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Taxing Innovation Is Not the Answer to Healthcare Reform

Although the move to slap the cost of healthcare reform onto industry is not surprising, it is unoriginal and a huge, unnecessary burden.

October 1, 2009

3 Min Read
Taxing Innovation Is Not the Answer to Healthcare Reform



A$4 billion tax on medical device manufacturers is not the way to reform the healthcare system. In fact, it is safe to say that such a tax could easily stifle innovation. Until now, the device industry has been generally onboard with the proposals put forth to make the healthcare system better. But the recent draft healthcare reform proposal from Senator Max Baucus (D–MT) goes too far. The proposal slaps a hefty tax onto the device industry (as well as other life sciences). Those paying attention may have noticed that in a white paper last December, Baucus, chairman of the Senate Finance Committee, hinted at the need for “investment” to cover the costs of reform:

Congressional leaders and the public must understand that reform will likely require an initial investment. In the short term, healthcare reform will cost more than can be achieved in savings from all the quality improvement initiatives and financing changes.
Of course, nowhere in the white paper did he delve into the source of the investment, but it is no surprise that the easy solution is a tax on industry.
“This tax will raise the cost of care for all patients, especially those in greatest need of advanced treatments and diagnostics,” says Stephen J. Ubl, president and CEO of AdvaMed. He calls it “a form of double taxation,” noting that a portion of the hundreds of billions in cuts aimed at customers, including hospitals, nursing homes, and home healthcare agencies, will be passed on to device companies.
Ubl also notes that the tax will weigh most heavily on the small and emerging companies that are the backbone of our industry, the companies that are “often driving development of cutting-edge treatments and cures, and are least able to pay new taxes.”
The Massachusetts Medical Device Industry Council (MassMEDIC; Boston) has put a call out to its members urging them to call Massachusetts Senator John Kerry's office to register opposition to the $4 billion tax.
“The Baucus proposal will place an unfair tax burden on our companies and will result in higher healthcare costs, as the expense of the ‘excise tax' will be passed on to end-users,” says Thomas J. Sommer, MassMEDIC president. “Medtech companies tend to plow profits back into R&D, making our industry one of the most innovative sectors in the nation's economic portfolio. A tax such as this will impact R&D expenditures, reducing the amount of medical innovation possible. We've got to let Senator Baucus and his Bipartisan Six know that the tax on the medical device industry would have some unintended consequences.”
Ubl points out what most of you know first-hand: there are better ways to reform the system than taxing countless products necessary to treat every patient who walks through the doors of a physician's office, hospital, or nursing home.
“While AdvaMed supports broad-based healthcare reform and has been working to achieve that important goal, we cannot support a proposal that unfairly singles out the medical technology industry for a tax on innovation on top of the billions in cuts that the industry would already have to absorb within the healthcare reform proposal,” says Ubl. “We will continue to work with congressional leaders and the White House to further real health reform and to eliminate this counterproductive proposal from any reform package considered by Congress.”
No matter what your role is at your company, this tax would affect you. Contact your senator with this message: no taxation on innovation.

Sherrie Conroy for the Editors

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