Comments on Affordable Care Act and other healthcare issues
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White House Business Council Roundtable
at the Pittsburgh Technology Council
April 2, 2014-9:45am
Summary of Prepared Comments
Robert Dickson, Chief Financial Officer-CardiacAssist, Inc.
Thanks to the representatives of the White House Business Council Roundtable and the
Pittsburgh Technology Council for arranging this meeting and inviting us to attend and provide
CardiacAssist, Inc. is a Pittsburgh based medical device company that manufactures and sells
the “TandemHeart”, a short term circulatory assistance device. The device is used by hospitals
and doctors through-out the United States. CardiacAssist is revenue generating and employs
approximately 40…25 in Pittsburgh and 15 elsewhere in the United States. CardiacAssist’s
founders, investors and employees are concerned about overall health issues but are
specifically concerned about cardiovascular healthcare since this is the focus of the company.
We attempt to provide comprehensive medical insurance for our employees at a reasonable
cost to them.
CardiacAssist’s comments on items related to the Affordable Care Act (“ACA”) and other
healthcare related matters follow:
Overall government focus. ACA was aggressive legislation to provide medical insurance to
those without insurance, estimated at almost 50 million people, and to reform health care in
the United States. There is no question that health care reform is complicated and it needs to
be a continuing effort. However, the focus of the Affordable Care Act seems is be too heavily
focused on insurance structure and regulation rather than addressing real healthcare issues and
remedies. Insurance premiums have been changed for groups of people but overall there have
been no real reduction in insurance premiums or health care costs. Moving forward we
encourage more focus on real healthcare issues…research and solutions to remedy the
underlying diseases and conditions that impact health and less government control of the
insurance marketplace. We discuss a few of these real healthcare issues in the following
Medical device tax. At 2.3% of revenues, the medical device tax costs CardiacAssist about a
few hundred thousand dollars per year and is estimated to cost the medical device industry $30
billion per year. It is a tax on revenue, not net income, so even companies whose performance
does not result in net income, are required to pay the tax. As a result, the tax has a
disproportionate impact on newer, smaller, start-up companies. Frequently this type company
creates innovative medical devices and taxing innovation is not a good policy.
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Increased cash outflow naturally needs to be covered from another source…probably payroll or
research, which also impacts payroll. Say the annual cost is $30 billion and the average wage is
$100,000 (with benefits). Intuitively, this would result in the permanent loss of 300,000 jobs.
It is unlikely the use of the tax proceeds will make up for many of these lost jobs. The hospital
industry does not generally permit the medical device tax to be passed along to them and their
resistance has been effective.
Since CardiacAssist is now beginning some clinical trials, animal studies and product
development efforts to demonstrate that the TandemHeart is effective and competitive,
CardiacAssist is presently cash flow negative. Accordingly, CardiacAssist, Inc. could utilize the
cash paid for the medical device tax for research to increase the effectiveness of the
TandemHeart to improve our competitive position.
Most companies will have no benefit in return from the tax and do not expect a noticeable
increase in revenue from the ACA. CardiacAssist has not experienced an increase in patients
using the TandemHeart as a result of the ACA, in part because it is not an elective procedure.
CardiacAssist does not expect to realize an increase in revenue from new insurance plan
enrollees because many of the new enrollees are younger people who do not need devices like
In short, the medical device industry has a focused tax on their products that does not result in
any benefits to them. The medical device tax should be eliminated.
Physician Payment Sunshine Act An example of an excessive focus on regulation is the
Physician Payment Sunshine Act. Certain portions of it have been delayed but we predict that
the Sunshine Act will be very controversial once the reports are made and doctors are notified
of expenditures. Doctors will begin receiving notices of expenditures, sometimes of very minor
amounts that occurred months before in group meetings, for approval by them as items paid
on their behalf.
A 2010 study reported by pharmacompliancemonitor.com indicated that 24% of physician
investigators responded that they would be less likely to participate in research or would not
participate at all if the payments they received were publically disclosed. I could be a lost
opportunity for a doctor not to be willing to meet with a medical device research person to
discuss a new development, when the doctor has time over lunch, because the doctor or the
company do not want a $15 expenditure to be reported because it would appear inappropriate.
