stifle any investment in future product development. The problem that Obama didn’t consider is that the defibrillator market won’t benefit from more insured Americans. Apparently medical devices are not generally used for chronic conditions, they are used for acute conditions that have to be treated in emergency situations regardless of insurance status. As Rennert put it, “Usually a paramedic doesn’t check a person’s wallet for an insurance card before he resuscitates his heart.” The benefits of extended Medicaid make a very small difference on the customer base of ZOLL and other biotech device firms, but the higher tax rate distorts their revenues and profits.
The fascinating thing is that tax increases on pharmaceuticals were not generally opposed by the pharmaceutical industry. Because new patients under medicaid will use their new insurance for treating their chronic conditions with prescription drugs, the pharmaceutical industry doesn’t mind paying a little extra in taxes to fund medicaid expansions. Obama’s argument made sense for one industry, but not for the other. All he needed to do was ask the industry professionals what works and what doesn’t. Let’s push for a little more collaboration with the private sector, and get the policies right the first time.