Made in Mexico: Life-Saving Medical Devices

Trump’s proposed border tax could have wide-ranging effects

The North American Free Trade Agreement (NAFTA) has transformed Tijuana, Mexico, from a ribald party town to the world capital of medical devices, according to Kaiser Health News (KHN). Nearly all Americans with pacemakers—and people worldwide—walk around with parts from Tijuana.

When President Trump threatens to redo trade deals and slap steep taxes on imports, he focuses largely on car companies and makers of air conditioners. But the KHN article details the potential difficulties involved in untangling global trade when it comes to the medical-device industry.

America imports approximately 30% of its medical devices and supplies. To ensure the safety of products that often end up inside the human body, medical devices are strictly regulated and require lengthy approvals by the FDA and other inspectors. As a result, any tariff-tinkering by the Trump administration could jolt not only the medical-device industry in coming years but health care nationwide, the KHN article says.

American hospitals rely on bandages and surgical gloves from China; suturing needles and artificial joints from Ireland; and defibrillators and catheters from Mexico. In all, the annual imports of medical devices more than tripled from 2001 to 2016, reaching $44 billion, according to BMI Research, a unit of the Fitch Group. Mexico is the leading supplier.

Seventy percent of the medical-device firms in Tijuana are American-owned, including Medtronic, CareFusion, DJO Global, and Hill–Rom–Welch Allyn, the KHN article points out. These high-tech operations emerged after NAFTA helped transform Mexican border factories, known as maquiladoras, into industrial powerhouses. Now, instead of being garment sweatshops, many maquiladoras in Tijuana employ a new generation of Mexican engineers and technicians to make orthopedic devices, surgical equipment, and catheters.

Trump has argued that a border tax is needed to keep well-paying jobs in the United States and to dissuade companies from relying on Mexican workers, who earn a fraction of American wages. Technicians at medical-device factories in Tijuana earn approximately $14 an hour, compared with about $25 an hour for technicians at factories in the U.S.

Critics of Mexico’s maquiladoras system contend that wages are kept unfairly low and that workers have been prevented from organizing. For companies, though, the savings are clear—as much as 45% for labor-intensive products—and have helped fuel the wave of development in Tijuana.

The final tally of how much American customers—hospitals, clinics, nursing homes, and doctors’ offices—would have to pay if a border tax were passed is unclear. Trump and Republican lawmakers have yet to release a detailed plan on trade tariffs or corporate tax reform. In addition, the final price on many medical devices is negotiated by group purchasing organizations, which harness the purchasing power of hospitals and others and would try to mitigate any price increases.

Chief executives at some of the largest U.S. hospitals have nervously watched the gathering legislative, economic, and geopolitical storm, according to KHN. The executives say their concerns regarding trade are based on simple math.

In Chicago, for example, Cook County’s public clinics and hospitals spend $62 million a year on medical supplies, including 403,460 bags of fluids; 120,432 boxes of gloves; and 44,434 boxes of syringes. Safety-net hospitals that care for poor patients would be unable to pass along price increases because the programs that insure those patients––Medicaid and Medicare––pay fixed rates for care.

“It’s a bunch of dominoes,” Doug Elwell, deputy chief executive for finance and strategy at the county hospital system, told KHN. Private or for-profit hospitals, because they mainly serve privately insured patients, “can pass along 10% in the bill,” he said. “But we can’t.”

Source: Kaiser Health News; April 3, 2017.