The conversation could have resulted in a significant new development.
Physicians who are key opinion leaders that assist the health care industry and companies in
evaluating issues and developing products will shy away from formally assisting companies in
the future because of concerns about the bureaucratic impact of Sunshine Act reporting and
incorrect perceptions that anything they receive from a company is inappropriate. Creating
barriers between physicians who are key opinion leaders and companies that serve the industry
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with innovative research and develop new products is the wrong solution. At a minimum,
payments to physicians that are specifically focused on research should be excluded from
reporting under the Physician Payment Sunshine Act.
The Sunshine Act reporting is of little benefit, it is a nuisance and will result in controversy. The
cost of compliance for CardiacAssist is several thousand dollars per year with no benefit in
return. It is in the administrations best interest to delay the Sunshine Act Reporting since it
may be another black eye for the Affordable Care Act and the administration.
HealthCare insurance. Companies go from year to year anticipating a significant increase in
premiums….CardiacAssist’s was a reduction last year of 20%, which we did not expect, and was
based on mechanics of the system, not demographics or health care experience. HIPPA
regulations hide the details of costs from employers, so companies don’t really have a full
understanding of what is driving their premiums. Renewal premiums for the next calendar year
generally are not known until a few months before the end of the previous year and companies
have limited time to react and plan for these premium changes. Frequently the reaction is
changing the plan design which confuses employees. CardiacAssist expects premiums to
significantly increase next year but we do not know how to effectively control or plan for these
costs. Hopefully we will receive another surprise and a 20% reduction. We will react after we
learn of the renewal premiums late in the year and probably reengineering the coverage again
and reeducate our employees, hopefully without disrupting their economic well-being and their
lives. Insurance premiums are too volatile and the structure changes too frequently for
companies to adequately plan ahead. Multi-year policies for larger groups should be
encouraged to avoid the volatility.
ACA discriminatory impact. Who would have thought that the government would promote
discrimination? Two major ways discrimination is now built into health care premiums
approved under the ACA:
-In our plan the oldest employees’ premiums are 3.0x times the youngest, which is typical of
other plans. For example in one of our plans the cost of insuring an individual in their early 20’s
is $364 per month and the cost of insuring an individual older than 65 is $1,093 per month,
both not tobacco users, or a difference of $8,748 a year. This creates a strong disincentive to
hire younger people vs. older people, if the company pays their health insurance premiums.
-Premiums are now billed to companies for each individual person in the family, not one bill for
family coverage as before. This means that the company pays 5 premiums for a husband and
wife with three children or about $3,300 per month if the adults are in their mid-sixties and the
children are in their early twenties. In the past it was only one premium for family coverage,
say at $1,500 per month. The cost is now almost $40,000 per year compared to about $18,000
for family coverage.
-If age and family size are considered together, in these examples insurance coverage can be
$40,000 per year for a family and about $5,000 per year for a thirty year old, with no
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This incentivizes employers to high younger workers with no families. Individuals with
preexisting conditions can’t be denied coverage, which is a good policy, but older workers with
families are more likely to have preexisting conditions and companies are paying higher
premiums to pay for this based on a new premium structure. This premium structure may be
unrealistically low for younger people because of the bias to coerce young people to obtain
insurance, but the employers pay for it through older workers premiums.
The structure of premiums has historically been complicated and continues to be so under the
ACA. The structure is further complicated since low income people may receive subsidies for
their premiums. According to the “Age Discrimination Act of 1975…no person in the United
States shall, on the basis of age, be …subjected to discrimination by any program or activity
receiving Federal financial assistance”. Accordingly, the Affordable Care Act may be violating
preexisting laws. This whole premium structure of pitting the young vs. old, people with
families vs. individual insured’s and low income subsidies needs to be restudied to create a
more equitable system. Insurance policies that promote employment discrimination should
not be permitted.
