The Innovation Roadblock: Why Congress Should Repeal the Medical Device Tax | Commentary
By Mary Woolley and Gregory Sorensen Investment in medical innovation, including medical devices, is smart for our nation — for patients, their families and the economy. That is why we believe Congress should vote to repeal the medical device excise tax established as part of the Affordable Care Act.
Opposition to the medical device tax is not a commentary on broader health reform. If increased investment in medical innovation is a national priority, as we strongly believe it is, imposing an excise tax on one of the most prolific medical technology industries is counter-strategic. That is one reason why many Democratic lawmakers who support health reform want to see the tax repealed.
The term “medical device” may not immediately bring to mind the astounding array of innovations that fall under this category. Here are just a few: medical imaging, sophisticated diagnostic blood tests, pacemakers, stents, prosthesis, oxygen delivery systems, and the transfusion and infusion equipment needed to treat cancer, diabetes, arthritis, and a host of other serious conditions. In other words, medical devices save lives and restore mobility and independence to individuals with disabling injuries or health conditions.
Congress typically levies excise taxes to strategically discourage harmful behaviors such as smoking and alcohol consumption. It’s surprising, then, that an excise tax would be levied on a positive behavior, that is, investment in research and development. Yet, that’s what is happening. In fact, according to a recent analysis by Ernst & Young, venture capital investment in medical devices in 2013 fell 17 percent from the previous year. Moreover, more than half (53 percent) of medical device firms responding to a recent industry survey reported cutting R&D funding as a direct result of the tax, while 85 percent said they would reinstate foregone R&D projects if the tax is repealed. How could it possibly be a good idea to dis-incentivize U.S. medical progress?
Let’s go back to common sense. If a company’s revenue declines, the worst case scenario is job losses, while a typical scenario is fewer new hires. There is no silver lining. The medical device industry is responsible for and supports millions of jobs, creating a growing trade surplus and developing technologies that are advancing and improving patient care in the United States and around the world. The industry has long been a driver of economic growth. The Advanced Medical Technology Association reports that it generates approximately $25 billion in payroll, with median salaries 40 percent more than the national average, and invests nearly $10 billion in R&D annually.
The medical innovation pipeline which includes public sector investment in universities, independent research institutions and medical centers, gives researchers the freedom to uncover basic clues about human health. The private sector follows these leads, investing in the research and development needed to translate them into new treatments, technologies and cures. By its very nature, the medical device tax inhibits the investment necessary to bring forth new life-altering innovations.
If Congress and the president decide, as we hope they will, that it is in the nation’s best interests to evaluate the device tax outside the politically charged debate over health reform, we believe their common interest in advancing U.S. medical innovation will lead them on a bipartisan path toward repeal.
Mary Woolley is CEO of Research!America; Gregory Sorensen is CEO of Siemens Healthcare North America and a member of the executive board of Research!America.
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