• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

MassDevice

The Medical Device Business Journal — Medical Device News & Articles | MassDevice

  • Latest News
    • Cardiovascular
    • Orthopedics
  • Wall Street Beat
    • Funding Roundup
    • Mergers & Acquisitions
  • Podcasts & Webinars
    • Podcasts
    • Webinars
  • Resources
    • About MassDevice
    • Newsletter Signup
    • Leadership in Medtech
    • Manufacturers & Suppliers Search
    • MedTech 100 Index
    • Videos
    • Whitepapers
  • DeviceTalks Tuesdays
  • Coronavirus: Live updates
Home » Medtech slams gov’t report on medical device tax

Medtech slams gov’t report on medical device tax

January 27, 2015 By Brian Johnson

Medtech slams gov't report on medical device tax

Medtech executives last week bashed a newly updated report from the Congressional Research Service refuting claims that the medical device tax kills jobs and hampers innovation.

The 2.3% excise tax, enacted in 2010 as part of the Affordable Care Act, went into effect at the beginning of 2013. It applies to all U.S. sales of prescribed medical devices. The medtech industry has fought the tax tooth and nail since even before its inception, as Democrats crafted the healthcare reform bill that became Obamacare.

Industry advocates have claimed that the tax could claim as many as 43,000 jobs and force companies to scale back R&D. But the non-partisan CRS analysis, which was updated last fall, claims the levy’s impact is "relatively small" and will only cost the industry about 1,200 jobs.

"Opponents of the tax claim that the medical device tax could have significant, negative consequences for the U.S. medical device industry and on jobs. The estimates in this report suggest fairly minor effects, with output and employment in the industry falling by no more than two-tenths of 1%. This limited effect is due to the small tax rate, the exemption of approximately half of output, and the relatively insensitive demand for health services," according to the research service.

"The analysis in this report suggests the effects on small as well as large firms will likely be minimal because the tax is expected to be passed on in price and the decrease in demand would be negligible. As in the case of virtually all industries, the share of firms is concentrated in smaller firms but output and research are concentrated in large ones," according to the CRS report.

And medical innovation may in some cases have overstated benefits, CRS said.

"In discussing innovation in the medical device industry, it is important to note that innovation for innovation’s sake does not always lead to the most efficient economic growth path in the healthcare industry. Some have argued that the rapid adoption for high-technology equipment and medical procedures has been a significant contributor to rising health care costs in the past," according to the report.

Predictably, medtech executives interviewed by MassDevice.com slammed the report as nonsensical and out of touch with how the medical technology industry really works.

"I think it’s pretty insulting for anyone to say that you can take 2.3% of someone’s revenue and not have an effect on their business," Zoll Medical CEO Richard Packer told us. "The de minimis numbers in this report are an insult. It’s illogical. It comes from academic types that have never run a business, never tried to balance their books, never tried to hire more people based on the revenues coming in. It’s just silly. There is no doubt that this tax hurts innovation. There is no doubt about it meaning less money for R&D. It can’t help the development of new technologies."

The most discretionary portion of companies’ budgets is R&D, Packer explained, because cutting back doesn’t have an immediate impact on the bottom line.

"When you’re in stress, you don’t do as much R&D, but you pay for that down the line," he said. "You can’t cut production, because you need the equipment that drives the business. If you have extra money, you do more R&D. We have a list of projects in my company, and most every other company like this, that are not being worked on because we don’t have enough resources to work on them. So we prioritize based on how much we can spend. We draw a line and anything above the line we work on and anything below will have to wait. If you were to give me money back, I could move that line down."

Another company that held back projects because of the medical device tax is Irvine, Calif.-based Masimo (NSDQ:MASI), CEO Joe Kiani told MassDevice.com.

Masimo was set to embark on a 10-year R&D initiative that Kiani said could have resulted in the hiring of hundreds of employees. But Masimo chose to shelve the initiative because of the device tax’s $10 million annual price tag.

Kiani scoffed at the idea that companies could simply raise prices on their customers, noting that almost all of his contracts with hospitals and group purchasing organizations are based on 5-year terms.

"If we could raise prices, doesn’t that defeat the whole reason for the Affordable Care Act? The consumer is Medicare, so they’re paying for it all over again. That makes no sense," he said. "We’re in a competitive business, we have competitors. The 1 thing we can’t talk to each other about is pricing. We’ll go to jail for that. On top of that, contracts with hospitals are several years and with group purchasing organizations that represent many hospitals for several years, so we can’t go out and seek price increases. As this medical device tax came out, the GPOs and hospitals made it very clear to these vendors that ‘you better not raise our prices.’"