Reimbursement for procedures. There is little visibility beyond the current year about what
reimbursement to hospitals and doctors for procedures is going to be when devices like the
TandemHeart are used in the future. Companies like CardiacAssist have a difficult time
planning for the future without visibility. Trying to navigate through the Centers for Medicare
and Medicaid information on reimbursement is very difficult.
There are concerns about reimbursement being significantly decreased as the ACA evolves in
future years. Clinical trials are being postponed, slowed down or cancelled because the
hospitals want to be guaranteed reimbursement and ask the sponsoring company to provide
the guarantees, which in many cases is a risk companies cannot assume. Overall, the focus on
reimbursement is very short term, the process is very complex and everybody accepts the
status quo. This restricts innovation. CMS should outline their objectives for reimbursement
over a longer period of time (say ten years) to enable a longer term understanding for
companies that rely on reimbursement structures to market their products.
The “ICD-10” program that was recently postponed is another example of overregulation. The
explosion of codes seems like overkill and an already complicated system will become more
complicated. I am personally concerned about the proposed coding for “hit by golf ball”
because based on my golf game my name could end up in some government database
associated with the repeated use of the code for “hit by golf ball”. It should be determined
whether all the ICD-10 codes are necessary and the ICD-10 program should be simplified
FDA regulation. Improvements are being made in the FDA’s system but there is a strong
disconnect/mistrust between the FDA and industry…industry expects the FDA to be unrealistic
in their approach, to impose requirements (particularly in clinical trials) that are impossible to
meet and then to change their minds at any time. Many device companies are flying under
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the radar, to avoid the FDA’a process, which invites more distrust and potential punitive
action. This invites more regulation and punitive actions for deviations from regulations,
resulting in more mistrust.
When a new medical treatment is formally introduced to the FDA, the FDA should evaluate the
healthcare benefit of the treatment and if the evaluation is positive and there appears to be a
significant benefit, the FDA should become champions of the company’s effort, rather than a
regulatory bottleneck designed to make it difficult for approval. The FDA attitude should be
“how can we effectively bring this medical treatment to market faster” rather than “do we
have enough regulations in place to make sure a mistake is never made”. The FDA should
increase the focus on the ways to get beneficial technology to the market faster.
Payments to doctors for Medicare services. Every year the doctors are faced with significant
cuts in reimbursement but at the last minute a temporary fix (the SGR or doc-fix issue) is put in
place. Everybody expects a temporary fix but it is still disruptive. Everybody knows the doctors
reimbursement process needs to be fixed, so the government should just fix the process for
payment of doctors rather than kicking the can down the road. Recently Congress acted
again to provide a temporary fix and kicked the can down the road again, for the 17th year.
Fear of healthcare rationing. A popular concern about the centralization of health care and
overall top down management by controlling health care budgets, is rationing of health care
and discrimination against patients based on age. This concern is not unrealistic since the
United Kingdom’s National Health Service (“NHS”) rations care and discriminates against the
The administration’s health officials and advisors support this concern. For example,:
-Tom Daschle wanted a rationing board like the NHS has but for his tax issues, he would have
been Secretary of Health and Human Services. He was a major advisor to the ACA.
-Donald Berwick, who was in charge of Medicare, applauded the NHS and rationing before his
term in government. His views were so explicit, the Democratic Senate never held a hearing on
his nomination and the president used a recess appointment so he would not need to answer
potentially politically embarrassing questions.
-President Obama once told a woman at a town hall meeting that rather than treating an
elderly woman for her disease, she should instead be given pain pills, because this will save us
It should be required that any hospital or doctor that rations healthcare, without the
approval of the patient or the patients family, should report the health care rationed to the
American Medical Association for evaluation as to whether the rationing was appropriate.
Sale and consumption of tobacco products. A major cause of poor health care is the
consumption of tobacco products, particularly cigarette smoking, yet the government permits it
to continue. The impact of individuals smoking has been directly linked to cancer and
cardiovascular diseases. Exposure to second hand smoke may also result in severe health
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problems, particularly in children. In particular, smoking has been linked to increases in
preterm births and hospital attendance for asthma in children. It is perceived that politicians
may be reluctant to adopt aggressive tobacco control policies because of the risk of irritating
tobacco companies, the loss of campaign contributions and that the benefits (reduced disease
and medicals costs) are years in the future.
