Medical Device Tax: Funding Healthcare for Millions

In the second of the two part series, we'll review support of the 2.3% tax of the medical device industry to go into effect on January 1, 2013. Earlier this week, I outlined why the industry sees this tax as an enormous burden and described actions already being taken to off-set the cost of the tax (the overwhelming sentiment toward the tax). In all fairness, we need to consider why the tax was implemented, and what greater good it is serving.

Firstly, most Americans can admit that our healthcare system is not as ideal as it could be. As we say in quality, continuous improvement! And, regardless of one's stance on the Affordable Care Act, credit must be given that healthcare reform was passed through. As with all things, though, there are costs to providing healthcare coverage to 30 million additional Americans. The 2.3% tax on the medical device industry allows for the provision of coverage. A repeal of this tax would, quite obviously, lead to a direct increase to the national debt.

Next, there are a number of exclusions to the tax, including research use only devices, investigational devices, kits, components and associated devices, combination products, some OTC products, contact lenses/eyeglasses, hearing aids, devices purchased by the general public at retail, and medical software (including IT systems, mHealth, and mobile medical applications).

Finally, many commentaries regarding the tax are overstated and dripping with hyperbole, exaggerating the impact the 2.3% tax will have on the industry. In the first article, the CEO of Glottal Enterprises states that the 2.3% tax would not force them to lay-off employees or shift overseas. The second article states that The Center on Budget and Policy Priorities has conducted their analysis and believes that the industry is doing their best to spin the story in its favor. Paul Van de Water is quoted in the article, saying "The provision [to repeal the 2.3% tax] is sound, however, and the industry lobbying campaign aimed at repealing it is based on misinformation and exaggeration." Mr. Van de Water later states "The tax will not cause manufacturers to shift production overseas. The tax applies equally to imported and domestically produced devices, and devices produced in the United States for export are tax-exempt. The tax will have little effect on innovation in the medical device industry. To the contrary, health reform may well spur medical device innovation by promoting more cost-effective ways of delivering care."

My thoughts on the subject are, I apologize, somewhat vanilla. Though I admit it is trite of me to state this, the truth is somewhere in the middle. I have believed for some time that the industry has made some exaggerated statements to avoid being taxed, or simply because it has taken a defensive standpoint. One example of this is the allegation made by some medical device industry allies suggesting the tax is some type of punishment for the industry's lack of involvement in the reform process. However, I also understand the angst about the tax because a.) it does affect our industry, b.) it will have an impact on how these companies do business and, c.) it may lead to stifling of innovation and business moving overseas (though, to be fair, regulators overseas are changing the landscape with their own regulatory changes - see Europe).

Truly, the best any of us in the industry can do at this point is wait and see. If the tax is repealed, then the industry is happy (though the country's financial landscape will be affected). If the tax remains, then the industry will have to fight through a tough 2013 until the potential wave of new patients has an impact in revenue in 2014.

-RTK