The momentum is palpable. Last week it was the device user-fee agreement duly dubbed a potential game-changer by AdvaMed President and CEO Stephen Ubl. This week, it's an industry effort to repeal the $20 billion medical device tax (2.3% levy) and to promote a set of tax reform principles and measures.
During a media briefing, Ubl along with AdvaMed Chairman and Abbott Medical Optics President James Mazzo, now nearing the end of a 2-year term, highlighted how far the industry has come in terms of its competitiveness agenda.
“Last week was a perfect example of that,” said Mazzo, referring to the user-fee agreement. “We articulated our differences with FDA as a device industry and we did that at the senior level. That was one of our key focuses.”
Indeed. Positive dialog between medtech and FDA is on the upswing. Now, AdvaMed is looking to “shape the debate” on tax reform through the release of its tax reform principles, said Ubl.
Ubl told reporters the $20 billion device tax has little to do with the “trillion dollar healthcare reform bill,” and that additional medical device sales will be negligible as “many of the products are already used by an already-covered Medicare population” while “a large number of uninsured are young people who aren't frequent users of devices and medical technology.”
He went on to say that the device tax, set to go into effect next year, will hurt the ability of medtech companies to compete internationally andto introduce emerging technologies, and that it “could result in killing 43,000 jobs.”
Recognizing that no politicians on either side of the aisle want to be accused of being job killers, AdvaMed and its members are framing the push to repeal the device tax as a jobs and economic growth issue.
“If successful, many more Democrats will join us in our effort to repeal the tax,” said Ubl. “A year ago, we had only 41 cosponsors to repeal; today we have 226. Grassroots support continues to grow.”
Ubl said the fundamental goals of tax reform should be to “support job creation, economic growth, and competitiveness. “ That goal, he said, leads to the following principles that are applicable to all knowledge-based industries, including medtech:
- Tax reform should provide a level playing field for medical device companies competing in world markets.
- Tax reform should encourage retention and expansion of jobs in the US by providing tax incentives comparable to or better than our competitor nations.
- Tax reform should provide incentives for investment in R&D, which is key to the growth of knowledge-based, high value added industries on which economic future depends.
- Tax reform should encourage the availability of capital for small and start-up companies that play a vital role in inventing and developing breakthrough technologies.
In addition to the repeal of the device tax, AdvaMed is recommending the adoption of a territorial tax system consistent with other advanced economies that only taxes income earned from domestic activities; reduction in the overall corporate tax rate, which is 56% higher than other OECD (Organization for Economic Cooperation and Development) nations and second only to Japan; an expanded and permanent R&D tax credit that covers the building of R&D facilities and the purchase of equipment; and an “innovation box,” similar to those in nine countries, including China.
The “innovation box,” or “patent box,” would essentially provide for a lower corporate tax rate for activities based on intellectual property and would spur investment in small, start-up companies. Eighty percent of AdvaMed's membership is comprised of companies with less than $100 million in sales.
“The US tax system too often creates disincentives to growth and job creation that are a major competitive disadvantage for our economy,” Ubl said. “We are committed to working with Congress and the Administration to enact these important reforms.”