Congress Must Take Action to Protect Patient Health
It is easy to take for granted the role medtech plays in our everyday lives. From heart valves, imaging equipment, and pacemakers to continuous glucose monitors, we rely on these technologies to detect, treat, and cure illnesses and injuries of all kinds. But to get these products to patients, medtech companies must first embark on a lengthy, costly process of research and development (R&D) that requires a significant investment of time and resources and exposes companies to uncertainty and risk. R&D represents a major, necessary expense medtech companies must make in order to develop novel, safe, and effective products for patients.
Over the years at AdvaMed, the MedTech Association, I have seen up close the profound impact that is possible when companies navigate the complex R&D process and get their life-saving technology to market. Our industry, including the small and emerging growth companies driving innovation, has contributed to increased life expectancy, reduced fatalities from heart disease and stroke, and been on the cutting edge of cancer detection and treatment, among many other patient successes over the decades.
Unfortunately, a storm is brewing that could upend our industry and stall the remarkable progress in improving patient health, making it nearly impossible for small medtech companies to conduct the R&D that is vital to creating a new generation of life-saving technologies. Prior to 2022, the tax code allowed companies to immediately deduct their R&D expenses in the year they were incurred, incentivizing investments in R&D and minimizing risk. However, the passage of the Tax Cut and Jobs Act made revisions to the tax code that now require companies to deduct their R&D expenses over five years. These changes impose a potentially devastating one-time tax burden on research-intensive start-up companies, many of which rely on federal grant funding, awarded to address an unmet scientific need, in pre-commercial stages of product development, as a primary source of revenue.
To put it simply, without fixing the flawed research and development amortization policy in tax code Section 174, the most innovative and promising medical technologies that will shape the future of healthcare could wither on the vine as small companies struggle to satisfy tax burdens in the midst of a business environment that is increasingly hostile to medtech start-ups. This issue could not come at a worse time, as Congress earmarks billions of dollars for domestic science and technology manufacturing in the CHIPS and Science Act. The congressional effort and taxpayer investment to encourage domestic innovation and manufacturing could be undermined by a congressionally enacted tax policy.
The United States is the world leader in medtech, developing the best new technologies and improving patient outcomes every day. We cannot afford to lose momentum. AdvaMed and our members are calling on Congress to recognize the importance of R&D in the medical technology industry and fix Section 174 to allow companies to deduct their R&D expenses when incurred. U.S. entrepreneurship is the envy of the world, and U.S. medtech is an exemplar of how our country can incentivize domestic growth and manufacturing with smart policies. The tax code fix should be a slam dunk for a Congress and an Administration already committed to promoting U.S. small businesses and start-ups.
Scott Whitaker is president and CEO of AdvaMed, the Advanced Medical Technology Association, the largest trade association representing medical technology manufacturers.
