The Medical Device Tax Impact on Innovation

I know that I have a disproportional number of “Legislative Issues” posts, and to be honest I have a few more planned. It is the unfortunate truth that in this economy there are a number of issues that are impacting our community. I promise I will try to find ways to lighten the mood of this post, and not be all doom and gloom.

For those of you who don’t know, the Medical Device Tax is a 2.3% excise tax on the sales price (that’s gross sales, not profit) of taxable medical devices. The tax is extremely broad-based and applies to almost any FDA-registered device that is intended for human use – everything from MRIs to tongue depressors to ultrasounds. The Medical Device Tax was created to help finance part of the Affordable Care Act.

The tax will cost medical technology manufacturers at least $30 billion, threatening innovative products, including imaging, genetic mapping and new tools to fight chronic disease. All are key to providing cutting edge, life-saving technology to patients.

It is estimated that this tax could result in the loss of 43,000 US jobs, resulting in a total of $3.5 billion in lost wages. Currently companies are paying an estimated $194 million a month on the tax. Money that could be used to increase research and employment at those companies.

This tax hits home here in Chicago. We have seen a 30% increase in the number of start-up medical device companies coming out of our research institutions, and this tax hits those companies the hardest. Because the tax is assessed on revenues, regardless of profit. Start-up companies who have invested heavily into their R&D, and are working hard to move their products to market do not need the extra burden of this tax.

Ultimately (here comes more doom and gloom) it could impact our standing as the global leader in the medical device industry. The U.S. accounts for 40 percent of the global medical technology market. The tax harms economic growth in one of the only American manufacturing sectors that is a net exporter, exporting $5.4 billion more than it imports. The new tax threatens our competitive advantage worldwide.

I know what you are thinking…

There is good news, yesterday AdvaMed (Advanced Medical Technology Association) announced that bipartisan support to repeal the tax has continued to grow. A majority of house members have now signed on as co-sponsors of HR523, the Protect Medical Innovation Act of 2013. Click Here to read the release.

Also earlier this year the Senate voted 79-20 on a budget resolution that would repeal the tax. It is easy to say that you want to repeal this tax looking at the reasons listed above, even with annoyed Picard and business cat. But nothing is certain but death and taxes…pun may be intended.

The complicating factor with the Medical Device Tax is that it is part of the Affordable Care Act, it provides $10 billion in revenues to help offset some of the cost of ACA. We all know that ACA is a very hot button topic. The sticking point on the repeal of the tax is…what is going to replace those revenues? Someone is going to have to pay, either taxes in some other segment, or cuts somewhere to make up for the lost revenues. It has been suggested that the tax itself is too small to stand alone in a bill and be repealed. It needs to be attached to a larger issue, like overall tax reform, to successfully pass both houses and get the president’s signature. Without the bigger bill and replacing the lost revenues, it is unlikely that the President will sign off on the repeal. Of course none of these legislative issues can have an easy solution, but can we all at least agree to find a way to alleviate this tax burden for our small start-up companies.

This is a conversation, not an editorial. Did I forget something, get it wrong or do you agree? Please Comment, Like, Re-Tweet and Share.

3 thoughts on “The Medical Device Tax Impact on Innovation

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