Medical device tax stifling innovation


Obamacare isn’t really that much of a mystery anymore. At then-Speaker Nancy Pelosi’s direction, we passed it, and we’re now finding out what’s in it. There’s little wonder, then, its popularity is only decreasing.

One reason is the tax that the Affordable Care Act puts on medical devices. That tax, on pacemakers, artificial joints, heart valves, scanners and the like, is already hurting the companies that make the devices. That pain will soon be passed along to us, the consumers.

The United States has long been the leader in medical devices. But that’s now at risk, says Henry I. Miller, writing in Forbes magazine.

“The medical device industry is being ravaged by unwise public policy, including a devastating 2.3 percent excise tax that took effect on Jan. 1 as part of Obamacare,” he says. “This tax, which has already required the payment of more than $1 billion by device manufacturers, is especially pernicious because it is assessed on gross sales, not profits.”

In other words, companies pay the tax whether they make a profit or not.

“Imagine that you’re a manufacturer of medical devices and had a profit of $100,000 on sales of $1 million after all your costs and expenses — everything from materials and labor to research,” Miller explains. “The excise tax would be $23,000, wiping out almost a quarter of your profits.”

That’s particularly hard-hitting in the medical device industry, because it takes a long time to develop, test and get approval for any device. It’s an expensive process, and actual profits aren’t realized for years and years.

“The tax is forcing companies to lay off employees, cut back on research and development, and reduce capital investment,” Miller says. “Medical technology executives are examining a host of other options that will have additional negative consequences, including passing along the added costs through price increases.”

The result will be higher costs for health care — and that’s “not supposed to be an outcome of Obamacare,” Miller adds.

President Obama claimed the tax would benefit medical device companies.

“It’s going to be great for business, and they’re doing really well right now,” he said. “This additional tax essentially comes back to them as new customers.”

Actually, no — Miller points out that the vast majority of users of medical devices are the elderly, who already have coverage through Medicare. There won’t be a big jump in the number of customers, even if predictions about increased numbers of Americans being covered hold up. The young people Obama wants to sign on to his program won’t need such devices for many, many years.

Even more disturbing is the thought that companies might cut back on research and development because of the tax.

“The U.S. remains the global leader in medical device development and manufacturing, although reports from PricewaterhouseCoopers and others show that even without the excise tax its lead was tenuous, in part due to regulatory uncertainties and dysfunction that thwart innovation,” Miller says.

The solution is clear. Congress can eliminate the tax and reward the innovation and development of life-saving technologies.

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