Sara Kalkhoran, MD, and Stanton Glantz, PhD, from the University of California San Francisco
School of Medicine, wrote that medical expenses associated with asthma topped $50 billion in
the U.S. in 2007. They also wrote that California saved $243 billion in medical costs between
1989 and 2008, after spending less than $3 billion on tobacco control programs. Regulation of
the sale and consumption of tobacco products is not enough..the sale and use of tobacco
products needs to be banned. President Obama is in an ideal position to place this ban in
effect. In the past he has issued Executive Orders to accomplish his objectives, he is a
champion of health care reform and he is no longer reliant on campaign contributions since his
second term is ending.
Addiction to opiates. An article in The Boston Globe dated March 27, 2014 stated that
Massachusetts Governor Deval Patrick declared a public health emergency to combat the
growing abuse of opiates. He directed that all the state’s police, firefighters and other
emergency response be equipped with a drug that can quickly reverse heroin overdoses.
Patrick said: “Heroin today is cheap and highly potent, we have right now an opiate epidemic.”
Using his emergency powers, Patrick told the Massachusetts Department of Public Health to
make Narcan available immediately to all first responders, as well as more accessible to families
and friends of drug abusers. Narcan, the brand name for naloxone halts overdoses
immediately. Although making Narcan more readily available, his directive also established a
few other initiatives, including spending $20 million more to increase treatment and recovery
services. His actions follow an alarming increase in the number of heroin deaths in
Massachusetts and in other states, including Pennsylvania, in the last several months. The
administration should follow Massachusetts Governor Patrick’s lead and declare a public
health emergency to combat the use of opiates.
Ironically, in 2010 the FDA has approved a once-monthly injection to treat opioid dependence.
One brand name is Vivitrol, which is an opioid antagonist, which blocks the brain’s opioid
receptors, leaving individuals with a loss of feeling from the opioid if they attempt to abuse
opioids. Data reported at an American Psychological Association indicated that 90 percent of
individuals on Vivitrol had opioid-free urine screens over a six-month period, compared to 35
percent of those on a placebo injection. The administration should encourage the use of
opioid antagonist drugs and ensure that health care policies are designed to cover the cost of
these life-saving drugs.
Prevalence of obesity. Obesity rates are increasing very fast in the adult population but also in
in children! The two attached charts developed by the American Heart Association/American
Stroke Association indicate the increase in and the prevalence of obesity. Clearly, the trend
lines indicate a significant problem, since obesity alone can significantly shorten a life span and
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it is linked to other health problems like cardiovascular issues, diabetes and structural issues.
Obesity is a known issue with known consequences. More should be done to control and
reduce this trend line ...restrictions on sales of foods that are clearly not healthy, education
about foods, such as yogurt, that can be substituted for less healthy foods, such as ice cream.
A national program to “fight against obesity” should be established as a priority when
evaluating health issues at all levels and sectors.
Source of funding. The Federal government has a deficit issue which must be overcome when
any issue is considered. We strongly favor spending reductions where appropriate and we
believe such opportunities exist and should be aggressively pursued. However, there is
another source of funding that could be used to help stabilize longer term programs such as
Medicare and Social Security. Currently, significant amounts of money are in tax deferred
retirement accounts such as 401-k’s. Consideration should be given to providing a significant
one-time tax rate reduction if these funds are rolled over to a Roth retirement account or an
equivalent. This would create a huge source of current tax revenue for the government and
individuals would benefit from the tax rate reduction. The government would have an known
source of revenue that could be dedicated to future Medicare and Social Security benefits and
individuals would know the after tax amount of investments that they have for future use.
Naturally the tax rate reduction would need to be significant enough to make the transfer to a
Roth like account beneficial to individuals. A one-time tax rate reduction should be
considered when funds in tax deferred accounts are transferred to a Roth-like account.
Health care insurance policy delivery. The Affordable Care Act has focused extensively on the
development of insurance exchanges, which is a business that governments should not be in.
