One More Bad Idea: The Medical Device Tax

It may well be a fool’s errand to determine the worst provision of the mammoth Patient Protection and Affordable Care Act (ACA or Obamacare), but this one surely belongs near the top of any list: Section 1405, the Excise Tax On Medical Device Manufacturers… I will describe this outrage in the elegant detail in which it is recorded, to give you some idea of the mindset at work here.

To be precise, this Section appears under The Health Care and Education Reconciliation Act of 2010, an amendment to ACA. Drilling down a bit, we find Title I—Coverage, Medicare, Medicaid, And Revenues. Then, there is Subtitle E—Provisions Relating to Revenue, and then finally our little Section. Sec. 1405 amends Chapter 32 of the Internal Revenue Code of 1986 to insert a Subchapter E—Medical Devices, with its own Sec. 4191…

There is hereby imposed on the sale of any taxable medical device by the manufacturer, producer, or importer a tax equal to 2.3 percent of the price for which so sold. The term “taxable medical device” means any device (as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act) intended for humans. In simple terms, that means anything other than such products “generally purchased by the general public at retail for individual use.”

Note that the tax (starting in 2013) is on gross sales, and not profits. In most cases, this will become a levy on the total revenues of a company, regardless of whether or not the company earns a profit. No doubt, there will be businesses owing more in taxes than the net profits generated from their operations. Imagine what this will do to innovation, patient care, and job creation. Yes, please imagine this, as the authors of ACA obviously did not.

The proponents of this excise tax argue that ACA will bring in many more patients, and in fact will benefit these same manufacturers who are now complaining. There is also the implication that the device companies are making so much money, it would not matter anyway. Conveniently overlooked in this argument is the plain fact that many innovations come from smaller start-up companies, and these are the ones that would be most affected.

Moreover, a goodly number of positive analyses of the excise tax smack of the same “echo chamber” mentality that also predicted how ACA would lower everyone’s health insurance premiums by an average of $2500.

Indeed, trade groups have said from the beginning that there is no hard data even vaguely showing that the tax would be offset due to an increased pool of insured beneficiaries receiving treatment. On the contrary. Since the majority of products impacted are used in acute care settings, where there are legal obligations to treat a patient, the effect of expanded coverage is not likely to increase utilization. In January, speaking in the wake of the first semimonthly payment of the tax—amounting to around $97 million—trade leaders expressed industry sentiments.

“Instead of investing in new medical technologies or creating new jobs, innovators across the United States wrote a check to the IRS this month. MDMA and our members remain committed to repealing the medical device tax, but it shouldn’t take more job losses and forgone therapeutic advancements to highlight just how damaging this policy is to a unique American success story.”—— Mark Leahey, President and CEO of the Medical Device Manufacturers Association.

“Every dollar spent on this tax is a dollar taken away from medical innovation and job creation. This tax is already resulting in layoffs, reduced investments in R&D and delays in significant capital improvements. We urge Congress to act swiftly and repeal this job-killing, innovation destroying, anti-competitive tax.”——Stephen J. Ubl, President and CEO of the Advanced Medical Technology Association.

Change may be in the wind. A symbolic vote a few weeks ago via the the Hatch-Klobuchar amendment, which passed the Senate by a vote of 79 to 20, supported repeal. Those in favor included some liberals who have probably never voted to repeal a tax in their entire careers. We will see how this plays out.

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9 responses to “One More Bad Idea: The Medical Device Tax

  1. You get less of a product or service if it is taxed and you get more if it is subsidized. So the Obama care hacks want people to suffer because they cannot get the medical devices they need to enhance their lives. When asked in the first campaign by a woman if her 90 year old mother would be able to get a pace maker the stone cold candidate said under Obama care she would just have to take a pill. In other words f off and die.

    • So? Quite frankly, at the age of 90, a pacemaker is an unwise investment. Call me cold, but we have limited medical and financial resources, and after a certain point, you end up doing nothing but prolonging suffering. This link is good reading.

      • Oh, I see. And, naturally, you would want the government to make that decision. After all, their track record is health care is just brilliant, right?

        If it’s a bad idea at 90, what about 80, 70???

        BTW–The sub-text of the article you cite is that the system (i.e. Medicare) encourages the docs to keep providing “care” as long as it’s paid for. Indeed, they are virtually forced to do this in most cases, by the greedy hospitals.

        • Whether government official or insurance company bureaucrat. In any group-payer system, someone ends up holding the purse strings and has the responsibility to say “Enough is Enough” when the money is being used irresponsibly. While it is much better for this decision to be made by accord between the doctor and patient, there is a fundamental conflation of interests for the doctor toward excessive care even to the detriment of the patient. The only counter to which is the payer’s interest in maintaining costs.

          Someone has to say it and be the bad guy. However life isn’t a Lifetime original movie, and those “bad guy”s, aren’t.

          • @Ben–

            You said it! “There is a fundamental conflation of interests for the doctor toward excessive care even to the detriment of the patient.”

            However, that is because it is a disease-care and not a health care system. I have written many articles pointing out that there is not enough money in the world to cover a “disease-care” model.

            There really are two bad guys here…

            1. Govt takeover of health care—that started in 1965 with Medicare

            2. The insistence on a procedure-based disease care model.

  2. You’re quite right. The Communist/Collectivist mentality is ultimately all about death. That’s why their number one most important issue is abortion, and that’s also why when given the chance to save her own life (and not render her sons orphans) Ethel Rosenberg still “took one for the team,” and was executed.

    Imagine a Black president presiding over Black genocide via abortion—now imagine that you’re not imagining.

    THESE are the times that try men’s souls. (Thomas Paine)

  3. Having an excise tax makes no sense, true. However, since it is across the board, there is no loss of income as prices can be raised by the amount of the tax. In the end, I think this article is being entirely overblown.

    • Not quite. Excessive regulation and taxation *always* favors larger companies. Moreover, damage is greater to small companies that only make devices–as opposed to more diversified companies. And, a bad idea is…a bad idea.

      Many reasons why prices can’t just be raised.

      • Indeed, when people complained of the onerous requirements of Frau Clinton’s original nationalization of health care (1993), she said, “I can’t help it if some companies are under capitalized.”

        “Crony capitalism” is a misnomer. Fascism is the correct term. Companies like GE and Dupont may resist government control of their business at first, but they eventually realize the government is giving them a monopoly, and resisting is not in their interest.

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