Medical device tax: The argument for and against
US medical device tax was suspended at the beginning 2016 but the hiatus is only due to last until the end of next year
When the US medical device tax was implemented in 2009 it was intended to help pay for the US Affordable Care Act (ACA) that helps uninsured Americans gain health coverage. However the legislation caused controversy with medical companies as many claimed that it would seriously damage the sector.
The case for
USA Today reported that the ACA helps medical device makers — along with hospitals, insurers and others — to get millions of new customers and billions in new profits, which is why the tax applies to them.
‘The Medical Device Excise Tax: Economic Analysis’ document by the Congressional Research Service (CRS) states that: “Like other revenue-raising measures enacted in ACA, the excise tax on medical devices was meant to help offset the expenditures associated with health care reform.
“Additionally, the medical device industry was among one of the commercial interests (as well as health insurance providers and pharmaceutical firms) that stood to benefit from unanticipated profits as more people enrolled in health care, post-ACA.”
At a speech at Prince George’s Community College Largo, Maryland, US President Barack Obama talked about the benefits of the ACA and why it was important to American people:
“I knew that if we didn’t do something about our unfair and inefficient healthcare system, it would keep driving up our deficits, it would keep burdening our businesses, it would keep hurting our families and it would keep holding back economic growth.
“That's why we took on a broken health care system. Now, millions of Americans who don’t have health insurance because they’ve been priced out of the market or because they’ve been denied access because of a preexisting condition, they will finally be able to buy quality, affordable health insurance.”
The case against
However, the Advanced Medical Technology Association (AdvaMed) has argued that the tax harms job creation, deters medical innovation and increases the cost of healthcare.
OrthoPediatrics is a small company in Indianna that manufactures orthopaedic medical devices for children. Fred Hite, CEO of OrthoPediatrics said to Wane that the medical device tax “definitely slows the development of new products for children in those surgeries because we don’t have the funds to support the new products.”
On the announcement of the tax suspension Hite said: “Now we’ll be able to go back and review that and remove the expense and cash that we had put in to the budget for the medical device tax and instead replace that with incremental programmes developing new projects.”
Other companies that are benefitting from the tax suspension are Boston Scientific and Mayo Clinic. These companies are collaborating in order to create medical devices whilst the hiatus is in place.
Michael Mahoney, president and CEO, Boston Scientific, said: “Our continued investment in this collaboration is an example of our innovation as a result of the recent suspension of the medical device tax."
Kevin Ballinger, senior VP at Boston Scientific, said: “The suspension of the medical device tax allowed us to double the amount of money and resources we were able to put toward this collaboration with the Mayo Clinic. That’s both in terms of head count and in terms of dollars.”
AdvaMed has argued that the medical device tax should not only be suspended but entirely scrapped and US government members seem to agree with this suggestion as Senator Chuck Schumer from the Republican party called it “a tax on innovation.”
When the tax was proposed, lawmakers estimated it would help raise approximately $30bn over ten years to help pay for the ACA. Since then, the tax has been criticised for raising less money than expected. After going into effect in 2013, it raised $913m during the first half of that year—about 75% of what was anticipated.
Patrick Toomey, the US Senate Committee on Finance’s, subcommittee on healthcare’s chairman, said: "I will make no bones about it. My strong preference would be to have a full and permanent and complete repeal of the medical device tax, because it's my view that this tax is doing considerable harm--economic harm.
“I am concerned about the impact that is has on innovation in the medical device industry. And I am really concerned about the impact it has on individual patients - current patients and future patients.”