Healthcare and the Supply Chain: Will There Be A New Tax on the Healthcare Supply Chain?

There continues to be a wide divide between Democrats and Republicans on the nature of health care reform. One of the most significant areas of disagreement is what a bill will actually cost and how it would be paid for given a general commitment to revenue neutrality. The only real hope for a bipartisan bill has been based on the work of a group of six senators headed up by Senators Baucus(D) and Grassley(R). In the last few days Senator Baucus has released a document referred to as the Baucus Framework. It outlines key provisions that Senator Baucus would like to see in a bill. Baucus has introduced several new taxes on pharmaceutical companies, medical device manufacturers, clinical laboratories and insurance companies. The new fees on pharma would be a collective $2.3 billion per year allocated according to market share. Medical device companies would pay $4.0 billion a year also allocated according to market share. Over the ten year horizon period these fees would total $63 billion dollars just for pharma and the medical device industry.

So now come the obvious questions. How will these companies absorb the new fees/taxes? Will they simply raise their prices to account for the fees? Or will they make cuts internally in areas such as research and product development? Will this mean premature death for patients suffering from conditions for which cures or potential cures are currently in the research pipeline?

It also leads to another question more pertinent to supply chains in general. Can costs in one link in a supply chain be arbitrarily raised without having a negative impact on any other part of the chain? For example, if you are in metals manufacturing can your company or would your company absorb all of the cost increase or would it be forced to pass it on down the chain?

Does your organization or someone you know need a speaker for a company meeting or would your senior management like a private briefing on some of the key issues that will affect health care reform and the business climate? If so, please send an email to:

- Lynn James Everard

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