Who Picks Up the Tab for Health Reform

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Although their industry brings in only one-sixth the revenues of the drug companies, the finance bill would have them absorb $40 billion in new fees, proportionally a much bigger hit. "This is really a tax on innovation," complains Medtronic (MDT) CEO William A. Hawkins, who says device makers would have to cut back on research and jobs. Their points are gaining traction. Daniel Clifton, an analyst with Strategas Research Partners, predicts the device makers' contribution will likely be notched down to around $30 billion.

DOCTORS AND HOSPITALS

If there are winners in all this turmoil, it's the white coats. Never mind that doctors and hospitals are each responsible for one-third of the nation's health-care spending—far more than any other sectors—or the fact that nearly everyone acknowledges the waste in Medicare spending. Congress has proposed no major changes to the "fee-for-service" model that pays physicians for the volume of services they deliver, rather than the quality of care.

On top of that, Congress looks set to eliminate a 21% cut in Medicare payments to doctors that is already mandated under the 1997 balanced budget law. That will cost the federal government $247 billion over the next 10 years. The move is aimed at avoiding a full-out doctor revolt just as health-care reforms are within reach, so the issue—along with the hole it will leave in the budget—has been removed from the reform bill altogether. "Congress just does not have the stomach to take on the doctors," says John L. Sullivan, director of health-care research at investment bank Leerink Swann.

Hospitals also come out ahead. The American Hospital Assn. agreed last spring to absorb $150 billion in cuts over the next 10 years by instituting safety and efficiency measures, but that wasn't much of a sacrifice, says Paul H. Keckley, executive director of Deloitte Center for Health Solutions: "Every hospital is already pursuing these measures. That's why the AHA was so eager to put it on the table."

TAXPAYERS

The House bills propose raising $544 billion by imposing a 1% to 5.4% surtax on households earning an adjusted gross income of more than $350,000. Getting anything close to that amount will be difficult, however. The proposal has little support in the Senate, and even House moderates—many of whom face reelection in fiscally conservative, Republican-leaning districts—oppose it. Already, Pelosi has hinted that the threshold might be shifted so that only individuals making over $500,000 or families earning more than $1 million get hit. That may be more politically acceptable, but it will raise a lot less money. Which means going back to someone else's well.

Sasseen is Washington bureau chief for BusinessWeek. Arnst is a senior writer for BusinessWeek based in New York.

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