The Medical Device Excise Tax: 18 Months Later

When the Medical Device Excise Tax was announced it generated much heated debate (http://1.usa.gov/1l0GFeJ). That heat seems to have dissipated over the past months as other issues have floated to the top of the news heap.

The End Is Near

Many didn’t seem to understand the furor over a relatively small 2.3% tax on medical devices. The tax, however, is taken right off the top-line sales rather than net profit, and this calculation has the potential of a large impact on the operations of medical device firms (http://bit.ly/1q4n13w).

A lot of speculation was offered as to why the tax would be either a good thing for healthcare or the death knell for the medical device industry. I, too, provided my opinion on what I felt were 5 likely outcomes regarding the future of the tax from repeal, through modification to inaction. But the fact is that no one knew outcomes for certain because the actual effect of the law hadn’t yet played-out. Everyone was guessing which still seems to be the case.

After all the debate over the past year-and-a-half, hard evidence is apparently still in short supply, and polarization and entrenchment on positions has filled in the void. Lacking objective evidence regarding the actual impact of the tax, how can anyone be expected to make reasonable decisions about the tax? Yet it seems that practically no one, including our legislators, have demanded that objective evidence be produced for deliberation.

Yes, there are anecdotes regarding the tax impact. Some stories underscore the harm that the tax is doing to innovation (http://bit.ly/1fffTbU) while others claim little to no impact on R&D (http://bit.ly/1l9lndE). One survey has been conducted by the trade group, AdvaMed, and “responses to the survey were generalized to the industry as a whole.” Notable is that the projection was based on just 38 self-reporting members, 40% of which were apparently operating in the red before the tax took effect (http://advamed.org/res.download/417).

In a complex system with many actors from business and government, it is certainly possible for all of claims above to be true to some degree without revealing the big picture. Getting the data and performing a comprehensive analysis is a worthwhile if difficult task (http://bit.ly/1xIjUQY).

If objective evidence shows that the tax is doing more good than harm in the Country, then that outcome may reflect a reasonable legislative compromise. If objective evidence shows that the tax is doing more harm than good, then our legislators should start crafting a better solution. I just want to see decisions being made on objective evidence and not anecdote and conjecture.

Originally published on LinkedIn, June 2014

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