November 5, 2014 | By Varun Saxena
The medical device industry was one of the winners of yesterday’s election. The Republican takeover of the Senate means the chances of a repeal of the medical device tax are improved. But a repeal would still have to overcome a Democratic filibuster in the Senate and a President Obama veto.
The Congressional Research Service just gave supporters of the tax ammunition. This week it released to the public a report claiming the medical device tax will only result in a 0.2% decrease in device industry jobs and output, much to the dismay of the tax’s critics.
“This limited effect is due to the small tax rate, the exemption of approximately half of output, and the relatively insensitive demand for health services,” the CRS report by economic policy specialist Jane Gravelle and public finance analyst Sean Lowry says.
Another common criticism of the tax is that it disproportionately harms small companies, but the report disputes that as well saying, “With relatively small effects on the U.S. medical device industry, it is unlikely that there will be significant consequences for innovation and for small and mid-sized firms.”
In addition, the report says the tax will be felt in the form of increased consumer prices, not lower med tech prices.
There are some arguments made against the tax in the report. Unlike most excise taxes, such as those on tobacco, the device tax does not discourage bad behavior. It is also debatable whether it finances related government spending, since the Affordable Care Act covers a variety of sectors besides the medical device industry.
While the effect on industry might be small, so far the device tax has fallen short of its revenue goals. The report says that the tax was supposed to raise $29 billion between fiscal years 2013 and 2022. An estimated $1.7 billion was raised in fiscal year 2013. It doesn’t appear to be on pace to meet expectations, based on simple extrapolation. Moreover, FierceMedicalDevices previously reported that the 2.3% medical device excise tax raised $913 million in the first half of 2013, or about 75% of what was expected. Out of an anticipation as high as 15,000 filers, only 5,107 medical device tax forms were filed.
In response to the report, AdvaMed‘s Wanda Moebius said in MassDevice: “The CRS paper argues that job loss due to the tax will be minimal, but their analysis is fundamentally flawed because it assumes that most of the cost of the tax will simply be passed on to customers. This analysis ignores the fact that medical devices and diagnostics are purchased primarily by large institutions such as hospitals, clinical labs, and physician practices, and in the highly competitive market of medical technology, such purchasers have the ability to refuse to accept price increases. In fact a recent study demonstrates that the 7 largest categories of implantable medical devices saw substantial declines–between 17% and 34% in average inflation-adjusted prices.”
