Imagine yourself sitting at a long table of friends in a restaurant. You’ve all come together for a big meal. Everyone is hungry, the restaurant is supposed amazing and the company is lovely. It’s been awhile since you’ve all been in one place and it’s nice to see each other. It’s only slightly awkward that one of the guys, Bill, is wearing handcuffs. It works out O.K. a couple of your friends help Bill eat and his conversation is dazzling, so it ends up being no big deal.
Dinner is amazing! Seven courses. The finest wine. A terrific dessert. One of the best meals you’ve ever had. Then the waiter brings the check. Your buddy Joe picks it up and takes a peek. The look on his face says it all! Dinner was awesome, but clearly…so is the bill. And Joe passes it to Fred.
Fred looks at the check and the color fades from his face. Then he passes it to Jill, who just glances at it as she passes it to Mike. Mike grabs a pen and adds it all up and figures a tip. “Yup,” he says. “It’s right.” Then he passes it to Larry. Larry gazes at the check and starts laughing…hard. Then he passes it to you. You don’t even bother seeing how bad the damage is. You just pass it on to Steve.
And so it goes. All the way around the table. Finally, John puts the check in front of Bill. He looks up at the table sheepishly as everyone else gets up. Slowly, the table clears except for Bill. Alone. With the check.
The Patient Protection and Affordable Care Act was signed into law on March 23, 2010. Some of the act has already gone into effect, but much of it will continue to go into effect over the next year and a half. On January 1, 2013 an excise tax on medical device manufacturers will go into effect. The tax will cost manufacturers of medical devices 2.3% of their revenues. Many have complained that it will kill innovation in medical technology. A 2.3% haircut on revenues at the level of the manufacturer is noticeable. A startup company may be operating on pretty tight margins so 2.3% of their revenues could amount to a large percentage of their profits.
I’m a dentist. Also, I’m a human being and I generally think about things in terms of how they will affect me. I love Ultradent, GC, Tulsa Dental and the rest as much as the next dentist, but they’re going to pay this tax. Not me. Right? Well…I’m not so sure.
Yesterday I received a fax from my primary dental supply company. They have received notice from dental supply and equipment manufacturers that this tax is going to cause them to raise their prices at the beginning of the year. The fax said that the increase would be upward of 5-6%. The supply company wanted me to know that they’re going to do their best to hold the line, but in no uncertain terms, they were going to have to pass this cost increase on to their dentists.
One of the other problems with this tax is that the people affected by it don’t know how it’s going to work. The regulators tasked with clarifying this are still working on it. By my count this tax will go into effect 47 days from today. I’ve talked to a lot of people in the dental lab industry who are way more knowledgeable about it than I am who are just not sure how it’s going to affect them. Dental labs aren’t sure whether they will be considered manufacturers and thus pay the tax on their lab output, or will they simply be paying higher prices for their raw materials. Dentists aren’t sure how it’s going to affect them, either. If you’re doing chairside CAD/CAM restorations does that make you manufacturer? The rumors are flying around and I’m here to tell you, I don’t have any specific answers. I’m not really sure that specific answers would be all that important, though because people are getting ready to react whether they have the information or not.
If you’re keeping score you’ve followed the fallout of the tax from manufacturers who pay it directly to suppliers and labs. The manufacturers are raising their prices and passing that onto the suppliers and labs. The suppliers and labs are going to pass the tax increase onto dentists in the form or higher prices for supplies and lab fees. So now, the providers (dentists and doctors) are holding the check. Many dentists that I’ve talked to are planning on raising their fees to cover the added costs that are heading their way. For better or worse, the dentists will pass the check to patients and insurers of patients.
What about dentists who participate with dental benefit plans. Many dental benefit plans limit the fee that a dentist can charge an insured patient. This is one of the selling points for employers that buy dental benefits for their employees. Costs can be limited because the dentists have agreed to a certain fee set by the dental benefit companies. When you add an additional expense on top of the dentists current expenses (labor, supplies, rent, etc.) and no ability to raise their fee, the dentist that works with dental benefit companies will have reduced profit due to the increased expenses.
Do you remember our friend Bill? You know, the guy with the handcuffs? He couldn’t pass the check because his hands were bound. So he kind of got stuck with it. That’s how providers are going to be in the current scenario. Since I’m a dentist, I tend to see everything colored by those lenses. But when I look at the bigger picture I see physicians dealing with identical problems. Most physicians and hospitals are contracted with many medical insurance companies. Many of them are operating on pretty slim margins as well. How many of you believe that insurance companies are going to happily increase their reimbursement for medical and dental procedures because of the new costs imposed by the health care law? Yeah…me neither.
As far as I can tell, this indirect tax is actually aimed at doctors and dentists that participate with insurances. Since the actual implementation of the tax is still mostly a mystery, this could change. Since people generally respond to incentives, I could see dentists and doctors moving away from participation with insurance because the added costs of the new health care law seem to be aimed at providers.
Am I ready to take off the handcuffs?