medical device tax

The New Billion Dollar Tax

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The medical device industry made history this week when they passed the billion dollar mark in excise taxes paid to the IRS since January 1st, 2013. That comes to about $194 million per month. Needless to say, this is nothing to celebrate.  The money thats going to taxes is money medical device manufacturers would have used to invest in R&D, their facilities and most of all – new jobs.

As we’ve said many times before, this tax is not only a threat to innovation but also to the United States’ position as the global industry leader in medical devices. We appreciate the Senates 79-20 vote in March in favor of resolution to repeal the medical device tax and the bipartisan support for, “The Protect Medication Innovation Act” legislation in the House, which currently has 253 co-sponsors, and its related Senate bill, “The Medical Device Access and Innovation Protection Act,” that was introduced on a bipartisan basis by Senators Klobuchar (D-MN.) and Hatch (R-UT) and currently has 34 co-sponsors. We urge Congress to finish the job and get rid of this job-killing tax ASAP.

Manufacturers cannot afford for policy makers to sit back and continue to let the medical device tax take away from job creation, innovation and patient care. We hope that leadership in both the House and Senate understand that time is of the essence and work together to advance the repeal of this onerous tax.

California State Legislators Highlight Negative Impact of the for Medical Device Tax

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Kudos to the Democratic members of the California state legislature who recently sent a letter to the California delegation in the US House of Representatives expressing serious concern about the impact of the medical device excise tax. California has more than 1,200 medical technology companies —highest in the nation—which provide for nearly 72,000 jobs in the state. Recognizing that this tax is a direct threat to medical technology investment and innovation in California, the legislators urge Congress to repeal this onerous tax.

Many states are already feeling the negative effect the medical device tax has taken on the U.S. medical device industry, which currently is the global leader. This damaging trend will only get worse if Congress does not act. We hope that Leader Pelosi and the rest of the California delegation listen to these concerns and work together to find a solution to repeal this destructive tax.

A Big Thank You to Indiana for Weighing in Against the Medical Device Tax

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Last week the Indiana Legislature sent a letter to President Obama and Congress with a resolution passed by the 118th Indiana General Assembly urging Congress to repeal the 2.3% medical device excise tax. Like other states, Indiana recognizes the enormous economic value that the medical device industry is providing for its communities in terms of good-paying jobs, R&D development and plans for further expansion of local facilities. As a result of the tax, more than 60,000 jobs are currently at risk in Indiana alone. We urge the Administration to seriously consider Indiana’s resolution and for Congress to take swift action to repeal this onerous tax.

The Administration Must Recognize the Real World Negative Consequences of the Medical Device Tax

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We were disappointed to hear Treasury Secretary Jack Lew defend yesterday the onerous medical device tax that went into effect on January 1st as part of the Affordable Care Act. While Lew admitted that the idea behind the tax was not to target startup medical device companies, the reality is the 2.3 excise tax impairs innovation as it is imposed on all revenues rather than just profit. It is clear that Lew is out of touch with the greater comprehension of the harmful nature of the tax as just last month 79 senators voted in favor of its repeal, demonstrating strong bipartisan support during the budget debate.

The NAM urges the Administration to look at the real world effects the medical device tax is having on manufacturers competing in the global marketplace and to recognize the Senate’s strong vote as marker of bipartisan understanding that the tax is indeed hurting jobs, investment and the ability for the United States to maintain its position as the global leader in medical technology innovation.

The Downfalls of Taxing Innovation

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Tomorrow the Ways and Means committee will mark up the Protect Medical Innovation Act of 2011 (H.R. 436), repealing the 2.3% excise tax on the gross sales of medical devices included in the health care reform law. Set to take effect in 2013, this excise tax is estimated to cost US businesses close to $30 billion in new taxes. This will effectively back companies into a corner to scale back operations and cut resources for R&D, thus stifling innovation and forcing job cuts.

This industry-specific tax will be particularly harmful for small to medium sized manufacturers (80 percent are companies with 50 or less employees, 98 percent have 500 employees or less), as the tax is assessed on a company’s sales rather than profits. In fact, many companies have already announced layoffs in anticipation of the effective date.

