No One Likes the Medical Device Tax
Mar. 30, 2012 — With the Supreme Court hearing arguments this week over the constitutionality of the health care mandate in the Patient Protection and Affordable Care Act — otherwise known, of course, as Obamacare — another provision of the law is back in the news.
In Massachusetts, Sen. Scott Brown and Elizabeth Warren, the chief rival for his seat, traded words this week over the 2.3 percent medical device tax scheduled to go into effect in 2013 as part of the Affordable Care Act. Brown, the Republican who won Ted Kennedy’s seat in a 2010 special election, has long opposed the tax, and for his efforts he was named “Legislator of the Year” in 2011 by the Washington, D.C.-based Medical Device Manufacturers Association (MDMA).
Defenders of the tax believe any added burden on medical device manufacturers will be offset by the increased business that will result from everyone in the US being insured and thus being able to seek care when otherwise they might not. Not everyone is convinced, though.
Mark Leahy, for example. In a statement released last week, Leahey, president and CEO of MDMA, reaffirmed the association’s opposition to the tax. “MDMA said from the beginning that the device tax would hamper job creation and patient care,” he stated, “and unfortunately we are already seeing this play out as companies plan for what is really a tax on innovation.”
He might well have been referring to numbers coming out of Massachusetts. MassDevice.com recently reported a small survey of 42 senior executives in the Bay State, conducted by the trade group Mass Medic. The survey found that half of the executives will cut R&D budgets if the tax goes into effect, while 25 percent will outsource manufacturing to lower-cost areas, at the same time eliminating jobs at home.
A more rigorous study has also been making the rounds. The Advanced Medical Technology Association recently released a report indicating that the tax increase would result in the loss of nearly 39,000 jobs and $8 billion in output in the economy.
In Massachusetts alone, some 1862 jobs could be impacted. The Bay State is home to more than 400 medical device companies – many of them developing or in some way employing optical technologies — with almost 25,000 employees.
The medical device tax “will definitely hurt medical device companies and optics companies,” Arthur “Buzz” DiMartino, president of Milford, Mass.-based TechEn, Inc., told me recently. TechEn develops and manufactures instruments for the medical market, including near-infrared spectroscopy devices for optical brain monitoring. Because the tax is based on revenue, he said, it could represent an exceptionally high percentage of a company’s profits, significantly impacting the company’s viability.
“The potential increased use of health care and the need for devices may not occur for many reasons,” he added. “Uncovered workers [currently] receive health care if there is a major problem. The potential reduction in services may also reduce the demand for medical devices. The tax will no doubt increase the cost of medical devices, as manufacturers pass along the costs.”
Scott Brown and Elizabeth Warren agree that the proposed medical device tax is, at best, flawed. Not surprisingly, though, they differ in how they would address it. Warren believes Congress can work to lower the costs of implementing the Affordable Care Act — and thus fix the problems with the medical device tax — without throwing out the law altogether and “forcing Americans to fight the whole health care battle all over again,” her press secretary, Alethea Harney, told the Springfield, Mass., Republican newspaper. Brown and other Republicans say Congress already had its chance and the law should be repealed.
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