Earlier today, the House of Representatives voted in favor of H.R. 160, the Protect Medical Innovation Act introduced by Rep. Paulsen (R-MN) to repeal the ill-conceived excise tax on the gross sales of medical devices. The decisive, bipartisan vote shows that Congress understands the negative impact this burdensome tax has had on medical device manufacturers, their employees and the patients that rely on their life-saving products. Read More
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 that’s 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 Senate’s 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.
Today H.R. 523 – the Protect Medical Innovation Act – was introduced in the House by Representatives Erik Paulsen (R-MN) and Ron Kind (D-WI). This bill aims to repeal the prohibitory 2.3 percent excise tax on medical device manufactures.
As of January 1st, the excise tax went into effect and manufacturers are already experiencing significant, negative consequences on job growth and innovation as a result of having to cut R&D budgets. A recent study found that as many as an estimated 43,000 jobs will now be at risk as a result of this tax. The NAM has always strongly opposed industry and product specific taxes, as they serve to inhibit growth in targeted sectors and impede on the ability of targeted companies to compete in the global marketplace.
Manufacturers are pleased to see members of Congress working together across the aisle to eliminate this avoidable hindrance to the global success of our medical device companies. We anticipate similar legislation will soon be introduced in the Senate by Senators Orin Hatch (R-UT) and Amy Klobuchar (D-MN). In addition, Senators Al Franken (D-MN), Pat Toomey (R-PA), Joe Donnelly (D-IN), Richard Burr (R-NC), John Cornyn (R-TX) and Robert Casey (D-PA) have also come out in support of repealing this onerous tax.
As this is clearly a bipartisan issue of great concern to American manufacturing, we hope to continue to see members of both parties come together to solve this problem in the coming months.
Although one might think that it was near impossible, the U.S. tax code just got worse for manufacturers of medical devices. Manufacturers lament the IRS’s issuance of a new regulation to implement 2.3% excise tax on medical devices that was included in the President’s health care law. The NAM has opposed this tax because of the impact it will have on the ability of the medical device industry, a true American success story, from competing and innovating on the new products and devices that will help save lives.
This new tax appeared during the debate on the Patient Protection and Affordable Care Act, as a way to help “pay for” the bill. The 2.3% tax will have the effect of raising the effective tax rates for medical device companies – over 80% of which are small businesses with fewer than 50 employees – forcing these companies to have to make tough decisions about how to fill the earnings lost to additional taxes.
At a time when so much of the conversation in Washington centers on the need to increase jobs, stimulate growth and encourage innovation, the imposition of this excise tax completely contradicts these messages. U.S. medical device manufacturers are the world-leaders and the imposition of this new tax will have the effect of making the industry less competitive and reducing capital to invest in new R&D, new technologies and new employees. With contradictory actions like these, praising the industry for its life-saving innovations while slapping a new tax on them, it’s no wonder that so many have expressed a lack of faith in what’s going on in Washington.
Perhaps though, a step could be taken in the right direction if Congress can pass legislation, pending in both the House and Senate, to repeal this innovation-stifling tax. H.R. 436 by Rep. Paulsen already has overwhelming support in the House with 227 cosponsors and there are two bills also pending in the Senate, S. 17 by Sen. Hatch with 19 cosponsors and S. 262 by Sen. Brown (MA) with two. It’s time for Congress to repeal this tax.
Carolyn Lee is NAM’s Senior Director of Tax Policy
Many items of interest and irritation in today’s Washington Post relating to the economy and manufacturing.
Why overregulate leading U.S. innovators? “FDA approval process faulted at hearings on medical devices,” covering last week’s hearing on medical device regulation in the House Energy and Commerce Subcommittee on Health:
FDA leadership is in the process of overhauling the 35-year-old system used to clear most devices, triggering a slew of reports and analyses aimed at influencing the agency’s plans.
On the one side are device manufacturers, who say that FDA reviews have gotten longer and less predictable, forcing some companies to launch their devices overseas to stay in business. They say American patients no longer have access to the latest medical treatments, forcing some to fly to Europe for surgery.
Infrastructure took only 40 years? “Md.’s Intercounty Connector gets ribbon-cutting as opening is delayed for snow”:
Given that officials once thought the Intercounty Connector would open by 1970, the fact that they finally cut the ribbon on Monday and then postponed the opening until Wednesday seemed very much in keeping with the story line. Read More
The House Judiciary Committee continues to work on H.R. 5, the medical liability reform package, today in an afternoon mark-up session. We wish them well on the effort. Liability reform will help control the rising costs of health care, and this specific piece of legislation — called the HEALTH Act — contains important protections for drugmakers and medical device manufacturers. The language reflects the understanding that drugs and devices are sold into interstate commerce, approved and regulated by the federal Food and Drug Administration, and once demonstrated as safe should not be subject to trial lawyers’ efforts to use state courts to play litigation lottery.
Section 7 of the legislation, Punitive Damages, sets guidelines on punitive damage awards in health care lawsuits, including limits so punitive damages awards do not exceed the greater of $250,000 or twice economic damages.
Manufacturers of drugs and medical devices are most interested in paragraph (c), “No Punitive Damages for Products That Comply With FDA Standards.
