UpFront: Medical-Device Tax in ICU
By Sarah A. Webster
Editor in Chief
The medical-device tax, which took effect Jan. 1, is clearly unpopular in medical manufacturing circles, but whether it lives or dies depends on a lot of factors.
With opponents of the measure spanning from former Republican presidential candidate Herman Cain to US Sen. Elizabeth Warren (D-MA), the medical-device industry believes it has bipartisan support to go in for the kill.
On March 21, the US Senate voted, 79-20, to repeal the tax. While the vote was largely symbolic—it was an amendment to a Democratic budget that won’t pass the GOP House —nearly half of the votes against the tax, 34, came from Democrats, resulting in a fairly even-handed rejection. So, a stand-alone bill to kill the tax is likely on its way.
The 2.3% excise tax is a critical revenue-generating component of ObamaCare, expected to raise about $29 billion over 10 years—funds that are slated to help pay for the expansion of health care coverage to 30 million uninsured people.
While that is laudable, it’s easy to understand the anti-tax argument. The tax is based on total medical device revenues of a company, regardless of profitability. Many companies, the Medical Device Manufacturers Association and others argue, will owe more in taxes than they generate in profits. The result will be devastating to innovation, patient care and job creation. And this is a sector that already faces incredible cost hurdles tied to cumbersome regulations to get devices approved and to market in the first place.
Since the tax took effect, the industry has already paid $388 million, according to AdvaMed, an industry group. It says that money has been diverted from investment in R&D and job creation. “It keeps our companies from thriving and making a profit, exporting overseas,” said Sen. Dan Coats (R-IN), who predicted the tax would be repealed.
The Obama administration envisioned it another way. On its side, supporters argue that the tax is small and that as more people receive health coverage through ObamaCare that pays for the devices in the first place, the increased volume of sales will offset the tax.
The New York Times and some other outlets are blaming the medical-device lobbyists for buying votes, but it would be hard to buy this wide bipartisan swath if the tax weren’t truly flawed.
Getting rid of the medical-device tax, however, will likely require finding a new tax to take its place. And that is one devil of a detail that may keep the tax on life support.
This article was first published in the May 2013 edition of Manufacturing Engineering magazine. Click here for PDF.