Kiani added that, unfortunately for most device companies, follow-on contracts rarely increase prices.

"The new contracts are always at a lower price," he said. "We’re lucky if it’s the same price."

The good news for medical device companies is that it doesn’t seem like the CRS report will slow the momentum for repeal, which is enjoying a resurgence as Republicans take control on Capitol Hill.

Rep. Erik Paulsen (R-Minn.) told MassDevice.com that he’s as optimistic as he’s ever been that the medical device tax will be repealed by the 114th Congress, perhaps as soon as the end of the 1st quarter. Paulsen’s latest bid to repeal the tax, the Protect Medical Innovation Act of 2015, has more than enough co-sponsors at 272 to pass the House.

"We’ve been in a scoring position before. Now I feel we have a really good opportunity to line up the stars and make it happen," Paulsen told us.

The new balance of power in the Senate guarantees a vote in the Upper Chamber, he added, noting that Sen. Orrin Hatch (R-Utah) renewed his commitment to repealing the tax during a recent Republican party retreat. Hatch is chairman of the powerful Senate Finance Committee.

Although repealing the tax has friends on both sides of the aisle, a common refrain from Democrats is the need for a so-called "pay for" to offset revenues lost from repealing the levy. Paulsen’s bill doesn’t have an offset, which he said is par for the course in writing legislation.

"Typically a pay-for is not introduced with the bill, but leadership figures it out," Paulsen told us. "I’m not worried about the pay-for. – we’ve done bipartisan pay-fors in the past, and this has such widespread support."

Estimates of the impact of the medical device tax have varied wildly since its 1st airing in 2009; 4 years of political deadlock, which included a federal government shutdown over the issue, have done little to add clarity. Federal government officials have projected that the tax will raise about $30 billion over 10 years. Back in July 2013 a report released by a coalition of medical device lobbying groups estimated that the tax had cost the industry $1 billion during the 1st 6 months of that year.

But in July 2014, MassDevice.com learned via a Freedom of Information Act request to the Internal Revenue Service that the tax bureau collected only $1.4 billion from the medical device tax in 2013, far short of all predictions. Then an audit by a U.S. Treasury inspector general revealed that the IRS collected a little more than $913 million during the 1st half of 2013, well shy of the $1.2 billion it expected the tax to bring in.

Filed Under: News Well Tagged With: Masimo, U.S. Congress, Zoll Medical

In case you missed it

  • How safe is health information after the overturning of Roe?
  • Smith+Nephew opens new plant in Malaysia
  • BD launches combination COVID-19, flu, RSV diagnostic test
  • Zimmer Biomet creates independent nonprofit organization to reduce health disparities
  • Dexcom focuses on early diabetes diagnosis as COVID links emerge
  • Nasdaq grants Titan Medical 180-day extension to regain compliance
  • Aerin Medical reports positive 4-year results for VivAer treatment
  • Blackrock Neurotech and Pitt work on first at-home BCI system for remote trials
  • How medical device companies are responding to abortion bans
  • Clarius partners with ImaCor on handheld hemodynamic ultrasound tech
  • Withings appoints Elizabeth Coleon as chief marketing officer
  • Visby Medical raises $135M in expanded Series E
  • Boston Scientific to build new plant outside Atlanta
  • NovaXS unveils prototype for smart, needle-free drug delivery device
  • ResMed names Lucile Blaise as new Sleep & Respiratory Care leader
  • SpineX enrolls first patient in spinal neuromodulation technology trial
  • GE Healthcare’s Carescape ventilator battery recall is Class I

