Op Ed: Don't Be Fooled. The Device Tax WILL Get Passed on to Patients

Posted in Medical Device Business by Heather Thompson on March 1, 2013

Even as manufacturers scrap plans for expansions and cut jobs to deal with the oncoming device tax, the reality is that patients will ultimately pay the price. 

There are major impeding influences on the development of the medical device industry. One is the device excise tax that was implemented beginning in January 2013. Although the need to raise revenue to pay for medical procedures cannot be disputed especially with the imbalance caused by the impending of the baby-boom generation qualifying for Medicare, the excise tax, on analysis, is counterproductive, and will only raise costs to the American public whether costs are paid directly or through insurance companies. 



The initial problem to be experienced by the medical device industry is the added costs involved with collection and remittance of the tax along with the accounting support services that have to be engaged. That alone has caused medical device companies such as Cook Medical to announce publicly that plans for expansion of manufacturing have been scrapped or put on hold.
As with other business taxes, this tax and the costs associated with it will eventually be passed on to the American consumer in some form or another. Of more long-lasting concern is the distinct possibility—if not high probability—that the tax will be extended to other medical products. What is certain is that with the development of micro- and nanotechnology, devices will be getting smaller. Already nanoproducts are of importance in cancer therapy. This will cause an obvious blurring of what is a device and what is a pharmaceutical. Will that then eventually lead to an excise tax on pharmaceuticals? Also what is the definition of a taxable medical device? Is it something only used by physicians and nurses, or provided in hospitals or other patient treatment centers, or does the definition extend to an over-the-counter product sold directly to the consumer? Also, would taxing devices that are imported violate trade agreements?
Leading trade organizations such as Advamed and the Medical Device Manufacturers Association (MDMA) are taking issue with the political administration, but what makes fighting against the tax so difficult is that it has been authorized through all branches of the Federal government (executive, legislative, and judicial). It can only be hoped that the economic and other arguments provided will convince those who are directing healthcare policy of the harmful and counterproductive likely outcomes of this specific tax imposition. There will be fewer devices available along with the distinct known probability that jobs will be lost. Innovation, already hampered by existing policies, will be impeded even further.
What is not in dispute is that this misguided effort to raise revenue will actually result in greater healthcare costs. Far better, (though unpalatable like all tax impositions), would be extending Medicare taxes with already an unlimited cap on earned income to all forms of income, or perhaps even more unpalatable would be surtaxes on income. At least the added costs of collection would be minimized. As much as possible, those concerned with the health of the medical device industry should contact both their congresspeople and the White House, especially the Office of Management and Budget about their concerns and work with the trade associations to work for the proposed tax to be rescinded.


Jeffrey R. Ellis, Ph.D., MBA has more than 30 years of experience in the design and manufacturing of medical devices and has written many technical articles. His previous research in medical devices includes developing materials for IV-fluid administration systems and evaluating compatibility of materials with medical formulations and sterilization procedures. His most recent work in medical device research is in evaluating the need for antimicrobial technologies to prevent hospital acquired infections. He has recently been very active in evaluating regulatory impositions and policies and determining whether such impositions are justified and helping clients develop strategies for getting such impositions rescinded. 

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