Medical Device Excise Tax

The debate surrounding healthcare reform dominated the nation’s attention for much of 2009. Although the legislation was signed into law in March of 2010, the controversy continues – especially for those working for medical device companies. The source of contention? The impending medical device excise tax that will help to fund the reform. How will it impact profit? What about innovation? And most importantly (to you), how will it impact medical device jobs?

If you work in the medical device industry, you can’t afford to be ignorant about this critical piece of legislation. MedReps.com delivers the facts about the medical device excise tax below.

What is the medical device excise tax?

Beginning January 1, 2013 the manufacturers and importers of most medical devices will incur a 2.3% excise tax on total revenue from sales of medical devices. The tax is projected to generate $20 billion over 10 years to offset some of the expense created by healthcare reform. Defenders of the tax rationalize that by extending healthcare coverage to millions of previously uninsured Americans, medical device companies should increase sales enough to make up for the tax. Those that oppose the tax claim it could adversely affect both medical device jobs and innovation in the medical device industry.

Who will be affected by it?

The tax will be levied on all classes of medical devices; the only exclusions will be items typically purchased by consumers for individual use such as hearing aids or contact lenses. Any company that manufactures or imports taxable devices will be impacted. For some of the small start-up companies, the 2.3% tax on total revenue could potentially be more than their net income. For a large company like Stryker, the tax could have a $150 million impact.

Stryker CEO Stephen MacMillan has long been vocal with his concerns regarding the tax. According to Mass Device, he spoke out in September at a conference for medical device manufacturers:

“Here we are, one of the greatest industries in the country, and we’re staring down on January 1st, 2013 and the addition of a 2.3 percent excise tax, while meanwhile on the other side all the discussion in Washington is about creating jobs. There is no doubt that we’re already starting to think about actions that offset that additional tax.”

Those actions were revealed on November 10, 2011 when the company announced a planned 5% reduction in workforce. Stryker publicly cited the act as an effort “to provide efficiencies and realign resources in advance of the Medical Device Excise Tax.”

Medical device jobs won’t be the only thing affected though. Those that oppose the tax claim the lost revenue will detract from companies’ reinvestment in research and development. Companies dependent on venture capital to fund new product development could have a harder time finding investors, meaning fewer new technologies from them as well. These setbacks to innovation will mean fewer products available to healthcare providers, adversely affecting patients in the long run.

Why is it such a big deal?

The industry position is that the tax will adversely affect both medical device jobs and innovation, but to what degree? To find out, the Advanced Medical Technology Association (AdvaMed) conducted an industry-funded study investigating the potential impact of the tax. According to the study, the tax puts approximately 43,000 jobs at risk. Equally concerning is the impact on innovation. While this is harder to quantify, the study points out that companies developing the newest technologies tend to suffer losses in their early years, and yet they would still be expected to pay the tax on total revenue – making it near impossible to continue operating. If the US hopes to maintain its position as the global leader in medical device innovation, AdvaMed believes the tax must be repealed.

The study extends the implications of the tax to healthcare providers and patients. Assuming companies will attempt to pass along the tax to customers, the cost of medical devices will increase, impacting the cost of healthcare at an individual and national level.

When will it go into effect?

Medical device companies can expect to pay the tax on sales occurring after December 31, 2012. However, this could change if efforts to repeal the tax are successful. Several members of congress have introduced bills to modify or repeal the tax, but as of publication none have passed.

Conclusion

The industry position on the medical device excise tax is clear, but that doesn’t mean the industry is opposed to every aspect of healthcare reform. So should the excise tax come up in your conversations with colleagues, customers, or hiring managers, you’re probably safe to share an opinion (as long as it’s negative!) about the tax. However, if the conversation creeps into other legislative matters, use those selling skills to quickly guide the discussion to a less divisive topic – such as why your product is superior or why you would make a great hire.

Stay tuned to MedReps.com for updates on the impact of the medical device excise tax on medical device jobs.