At the same time, insurance companies are not permitted to sell insurance products across
state lines which should reduce costs, provide more uniform policies and be of benefit to
insurance consumers. The number of insurance policies available to any one person and the
number of insurance companies, is too confusing for the typical purchaser of insurance and this
confusion is only compounded by insurance exchanges.
The administration’s goal was to have 7 million people enroll in the insurance exchanges by
March 31, 2014 and it is estimated that less than 50% of these were previously uninsured. If so,
then about 3.5 million people who were previously uninsured would be insured. The number
of newly insured does not seem quite worth the effort to build, and media focus on, these
exchanges The government should exit the business of insurance policy delivery through
exchanges and leave the function of health care insurance policy delivery up to the private
Private sector investing in innovation. All the above factors make planning by employers,
employees, retirees and others difficult in one way or another. Difficulty in planning makes
people risk adverse and funding is more difficult to obtain, particularly for the smaller more
innovative companies. Who is going to fund a company when it cannot be estimated how
many “years” it will take to get a product approved by the FDA and then the ability to obtain
reimbursement for the product is not clear?
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Summary and overall recommendation. Our overall recommendation is to establish an
independent, nonpolitical commission of highly qualified individuals with diversified
backgrounds to restudy the issue of health care in the United States, with the intent of
developing specific recommendations for reform of health care and the ACA.
Experience with health care reform and the ACA should be the basis for identifying reforms that
need to be made. Most people would view this as a positive step forward and it is better than
doing nothing with the view that the ACA must be replaced or the view that it does not need
fixing does not need fixing. Establishment of such a commission would probably be a positive
for the administration.
Our specific recommendations include:
-We encourage more focus on real healthcare issues…research and solutions to remedy the
underlying diseases and conditions that impact health and less government control of the
-The medical device tax should be eliminated.
-Reporting under the Physician Payment Sunshine Act should be delayed until a more
reasonable approach is developed. At a minimum, payments to physicians that are specifically
focused on research should be excluded from reporting under the Physician Payment Sunshine
-Insurance premiums are too volatile and the structure changes too frequently for companies
to adequately plan ahead. Multi-year policies for larger groups should be encouraged to avoid
-The structure of health care premiums should be evaluated to eliminate discrimination against
older workers and workers with families. Insurance policies that promote employment
discrimination should not be permitted.
-CMS should outline their objectives for reimbursement over a longer period of time (say ten
years) to enable a longer term understanding for companies that rely on reimbursement
structures to market their products.
-It should be determined whether all the ICD-10 codes are necessary and the ICD-10 program
should be simplified before implementation.
-The FDA attitude should be “how can we effectively bring this medical treatment to market
faster” rather than “do we have enough regulations in place to ensure a mistake is never
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-Payments made to doctors should have a long term fix rather than the annual doc-fix that has
been used for 17 years.
-It should be required that any hospital or doctor that rations healthcare, without the approval
of the patient or the patients family, should report the health care rationed to the American
Medical Association for evaluation as to whether the rationing was appropriate.
-The sale and consumption of tobacco products, particularly cigarettes, should be banned.
-The administration should follow-up on Governor Patrick’s lead and declare a public health
emergency to combat the use of opiates. The administration should encourage the use of
opioid antagonist drugs and ensure that health care policies are designed to cover the cost of
these life-saving drugs.
-A national program to “fight against obesity” should be established as a priority when
evaluating health issues at all levels and sectors.
- We strongly favor spending reductions where appropriate and we believe such opportunities
exist and should be aggressively pursued. However, a significant one-time tax rate reduction
should be considered when funds in tax deferred accounts are transferred to a Roth like
-The government should exit the business of insurance policy delivery through exchanges and
leave this function up to the private sector.
We appreciate the administration’s taking the time to learn our opinion on issues like these.
However, the process appears to be broken. There are battles between political parties rather
than efforts to constructively improve the system.
Please let us know what we can do to assist in the process in the future.
Chief Financial Officer
240 Alpha Drive
Pittsburgh, PA 15237