Repeal The Tax On Medical Devices
Johnson
In 2009, as the Patient Protection & Affordable Care Act was taking shape, two schools of thought on how to pay for the unprecedented health care reforms were floating around Congress.
The House, controlled by left-leaning Democrats, wanted a surtax on millionaires. On the Senate Finance Committee, led by more moderate Democrats, Sen. Max Baucus (D-Montana) plowed ahead with a more politically palatable idea that would prove to have big ramifications for Massachusetts.
The industries that sell into the health care system were about to get a huge boon, Baucus reasoned: millions of previously uninsured patients. Those industries should, therefore, shoulder a portion of the cost of health care reform. For the device industry, that ended up being a 2.3-percent tax on all revenues, which is set to take effect Jan. 1.
The tax will generate a staggering tab for the industry's contribution to health care reform: more than $30.5 billion over the next 10 years, for a law most manufacturers swear won't bring in more business. That's because, they claim, most of the patients who need medical devices are either already insured or on Medicare; the demographics of the flood of new patients, they say, is largely made up of populations that won't need many devices.
An analysis by MassDevice.com shows the tax’s impact will vary considerably.
Boston Scientific of Natick, for instance, would have ponied up $93 million had the tax been in effect last year, gobbling up 21 percent of its $441 profit.
For Burlington’s LeMaitre Vascular, the impact would have been dramatic. It posted a $2.1-million profit last year and its share of the tax would have cut that nearly in half.
But more alarming is the tax’s potential impact on innovative small companies that make less than $100 million in revenue. The tax is a top-line levy, meaning it will be paid regardless of profitability. The majority of the thousands of U.S. medical device companies are smaller firms that are either in the development stage or starting to break even. For these companies, many of which are bringing cutting-edge medical treatments to market, the tax could be disastrous.
With the exception of Sen. Scott Brown, support for repeal from the state's Congressional delegation has been limited. Brown’s opponent, Elizabeth Warren, recently called for a repeal in an op-ed piece on MassDevice.com, making her the most vocal Massachusetts Democrat to oppose the levy.
But if the medical device sector wants repeal, the state’s Democratic representatives will have to take a stand in support of it, or at least amending the health care law to protect companies with less than $100 million in sales.
In an era when job growth is of paramount importance, an industry like medical technology, which creates high-paying jobs and is a net exporter, ought to be encouraged. The cost of developing life-saving innovations is already high but the odds shouldn’t be stacked against them. n
Brian Johnson is publisher of MassDevice.com, an online business journal covering the medical device industry.
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