(1) IN GENERAL-
(A) No punitive damages may be awarded against the manufacturer or distributor of a medical product, or a supplier of any component or raw material of such medical product, based on a claim that such product caused the claimant’s harm where–
(i)(I) such medical product was subject to premarket approval, clearance, or licensure by the Food and Drug Administration with respect to the safety of the formulation or performance of the aspect of such medical product which caused the claimant’s harm or the adequacy of the packaging or labeling of such medical product; and
(II) such medical product was so approved, cleared, or licensed; or
(ii) such medical product is generally recognized among qualified experts as safe and effective pursuant to conditions established by the Food and Drug Administration and applicable Food and Drug Administration regulations, including without limitation those related to packaging and labeling, unless the Food and Drug Administration has determined that such medical product was not manufactured or distributed in substantial compliance with applicable Food and Drug Administration statutes and regulations.
Trial lawyers have long sought to bring suits against drug and device makers into state courts, seeking venues and judges that favor the plaintiffs and huge damage awards. In the 2008 decision in Riegel v. Medtronic, the U.S. Supreme Court limited such state suits against manufacturers of medical devices that had received pre-market approval from the FDA. The court ruled that Congress had specifically preempted the devices from state regulation under § 360k(a) of the Medical Device Amendments to the Food, Drug and Cosmetic Act.
This decision was critical in affirming the principle of federal preemption, which provides effective protections for public health and safety. Congress has determined that the FDA is the proper authority with the available resources to regulate drugs and devices in interstate commerce. Lawsuits in state courts in effect create a 50-state system of regulation for these devices and drugs, full of inconsistencies, capricious enforcement and unjustified damage awards. (No wonder the American Association for Justice and other trial lawyer lobbyists sought to reverse the Riegel decision last Congress with the so-called Medical Device Safety Act. Thankfully, they failed.)
The language in H.R. 5, Section 7, paragraph(c) draws on that general principle of preemption for its “safe harbor” language. It holds that companies that manufacture drugs and devices recognized as safe by the FDA have by definition gone through the careful development, testing and approval — the due diligence — that demonstrate the companies did not behave in a way to justify punitive damages. The legislation provides a measure of protection for companies so they can manufacture effective drugs and devices. It’s exactly the kind of medical liability reform that will reduce costs while ensuring a dynamic market that innovates and creates live-saving products.
UPDATE (4:50 p.m.): The House Judiciary Committee just voted 16-20 to defeat an amendment offered by Reps. Mike Quigley (D-IL) and Sheila Jackson-Lee (D-TX) to strike Section 7. Rep. Franks (R-AZ) successfully opposed against the amendment, making a similar case as argued above.
From Kiplinger Forecasts, “Manufacturing’s Share of GDP Will Recover and Hold Steady“:
Will U.S. manufacturing ever come back? Output, yes, will regain its previous highs. Jobs won’t. Many of them are gone for good.
It’ll be 2012 before production recovers, clawing its way back to prerecession levels. Next year will see a modest gain of 2%, then pick up speed in 2011. But this year’s jaw-dropping 12% decline, on top of a dip of 3% in 2008, spells a contraction considerably worse than in the recessions of 1980-1982 and 1974-1975.
About 66% of the 2 million jobs lost since January 2008 will return by 2013 in the manufacturing sector. For the rest, largely in automaking or industries tied to either autos or housing, such as textiles, plastics, fabricated metals, furniture, appliances and so on, the recession was simply the last, fatal squeeze in a long wringing out process.
Kiplinger identifies the following industries as leading the way back: medical equipment and defense electronics, satellites, some advanced machinery, biotechnology, Internet routing equipment, etc.
Medical devices? Really? That’s one of the trial lawyer industry’s top targets. Litigation is major impediment to the medical device industry leading the United States out of the recession.
(Hat tip: Pat Cleary.)
One of the witnesses at the House Energy and Commerce subcommittee hearings on medical devices and federal preemption (see earliers posts) was a woman whose pacemaker had malfunctioned, causing her great distress, surgery and continued medical problems. In a similar fashion, Diana Levine became the public image of the preemption issue as it relates to labeling of medicines; a musician, she had lost her arm after an anti-nausea medication was improperly administered intraveneously.
The ones damaged have compelling stories, used by advocates (and trial lawyers) to promote a cause. We should certainly listen to them. But how about those saved? As the columnist Michael Kinsley noted in his testimony yesterday, “Lawsuits focus on the victim of some medical product. By their nature, they undervalue the benefit that same product has brought to other users, or even to the victim herself.”
So we note with appreciation this news release from AdvaMed, the Advanced Medical Technology Association, which organized remarks in Washington by a group of patients who had benefitted from medical devices. From “Patients Call for Continued FDA Preemption Authority“:
“Without my medical device, I would not be here today,” said Laura Doud of Arlington, Virginia, who received life-saving implantation of cardiac resynchronization therapy with defibrillation in 2004 after suffering almost fatal viral cardiomyopathy. “If the proposed legislation were passed, would the lawsuits facing inventors and manufacturers prevent devices like mine or future medical innovations from ever making it to patients like me?
And then there’s Olivia Vervaeke, a senior from Detroit, Michigan, graduating this week from the University of Notre Dame, born with a congenital heart defect that severely worsened in high school. Olivia required an implantable cardioverter defibrillator (ICD) in 2005.
“This device saved my life,” said Olivia Vervaeke, who is graduating from college on Sunday, May 17 but took a break from wrapping up her final days at Notre Dame to come to Washington to tell her story. “I can run five miles a day now; I could never do that before.”
The news release includes testimonials from other people helped by medical devices, and although they did not testify at the committee, their experiences need to be heard. Replacing a consistent, predictable and expert-based FDA regulatory system for medical devices with 50 different state systems determined by juries would discourage the innovation that helped save these people’s lives.