Kill the Medical Device Tax
We’ve arrived at that crucial time of year during which Congress looks ahead by looking back: They’re looking closely at whether certain tax policies are functioning well with minimal side effects — or, on the other hand, whether some of those taxes need to be repealed because they’re having unintended and undeniably negative consequences.
One clear example of the latter is the medical device excise tax. Congress has suspended the tax for longer than it was ever actually on the books, and here’s the reason why: Simply put, the tax was a disaster.
It killed jobs, slowed medical progress, and threatened new frontiers by saddling entrepreneurs entering the market. And who ended up ultimately threatened in the wake of this tax hike churn? Patients. And that harm is well documented — by the federal government itself.
The U.S. Dept. of Commerce found that during the three years when the tax was in effect (2013-15), nearly 29,000 jobs in the medical technology industry were cut. On top of that, many companies were forced to cut back on research and development.
Think about that: job losses and R&D cuts in a health-care sector our tax policy should be encouraging, not hindering. After all, medical technology companies are in the business of improving and saving lives. So, why would the federal government add to the cost of achieving that?
This added cost — and even the cost of planning now for a tax that may or may not go into effect New Year’s Day 2020 — puts patients at greater risk than many might realize: More than 80 percent of the medical device industry is comprised of small businesses with fewer than 50 employees. These are classic start-up entrepreneurs risking it all on a device that could just as easily save or improve countless lives as it could go under in a highly competitive and fast-moving field.
And here’s another thing: This isn’t a tax on profits. The medical device excise tax starts on dollar one — it’s a tax on revenue, on every device sold. In other words, if a fledgling device company doesn’t make a profit on its device(s), that company finds itself in the red with the IRS.
This is not how you encourage life-changing and life-saving innovation.
Congress and the Obama administration quickly realized the tax was making health care less, not more, affordable, which is why they suspended it — and it’s why Congress and the Trump administration delayed the tax yet again two years later.
Nothing has changed, and nothing will change, about the need to incentivize innovation by preventing this tax increase on our health care. That’s why it's time to end the medical device tax threat. Now. And permanently.
Life-changing and life-saving medical technologies, and the patients who need them, are depending on it.
Scott Whitaker the president and CEO of AdvaMed and former chief of staff of the U.S. Department of Health and Human Services.