The Medical Device Tax: Celebrating Two Years of Controversy, Panic, and Layoffs

Posted in Regulatory and Compliance by Shana Leonard on March 24, 2012

This past week marked the passing of two years since the controversial 2.3% medical device tax was signed into law as part of the Affordable Care Act. And for most of the medical device industry, it was an anniversary characterized by renewed bitterness and criticism rather than romance and roses.

Set to go into effect in January 2013, the medical device tax has been at the center of a heated national debate that only seems to escalate as the industry's doomsday approaches. In addition to concerted efforts to repeal the tax, the medical device industry and its supporters have emphasized the serious potential consequences associated with implementation of the tax. Among them are large-scale layoffs, relocation of operations out of the country, barriers to innovation, and prices being passed on to consumers—an outcome that negates the purpose of the bill.

And some of these consequences aren't just scare tactics or empty threats. Industry giant Stryker, for example, has already announced plans to reduce 5% of its global workforce as a cost-management measure in preparation for the burdensome tax. Industry group AdvaMed estimates that as many as 43,000 medtech workers could ultimately lose their jobs. A recent analysis by Bloomberg, however, questioned AdvaMed's methodology and results.

With these issues in mind, the medical device industry was sure not to let the tax's anniversary go unnoticed. “MDMA said from the beginning that the device tax would hamper job creation and patient care, and unfortunately we are already seeing this play out as companies plan for what is really a tax on innovation,” said Mark Leahey, president and CEO of the Medical Device Manufacturers Association, in a statement issued on the anniversary.  “As the voice of small and innovative medical technology entrepreneurs, we know of many companies who will be paying more in taxes than they earn in profits starting in 2013.”

Also capitalizing on the anniversary was New Hampshire senator Kelly Ayotte. Ayotte, who is cosponsoring legislation to repeal the tax, spent the day touring Smiths Medical and reaffirming her commitment to repealing the medical device tax. "Medical device manufacturers across the state have told me this tax will make it harder for them to invest and grow, and could result in jobs being lost overseas," said Senator Ayotte following the visit.  "At a time when our country needs good-paying, sustainable jobs, the Administration's continued push for a medical device tax makes no sense. I will continue my efforts to repeal this burdensome new tax and the federal health care law."

Yet despite the steady backlash against the tax and the doom-and-gloom predictions for the medical device industry, a fair portion of medtech professionals continue to hold out hope. In fact, in an online poll that we conducted last month, optimists edged out pessimists with 55% of respondents saying that they thought that the tax would be repealed. With the Supreme Court prepping to hear arguments, one thing is for certain: The rest of 2012 is sure to be eventful. --Shana Leonard

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