Impact of a 2.3% Tax on Devices Survey
To put some data behind these calls for action, MDMA also released the results of survey which highlights the damage the device tax could cause to medical device industry innovation and jobs.
The survey asked over 100 medical technology companies and innovators about the impact of a 2.3% medical device tax on patient care and innovation. Eighty-two percentof respondents said that, if the tax was reinstated, they would reduce R&D, cut or freeze salaries to prepare for the tax.
“We will never fully repair the damage caused when the medical device tax was in place from 2013-2015, but we must ensure that patient care is never punished again by a policy that diverts billions of dollars in investments away from innovation,” said Jeff McCaulley. “In order to fully empower medical technology innovators to deliver the cures and therapies of tomorrow, Congress needs to once and for all put an end to the medical device tax.”
The main findings of the survey were:
- 85% of respondents would cut or freeze R&D investments to address the tax
- Of those respondents, the average cut to their R&D budget is 15.8%
- 56% of companies with revenues that responded would cut or freeze salaries for their employees as well to address the medical device tax
“At a time where there is so much division among policy makers over how to improve health care and spur innovation, the full repeal of the medical device tax is a rare example where an overwhelming, bipartisan majority in Congress agrees on what needs to be done,” added McCaulley. “This survey highlights the negative impacts a reinstatement of the medical device tax would have, and we simply cannot allow this to happen.”
According to the Department of Commerce, the last time the 2.3% tax was in place, the medical technology ecosystem lost 28,000 jobs.
The Pelosi-led House of Representatives has introduced bipartisan legislation to repeal the medical device tax and has 239 co-sponsors. The Senate has a companion bipartisan bill, with 33 co-sponsors, including 10 Democrats.
The Outside Experts Chime In
A 2.3% tax on sales would fall directly to device company pre-tax profit line. For the capital markets, that is a very big deal. It is no exaggeration to say that this tax would likely cause a re-pricing of device company equities.
Wall Street’s medical device analysts, notably the team at Wells Fargo led by Lawrence Biegelsen, checked in with Washington, DC political experts to see how likely a repeal might be.
Their conclusion, in a nutshell, is that the odds of a 2020 reinstatement are very low.
There is no active support on either side of the aisle in Congress for re-imposing this tax.
According to a recent Wells Fargo report to clients, one possible scenario is that Congress, which is facing a looming government funding deadline, will likely kick the can down the road with one or more continuing resolutions to keep the current funding programs in place.
It is certainly worth noting that Congress has a lot on its plate currently—starting with FY2021 appropriations, the U.S./Mexico/Canada trade agreement, prescription drug legislation, pension plan relief and a bunch of reauthorizations and, of course, a likely impeachment debate, trial and vote.
Bills to cut the costs of prescription drugs and ameliorate the issue of surprise billing may well, say the Wells Fargo experts, play a role in either suspending or even repealing the medical device tax.
Working in favor of a repeal, politically, is health care reform—which has taken on the status of a golden rule among congressman. If you want to be elected, pay fealty to health care reform.
One sobering note, if Congress and the president hit an impasse over funding the government, as happened once in the past, the medical device tax could be collateral damage—unlikely, say the experts.
In the meantime, MDMA, AdvaMed and MITA are taking no chances.
Here is a copy of their letter to Congress. Be sure to let them know you support their efforts.
