Study Adds Fuel to Medical Device Tax Repeal Fire

National discussion of the healthcare reform law’s medical device industry tax continues to heat up after a new report from Battelle released by the Advanced Medical Technology Association (AdvaMed). The report gives a detailed breakdown of what kind of costs the medical device industry and its consumers can expect in terms of hard dollar amounts—and it doesn’t look good.

Battelle’s analysis shows that the medical device technology industry is responsible for generating just under 1.9 million jobs in the United States, more than $113 billion in personal income for U.S. workers, $191 billion in value-added activities, and $381 billion in national economic output. According to the report, the estimated $3 billion hit the industry would take in taxes and other related costs would cost approximately 39,000 jobs and more than $8 billion in economic output. Battelle arrived at this estimate by applying hypothetical $3 billion changes to their 2009 numbers for the industry. According to their numbers, the hardest hit states would be California, Minnesota and Florida.

Battelle echoes the concerns of medical device industry insiders have been voicing for some time: namely that the excise tax (2.3 percent) to be levied against medical devices in 2013 will stifle a vital industry. The report calls the medical device industry one among “a select group of ideal industries.” The report deems it as such in terms of the industry being R&D driven and therefore advantageous for U.S. producers and somewhat impervious to international competition; creating exportable products; providing “high, family sustaining wage levels;” and being a nationwide rather than geographically niche industry. The report lauds medical device companies as preservers of American autonomy, innovating at such a high level as to exclude the possibility of competition and maintain America’s position as a leader in technology.

This report also relies on a lot of hypotheticals in terms of projected effects of the tax. Defenders of President Obama’s tax argue that medical device companies will be protected because most devices are covered by insurance, which doesn’t respond much to price changes. Because it mandates coverage for all citizens, the healthcare reform will also add many more people and dollars to the insurance rolls which will help offset the excise tax. Also hypothesized are the predictions of industry growth in the report’s conclusion. Tying the report back to the notion of the “ideal industry,” Battelle points to inevitable anticipated growth due to “increased national demand for new devices to assist in prevention, diagnosis, and treatment of medical conditions coupled with an increase in global demand—led by an expanding global population, increasing global wealth, increasing access to health care, and an aging population in leading developed nations. The end of the report effectively equates the excise tax with a discouragement of R&D investment and a hindrance to profitable business operations.

This tax will go toward funding the $2.6 trillion health care law over ten years. It is yet to be seen what the actual effects of the tax will be—or if, considering the current hearings in the Supreme Court regarding the reform, there will be any changes to the law and tax before it goes into effect in 2013.

“It’s a critical time for our economy, and medical technology companies can be an engine of economic recovery and growth,” said Stephen J. Ubl, president and CEO of AdvaMed. “But for advanced medical technology companies to create the jobs needed to help power America’s economic future, we need to operate in a business environment that will lead to tomorrow’s treatments and cures after investment in research and development.”

Ubl said the tax the device industry and the U.S. economy in “exactly the wrong direction.” And he urged the repeal of what he termed an “anti-competitive, counterproductive, job-killing tax.”

Repealing the device tax is part of AdvaMed’s “Competitiveness Agenda,” a list of six policy initiatives that will make it easier for American medical progress to thrive: from promoting early stage R&D and more efficient and predictable FDA regulation, to adequate reimbursement and fair access to foreign markets.

Battelle is a non‐profit independent research and development organization focused on: laboratory management; national security; health and life sciences; and energy, environment and material sciences.