The Medical Device Tax: Explore the Alternatives

We recently published some thoughts on the coming medical device excise tax housed in the Patient Protection and Affordable Care Act (PPACA). The excise tax in question, a 2.3 percent levy on medical devices geared at hospitals, rehab clinics, and other medical practices, would generate $20 billion in revenue in the coming 10 years in support of a variety of efforts to deliver basic, affordable care to almost all Americans.

A pair of Senators representing the states slated to be most affected by the ill effects of the tax, Amy Klobuchar of Minnesota and North Carolina’s Kay Hagan, have asked for an outright delay in the implementation of the tax, as part of Congress’s year-end fiscal cliff deliberations with the Obama administration.  While this would provide a temporary reprieve, what are the alternatives?

We found a great piece by Robert Koshinskie, a medical device professional, where he outlines several alternatives:  outright repeal of the tax, reduction by one percent, reduction by one percent and extending the tax to retail devices, and capping the tax to certain revenue levels.  While outright repeal or singular reduction would leave a large funding gap in the PPACA (and, by Koshinskie’s own keen analysis, require some sort of rare compromise and/or political face-saving by PPACA supporters), the latter options, extending a lowered tax to retail and perhaps including a cap in revenues applied for taxation purposes, could bring in the necessary revenue for the PPACA implementation AND serve as less of a barrier to innovation.

Bringing retail into the mix of taxable devices would allow the industry to amortize the extra tax-associated costs among not only institutional players, but millions of consumers as well.  Rather than crushing companies and forcing huge drops in R+D expenditures and layoffs in our slowly-recovering economy, this would serve as another way for individuals to have skin in the game.  These factors would help to preserve a marketplace that’s more about designing and building the best products for use by healthcare professionals and the patients they serve, rather than products tailored for the tax code.

Healthcare in the United States has been a public-private partnership for many decades—let’s make sure that we keep the proper balance in this relationship, with regard to innovation.  More affordable basic healthcare, combined with a marketplace geared to continuous innovation in medical devices, will benefit individual patients and public health outcomes for years to come.