The healthcare reform bill may look good on paper, but many of its provisions may not be effective when implemented in the real world, according to James C. Capretta, a fellow at the Ethics and Public Policy Center. Capretta, a former associate director at the White House Office of Management and Budget, addressed key provisions of the legislation, government-driven delivery reform, budgetary pressure, and political outlook in his MD&M Minneapolis keynote presentation, “What Will Health Reform Mean for Medical Technology?”

Jim Capretta

Among Capretta’s criticisms of the current bill is that of the much-ballyhooed medical device tax, which imposes a 2.3% excise tax on the sale and import of Class I, II, and III medical devices beginning in 2013. Although the bill’s backers expect to raise $20 billion over the next ten years, Capretta surmises that costs will ultimately be passed down to consumers as the prices of devices are increased to compensate for the hike. “The incidence of these things falls directly on consumption; it doesn’t fall on industry per se, but of course industry is hurt,” he adds. “There’s going to be some shrinkage associated with this tax: It’s going to cost jobs.”

Trepidation about the tax was shared by some of the presentation’s attendees, such as Isaac Erickson, vice president of manufacturing and research development at Revolutionary Science. “I’m worried about [the bill]. We’ve been in the laboratory equipment industry for 10 years and we’re just getting into medical with three products,” he says. “So, when I see a 2.3% excise tax, when you’re talking about a device that sells for $5000, that’s a heck of a lot of money.”

In addition to the controversial medical device tax, Capretta has reservations regarding the efficacy of the subsidy system proposed in the bill. The legislation forces companies that do not offer healthcare coverage to pay a penalty for employees that ultimately need subsidized insurance; however, if the employer offers qualified coverage, the employee must accept it and is ineligible for subsidized coverage, according to Capretta. “This is probably the most important provision of the entire bill—what makes the math on paper appear to work, but it really doesn’t,” he states. “This says, in effect, some small employers will have a worker who will end up in the exchanges because they don’t have to offer coverage at all and will be penalized.”

But the numbers don’t add up, Capretta says. He points to a discrepancy between the 17 million people that the congressional budget office estimates will receive subsidized coverage through the exchanges and the 127 million eligible recipients that meet the criteria according to Census data. “A firewall keeps everybody in the employer-based system and does not have them migrate into the exchanges if at all possible,” Capretta says. “[The budget office] knows if they had to subsidize coverage for 127 million people instead of 17 million people, the cost would have been sky high. So, they wrote a provision in the bill that if your employer offers you qualified coverage, you can go in the exchange, but you can’t get a subsidy.”

The rationale behind this approach is that high-wage workers will continue to accept a job-based plan while low-wage workers will receive better subsidization if they go into the exchange system. The problem with this approach, according to Capretta, is that the budget office assumes that employers will not adjust their labor structure over time.

“I think we’re heading toward a situation in the not-too-distant future where you’re going to wake up one day and read a headline that says: Healthcare bill costs lots more than people expected,” Capretta says.

He also expresses concern about the multifactor productivity adjustments to Medicare payment updates, noting that the chief actuary of the Medicare program questioned its viability as well. This provision could cause Medicare’s rates to fall below those of Medicaid by 2019, Capretta states, which, in turn, could reduce the number of willing suppliers and compromise care for seniors. Medicare coverage may further be affected by pressure exerted on physicians to give up their practices and join hospital-based accountable care organizations. This trend could result in a large number of seniors entering into a managed-care environment by default without their knowledge or consent.

Whether the public echoes Capretta’s myriad concerns about healthcare reform remains to be seen in the upcoming elections, however. “I think in three weeks after the political decisions have been made, we’re going to see a dynamic trend, if favorable [to the bill’s opponents], to perhaps push to repeal parts of [the bill],” comments audience member Mark Distin of Ortho Solutions LLC. “If not, perhaps a lot of the industry is simply going to go offshore, whether they relocate their facilities or simply try to open up new markets for their products, and that will be a very aggressive shift.”