Medical device manufacturers have been a shining star throughout our economic recession and the US continues to be the world leader in manufacturing life-saving and life-enhancing treatments. We should not constrain this segment of the manufacturing community, but rather see that their success continues well into the future. The NAM strongly supports rolling back this tax before it takes effect.  We need to ensure that medical device manufacturers are able to remain dynamic and innovative in order to improve the quality of life of patients.

Avoiding a Tax Increase That’s Bad for Your Health

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 We’re pleased to hear that early next month members of the House of Representatives will have the opportunity to vote to “excise” from the Internal Revenue Code, a new tax on medical devices set to begin in 2013. This ill-conceived 2.3 percent tax on gross sales of medical devices manufacturers was part of the health care reform law.

By increasing the costs of medical devices, the excise tax will hurt the companies and their workers and also stifle the research and innovation that leads to the development of medical products that contribute to the health and well-being of all Americans.

Moreover, as today’s Wall Street Journal points out, perhaps the most damaging impact of the excise tax is on U.S. competitiveness. With Europe, Israel and Asia working hard to take over the United States’ lead in the life sciences, a tax like this will only make their job easier. Let’s hope the House gets the ball rolling and Congress sends a bill to the White House as soon as possible that would stop this job-killing tax before it even starts.

Impact of Health Care Law: Less Innovation in Medical Devices

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It’s hard to imagine the discussions that went into the writing of the legislation to expand the federal government’s role in health care, the Patient Protection and Affordable Care Act:

But how do we pay for all this?

Well, our medical device industry is the global leader, innovating and really stimulating economic growth.

Good, let’s tax it!

Which leads us to this entry in the new report from Sens. Tom Coburn (R-OK) and John Barrasso (R-WY), both doctors, “Grim Diagnosis – A check-up on the federal health law.”

Companies that innovate, create, and develop life-saving, life-improving devices will likely lose jobs too. Manufacturers of medical devices are reeling from a provision of the law that will levy a $20 billion excise tax on their industry. The Boston Globe reported that the 2.3 percent excise tax on companies that supply medical devices like heart defibrillators and surgical tools to hospitals, health centers and ambulance services, will force industry leaders to lay off workers and curb the research and development of new medical tools. One CEO said the new tax threatens his business‘ sustainability because it has relegated his company‘s profitability to merely a break-even position.

The basic problem with the tax is one of math. Many small to midsize medical device companies will owe more to the federal government in taxes than they make in profits, according to Mark Leahy, head of the Medical Device Manufacturers Association. “We’re talking about a 2.3 percent tax on total sales, irrespective of whether a company is making a profit.” The device tax will hamper innovation, since the amount of money available for a company to reinvest in its business development will be reduced. Some companies are already contemplating moving jobs overseas to avoid losing their competitive edge. Outsourcing is just one of many adverse unintended consequences of the new law.

The news release is, “Drs. Coburn and Barrasso Release New Health Care Report.” Jobs will be lost.

Never Letting a Good Deed (Device) Go Unpunished (Untaxed)

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NAM President John Engler mentioned the medical device industry in remarks at the Managing Automation Summit in Palm Beach, Fla., yesterday, remarking that it was one of the industries where U.S. industry is an indisputable global leader. And how does Congress treat this center of competitiveness and innovation? By taxing it to pay for an expansion of health care?

Here’s the inevitable response, via The Boston Herald, “Mass. device firms see health law as burden“:

Massachusetts medical-device companies say they’ll cut back on operational costs – and jobs – after a planned 2.3 percent tax on their products is implemented in 2013, according to a new survey.

The Massachusetts Medical Device Industry Council, which held its annual meeting yesterday in Boston, said about 90 percent of the 100 medical-device firms said they would reduce costs due to the new tax tucked into the recently passed health-care reform bill.

The tax – imposed to help pay for the massive health-care industry overhaul and expansion – is “of the greatest concern” to a majority of its members, the survey found.

MassDevice, an online trade publication, also covers the survey, “Survey: Device tax could force job cuts, higher prices.”

Innovative Manufacturers? Tax Them

By | Communications, Health Care, Innovation, Taxation | No Comments

The Business Council of Alabama and the Alabama Technology Network held their annual Manufacturer of the Year awards event Wednesday, with three innovative manufacturers receiving recognition. The National Association of Manufacturers helped sponsor the awards, and NAM President John Engler provided a video salute to the honorees.