RSS From Medical Design & Outsourcing

  • How safe is health information after the overturning of Roe?
    The U.S. Department of Health and Human Services today issued guidance meant to better protect women’s health information as state abortion bans kick in after the U.S. Supreme Court’s overturning of Roe v. Wade. Despite the HHS actions, women may still wonder whether their health information is entirely safe going forward — a potential challenge… […]
  • Dexcom focuses on early diabetes diagnosis as COVID links emerge
    New evidence is showing that COVID-19 may increase a person’s risk of diabetes, but it could be years until we know for sure. In the meantime, Dexcom (Nasdaq:DXCM) is getting ready, VP of Global Clinical Initiatives Tomas Walker said. Walker recently spoke with Medical Design & Outsourcing to discuss the San Diego-based diabetes device developer’s… […]
  • Blackrock Neurotech and Pitt work on first at-home BCI system for remote trials
    Blackrock Neurotech and the University of Pittsburgh’s Rehab Neural Engineering Labs (Pitt RNEL) are working together on the first portable brain-computer interface (BCI) to allow patients to participate in research trials from home. A Blackrock representative said it’s the final step as the company prepares to launch its first commercial product early next year. Salt… […]
  • How medical device companies are responding to abortion bans
    Days after the U.S. Supreme Court’s decision to overturn Roe v. Wade’s protection of abortion rights, medical device companies are among those reassuring workers about healthcare access. Corporate communications to employees and the public at large come as trigger laws in nearly half of the states outlaw abortion immediately. Some medtech companies are not using… […]
  • Philips updates on testing results for recalled ventilators
    Royal Philips (NYSE:PHG) says only a small portion of returned respiratory devices displayed the sound abatement foam degradation that sparked a massive recall. Repeated ozone cleaning may have made the problem worse. Those were some of the major takeaways from an update Philips provided today on a comprehensive test and research program it implemented after its… […]
  • ResMed names Lucile Blaise as new Sleep & Respiratory Care leader
    Lucile Blaise will be the new president of ResMed’s Sleep & Respiratory Care business starting July 1, ResMed (NYSE: RMD) said today. She replaces Jim Hollingshead, who became president and CEO of Insulet (Nasdaq:PODD) on June 1. ResMed President and COO Rob Douglas is serving as interim president of the Sleep & Respiratory Care during… […]
  • Cardinal Health starts Zipline drone deliveries of drugs and medical supplies
    Cardinal Health (NYSE: CAH) today started air delivery of pharmaceutical products and medical supplies via Zipline drone in North Carolina. San Francisco-based Zipline won FAA Part 135 air carrier certification for the long-range flights earlier this month. The company flew its first commercial deliveries on June 22 with an initial 16-nautical-mile flight. The flights starting… […]
  • Boston Centerless opens manufacturing plant in Indiana
    Boston Centerless announced today that it opened a second manufacturing plant in Fort Wayne, Indiana. Woburn, Massachusetts-based Boston Centerless said in a news release that the latest expansion for the supplier of precision ground bar materials for close tolerance CNC Swiss machining applications represents continued robust growth in key market segments in the Midwest and… […]
  • Dymax strikes new partnership with Quantum Systems
    Rapid curing materials and equipment manufacturer Dymax today announced a new sales partnership with Quantum Systems. Torrington, Connecticut-based Dymax said in a news release that Quantum, with its offices in Arizona as well as Sonora and Baja, Mexico, will focus its efforts on promoting and supporting the sales of Dymax light-curing solutions to the medical,… […]
  • Researchers develop wearable robotic exomuscle system
    ETH Zurich researchers have redefined the muscle shirt. Marie Georgarakis, a former doctoral student at ETH Zurich’s Sensory Motor Systems Lab, is the creator of the Myoshirt, a wearable, textile robotic device that helps users lift their arms and reach. A motorized cable works like an artificial tendon, directed by sensors and an algorithm to… […]
  • They said it at DeviceTalks Boston
    Medtech insiders convened at DeviceTalks Boston 2022 in May to discuss device design, innovation and trends shaping the industry now and in the years and decades ahead. Here are some of the most quotable insights from panelists and speakers at our live event. And make sure to save the date — and save your seat… […]

Leave a Reply

You must be logged in to post a comment.

Primary Sidebar

DeviceTalks Weekly

June 24, 2022
How innovative design, commercial strategy is building Cala Trio’s bioelectronic medicine market
See More >

MEDTECH 100 INDEX

Medtech 100 logo
Market Summary > Current Price
The MedTech 100 is a financial index calculated using the BIG100 companies covered in Medical Design and Outsourcing.
Need Medtech news in a minute?
We Deliver!

MassDevice Enewsletters get you caught up on all the mission critical news you need in med tech. Sign up today.

MDO ad

Footer

MASSDEVICE MEDICAL NETWORK

DeviceTalks
Drug Delivery Business News
Medical Design & Outsourcing
Medical Tubing + Extrusion
Drug Discovery & Development
Pharmaceutical Processing World
MedTech 100 Index
R&D World

Device Talks Webinars, Podcasts, & Discussions

Attend our Monthly Webinars
Listen to our Weekly Podcasts
Join our Device Talks Tuesdays Discussion

MASSDEVICE

Subscribe to MassDevice E-Newsletter
Advertise with us
About
Contact us
Add us on Facebook Follow us on Twitter Connect with us on LinkedIn Follow us on YouTube

Copyright © 2022 · WTWH Media LLC and its licensors. All rights reserved.
The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of WTWH Media.

Advertise | Privacy Policy | RSS