I guess it's no surprise that the medical device excise tax is still in the news. Despite policymakers arguing that the impact on the medical device industry will not be as bad as industry players think, advocacy groups continue to argue that yes, it will be exactly that bad. Because there are so many people on either side of the issue, I decided to create a two-part blogpost. Today's (Part 1) will focus on some of the arguments from the advocates who think that this tax represents the end of the US medical device industry as we know it. Tomorrow's (Part 2) will examine some of the opinions on why there is no need for a mass panic just yet.

The primary argument against the tax from medtech, as we've heard before, is that it will severely hinder innovation and prevent companies in the US from developing devices to provide better health care. But there are a number of other interesting issues going on here as well. For example, one article I read on the topic lately had to do with the larger number of Americans that will have access to insurance as a result of the Affordable Care Act the same act that is causing the implementation of this tax. Policymakers have argued that the effect of the medical device excise tax won't be so bad because the Affordable Care Act also extends insurance to millions more Americans; therefore, medical procedure volumes will increase, resulting in more device sales for manufacturers and thus making up for the bit of revenue the tax takes off of the top line. But this article considers the fact that this would only be applicable if the company sells devices used in more elective procedures devices used in emergency situations would not be sold in larger quantities because they are used regardless of whether a patient is insured. Consequently, for companies selling anything like drainage catheters, trauma devices, or some vascular devices, the tax will have little or no benefit to them in terms of increasing unit sales volumes.

Additionally, a number of companies have either chosen not to build manufacturing facilities in the US or have laid off workers, which may be as a result of the tax. For example, last November, Stryker announced that it would lay off 1,000 workers as a result of the tax. Covidien also blamed the tax when it announced that it would lay off 200 workers and would shut down its New York manufacturing facility to shift production to Costa Rica and Mexico. If this trend continues (which anti-tax advocates loudly proclaim it will), this is obviously not great news for the US economy.

Overall, this Emergo Group survey indicated that approximately 70% of respondents felt that the tax would have a negative impact on their business so no surprise then that this petition to repeal the tax already has almost 2,900 signatures.

Stay tuned for Part 2

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