Large Manufacturer of the Year: ADTRAN, Inc. is a leading global provider of networking and communications equipment, providing solutions for voice, data, video and Internet communications across a variety of network infrastructures. ADTRAN, Inc. has been recognized by Fortune Magazine as one of the nation’s 200 Best Small Companies, as one of the “40 Best Stocks to Retire On,” and in 2009 was voted one of the Best Places to Work in Huntsville/Madison County.

Medium Manufacturer of the Year: STERIS Corporation, Montgomery is a leading provider of infection prevention and surgical products and services for the health care industry, serving thousands of customers in more than 60 countries. The Montgomery facility’s 260 employees produce a variety of products for the operating room and surgical environment, including surgical tables, lighting systems, scrub sinks, stretchers, warming cabinets, and equipment management systems that provide medical personnel ready access to medical gases, electrical power, and communication services.

Small Manufacturer of the Year: Turner Medical of Athens transitioned from a leading supplier of automated equipment for the automotive and appliance industries to a manufacturer of surgical instruments for the medical industry. Today, Turner Medical is one of the highest quality medical manufacturers in the Southeast and one of the fastest growing facilities in north Alabama. Turner Medical’s 80 employees supply a wide variety of surgical instruments as well different implantable rods, plates and screws to the orthopedic medical history.

Congratulations to all three. Innovation, investment and excellence occur across all sectors of industry, but it’s certainly no surprise to find outstanding examples in telecommunications equipment and medical device manufacturing — areas where the United States remains a global leader.

Congress asks, how can we screw that up?

A tax on medical devices is a good start. From The Boston Herald, via The Daily Caller, “Health-care sales tax could kill thousands of Bay State jobs“:

A dire warning from Bay State medical-device companies that a new sales tax in the federal health-care law could force their plants – and thousands of jobs – out of the country has rattled Gov. Deval Patrick, a staunch backer of the law and pal President Obama.“This bill is a jobs killer,” said Ernie Whiton, chief financial officer of Chelmsford’s Zoll Medical Corp., which employs about 650 people in Massachusetts. Many of those employees work in Zoll’s local manufacturing facility making heart defibrillators.

“We could be forced to (move) manufacturing overseas if we can’t pass along these costs to our customers,” said Whiton.

U.S. Senate Republicans also identified the Medical Device Tax as damaging policy and potentially good politics, proposing amendments during last night’s debate on the reconciliation bill.

The Encompassing Tax on Medical Devices, 2.9 Percent

By | Health Care, Taxation | One Comment

Subtitle E, Section 1405 in the House substitute amendment to the health care legislation is “Excise tax on medical device manufacturers”

The section states:

(a) IN GENERAL.-There is hereby imposed on the
sale of any taxable medical device by the manufacturer,
producer, or importer a tax equal to 2.9 percent of the
price for which so sold. 

There are exemptions for eyeglasses, contact lens, hearing aids and items purchased by the general public at retail stores, things like tongue depressors. Even with the exemptions, there’s much covered under the bill’s definiion of “taxable medical device,” which “means any device (as defined in section 201(h) of the Federal Food, Drug, and CosmeticAct) intended for humans.”

From the FDA, “Is The Product a Medical Device?”

Medical Device Definition

Medical devices range from simple tongue depressors and bedpans [presumably exempt as noted above] to complex programmable pacemakers with micro-chip technology and laser surgical devices. In addition, medical devices include in vitro diagnostic products, such as general purpose lab equipment, reagents, and test kits, which may include monoclonal antibody technology. Certain electronic radiation emitting products3 with medical application and claims meet the definition of medical device. Examples include diagnostic ultrasound products, x-ray machines and medical lasers. If a product is labeled, promoted or used in a manner that meets the following definition in section 201(h) of the Federal Food Drug & Cosmetic (FD&C) Act it will be regulated by the Food and Drug Administration (FDA)4 as a medical device and is subject to premarketing and postmarketing regulatory controls. A device is:

  • “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:

    • recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them,
    • intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
  • intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of it’s primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.
  •  Funny how health care “cost controls” so easily morph into tax increases.