Medical Device Tax must go, say medical tech companies

Oct 21, 2013

One of the key points of contention in the Affordable Care Act is the medical devices tax. Republicans want the 2.3 percent tax designed to help fund health care reform removed.

The medical device industry has also lobbied extensively to have the tax repealed, claiming it will stifle innovation and result in job losses.

“For the industry it takes a $50,000 a year job off the balance sheet, that pays $33,000 in benefits, every 20 minutes. It’s an amazing drain on an otherwise innovative industry and it’s just going to chase companies off-shore because they need to do something about lowering taxes,” says John Eckberg, director of media relations for Cook Group, a global player in the field.

Addressing a conference for medical device companies from across New York state recently, Eckberg highlighted the impact of the tax on companies across the U.S.

Although 2.3 percent may not seem like much, he says, it will still hit small companies hard.

“A 2.3 percent tax for companies that measures net in billions of dollars, $3 billion, it’s a haircut," Eckberg said. "But for a small company with low profit margins, it’s a scalping. It’s not a haircut.”

Supporters of the tax say industry estimates of costs and job losses simply don’t add up.

“When the Affordable Care Act was passed, there were a number of constituents in those rooms and those constituents understood that this was a situation where everybody had to share in being part of the solution,” says Dr. Nancy Nielson, Associate Dean of Health Policy at the University at Buffalo School of Medicine.

Nielsen argues that the influx of around 30 million new health care consumers under the ACA will help to offset the tax hike on  medical device companies.

“If you think about it, both the pharmaceutical manufacturers and the medical device manufacturers stand to gain because there will be more patients with insurance who will be receiving the services and goods that pharma and the device manufacturers produce," Nielsen said. "So it is anticipated that they will have more business.”

Nielsen also says the device tax won’t apply to medical devices sold over-the-counter to consumers, such as contact lenses or hearing aids.

But it will apply to the artificial joints used in hip and knee replacements, and surgical tools.

Nielsen says the tax is expected to raise more than $29 billion to support the ACA over the next decade. If the tax is repealed, that money would have to come from elsewhere, she says.