AdvaMed ‘just says no’ to device tax—again


AdvaMed once again takes its “no tax” message to the Hill—this time to the House Ways and Means Committee. The association provided written testimony for the committee’s hearing March 5 on tax provisions in the Affordable Care Act. They spelled out—again—the successes of the medtech industry: higher wages and growing employment.

The medical technology industry is an American success story. The industry directly employs more than 400,000 workers nationwide. Typically, for every worker our industry directly employs, another four workers are employed by businesses supplying components and services to our industry and our employees, so that the total numbers generated by our industry nears two million.

The jobs our industry provides are good jobs—the kinds of jobs that allow employees to live the American dream. Industry pay levels are 38% higher than average pay for all US employment and 22% higher than other manufacturing employment. While the number of manufacturing jobs was plummeting across the larger economy, even before the recent economic downturn, employment in our industry was expanding. Between 2005 and 2007, medical technology employment grew 20.4%, adding 73,000 jobs. During the recession, between 2007 and 2008, MedTech employment dropped 1.1%, compared to 4.4% for manufacturing as a whole.

AdvaMed also pointed out that the industry is full of American small businesses.

What the Committee may not know is that the medical technology industry is heavily skewed toward small companies—the kind of companies that begin with a scientist or doctor with an idea to improve patient care. Almost two-thirds of the 7,000 medical technology firms in the US have fewer than 20 employees. A high proportion of the breakthrough products in our industry come from these small, often venture-capital funded companies.

In its letter, AdvaMed told the committee that based on a survey of the AdvaMed’s membership, the implementation costs alone of the medical device excise tax are anticipated to be an estimated $400 million to $667 million. And the letter reminded the committee that it is an unusual type of tax for an industry such as medtech. “Our industry has no prior experience dealing with an excise tax. Excise taxes are more commonly used to target specific consumer products such as alcohol, cigarettes, or gasoline. In many cases, excise taxes are used to limit consumption, which is problematic given that our companies are making life saving and life sustaining medical devices.”

Despite the fact that the industry has been adding jobs, AdvaMed notes that 62% of the companies surveyed said they would have to deal with the cost of the tax by imposing layoffs or reducing hiring, stating that some studies have said as many as 40,000 jobs could be at risk. “Unfortunately, we have already seen layoff announcements nearing 8,000 jobs from companies in 2012 as they began to restructure partially in anticipation of the tax,” the letter said.

AdvaMed emphatically states that the tax will be especially damaging to innovative start-up companies, since start-ups tend to suffer losses in their early years when they are pouring money into research and development, and trying to move a product to market. The crux, they say, is that the majority of the industry includes smaller companies that are not yet profitable, and so this tax increases the time these companies will be operating at a loss. What that means, says AdvaMed, is that it could be the difference between some of these companies surviving and “having to close their doors.” Who knows how many patients might never get to benefit from the technology of one of those that had to close.

The association also attempts to dispel some misconceptions: there will not be an increased demand for devices, and therefore device companies will not see increased sales. “While there is some perception that the tax will be offset by increased demand for medical devices, we have not seen any evidence to support that argument. Unlike other industries that may benefit from expanded health coverage, the majority of device-intensive medical procedures are performed on patients that are older and already have private insurance or Medicare coverage.”

Pointing to Massachusetts where extended coverage has added 400,000 new covered lives, AdvaMed said that device companies have not experienced any corresponding significant increase in demand. Based on the AdvaMed survey, 80% of respondents anticipate sales growth of 1% or less due to the expected increased number of insured Americans, and 90% anticipate growth of 2% or less.

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