On January 1, 2013, medical inventors, investors, and entrepreneurs’ awoke to a job-killing and ingenuity-chilling excise tax on medical device sales.
Obamacare seeks to raise $20 billion over 10 years in taxing medical devices. This was not part of tax policy; it was part of finding ways to pay for national healthcare, a.k.a. Obamacare.
Medical device companies will now be on the hook for an excise tax of 2.3 percent on their total revenues, regardless of whether the company turns a profit.
The consequences of this gross tax will be that many companies will owe more in taxes that they generate from their operations.
The Medical Manufacturers Association, (MDMA), has found that the overwhelming majority of innovation from the medical device industry comes from small manufacturers who work closely with doctors, clinicians, and engineers to develop cutting-edge medical devices to drive down costs, improve the quality and longevity of patients lives, and make for better and more reliable treatments.
The fact is that innovative companies, many of which are small businesses, fuel the medical device industry. In fact, 80 percent of them have less than 50 employees and 98 percent have less than 500 employees.
The impact of the device tax is expected to be especially hard on smaller companies whose innovations are not immediately profitable.
One such company is Avinger, a small, privately held California medical device innovator. The company was founded in 2007 by renowned cardiologist and medical device entrepreneur Dr. John B. Simpson.
Avinger develops state-of-the-art technologies that help patients suffering from peripheral artery disease. Avinger has the potential to revolutionize the way physicians treat cardiovascular disease by creating products that let physicians see inside of a patient’s arteries during an intervention.
The information supplied through visualization allows physicians to make precise adjustments that can help save a patient from losing a leg to an amputation.
Dr. Simpson has a long history of building innovative medical device companies (including those that developed the first over-the-wire balloon angioplasty and the first atherectomy technologies) that have not only improved medical care but have also created value for investors and jobs here in the U.S.
These companies were built with an entrepreneurial spirit and funded through private investors who were willing to risk their capital for the prospect of future return.
Through continued innovation and business risk, Avinger can work to save more patients from having life-altering amputations and can continue to build a successful, innovative company that helps drive the growth of the economy.
Here is what Dr. Simpson said with regard to the impact of the medical device tax on his business and his work: “This tax, with certainty, will limit our rate of growth as a company and will diminish our ability to fund innovative projects.
"Once profitable, we are happy to pay our fair share of taxes on the profits we make. But now this taxes our revenue before we have even reached profitability, directly taking money away from our operations and our efforts to develop technology to help patients."
The U.S. government does not partner with Avinger. Avinger is a success because it took calculated risks and put in their own “blood, sweat, and tears” to run a business with no guarantees. Yet, the federal government overreaches beyond reasonable income taxation to take off the top an “innovation tax” which takes a percentage from medical device sales regardless of a company's profitability.
The negative affects to an already weak economy are clear. It has been reported by Robert Salsberg of The Associated Press on December 28, 2012, that:
“Lobbyists for medical device makers say implementation of the tax could jeopardize about 43,000 jobs nationwide in a $64.7 billion industry. They say companies have shed about 6,000 jobs in the past year, some in anticipation of the tax, while others might scuttle expansion plans or cut back on research that can lead to medical breakthroughs.”
The MDMA has pointed out that there are no data or studies that show the costs of this "innovation tax" will be offset due to an increased pool of insured beneficiaries receiving treatment. In fact, since the majority of products impacted are used in acute care settings where there are legal obligations to treat a patient, the effect of expanded coverage is not likely to increase utilization.
A broad coalition of medical technology companies, physician groups, venture capital firms, and leading associations today submitted a letter to Senate leadership urging policymakers to repeal the onerous medical device tax that threatens U.S. jobs, medical innovation, and patient care.
The Medical Device Manufacturers Association (MDMA), Medical Imaging & Technology Alliance (MITA), and the Advanced Medical Technology Association (AdvaMed) were among the 805 signatories that represent hundreds of thousands of medical technology jobs.
The U.S. medical technology industry represents over 2 million workers and employs more than 400,000 workers nationwide. The medical device industry generates approximately $25 billion in payroll, pays out salaries that are 40 percent higher than the national average ($58,000 vs. $42,000), and invests nearly $10 billion in research and development (R&D) annually.
This is what Mark Leahey, president and CEO of MDMA said with regard to the impact of the excise tax on jobs and innovation:
“We are already seeing the negative impact this onerous policy is having on jobs and innovation, and America’s med tech innovators can’t afford to find out what implementation of the device tax would bring. At a time when elected officials are looking for more manufacturing jobs based in innovative industries, repealing this tax is a win-win for patients and workers.”
The American way is to reward innovation and technology, not to punish it, discourage it, or destroy it. The medical devise tax is punitive. The immediate and long-term result of it will be job losses, loss in investment, and loss in ingenuity, invention, and cures.
The answer to a healthier and more affordable healthcare system for America lies in a robust and unencumbered medical innovation and invention climate.
We should be rewarding medical entrepreneurs, not looking at ways to stifle them.
Finding national healthcare at the expense of innovation, invention, and technology makes no sense.
Now is the time for Congress and the president to repeal the Medical Device Tax from Obamacare.
Taxing medical devices is just bad RX for our economy and our nation's medical well-being.
Bradley A. Blakeman served as deputy assistant to President George W. Bush from 2001-04. He is currently a professor of Politics and Public Policy at Georgetown University and a frequent contributor to Fox News Opinion. Read more reports from Bradley Blakeman — Click Here Now.
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