Medical Innovation in Focus for Congress

The Senate Finance Committee on Thursday, April 23, held a subcommittee hearing on the impact of the medical device tax on jobs, innovation and patients. Since January 2013, manufacturers and importers of medical devices have faced a 2.3 percent excise tax to offset costs of the Affordable Care Act (ACA).  During the hearing, Health Care Subcommittee Chairman Senator Rob Portman (R-OH) shared an example from his state as to the effects of the tax:

I’ve had the opportunity to visit a lot of medical device companies, and I plead with them to show me their books. Sometimes they do, and what’s happened is two things. One, companies in Ohio have been forced, because of the bottom line, to lay people off…The second thing that is happening is research is being cut back. And what they tell me is, ‘Rob, what we are going to do next year is change our budget for research because our bottom line isn’t as good because of this tax on our revenue, and we don’t want to lay people off, so we’re going to try not to. The only way to do that is to cut back on our research.

These sentiments echo the view of Tom Fogarty, recent recipient of the National Medal of Technology and Innovation for his contributions to minimally invasive medical devices. “There is no way I could have had the same impact if the tax on medical devices was in place when I got started over 50 years ago,” Fogarty says. “Simply put, the medical device tax is destroying job creation and innovation, and as a result, patient care is suffering.”

Critics contend, however, that the ACA increases business for manufacturers and that the medical device industry comes out on top despite the tax. Critics also point to a Congressional Research Service (CRS) report that suggests manufacturers would face minimal harm from the tax, and a negligible impact on jobs. A survey from the Advanced Medical Technology Association (AdvaMed), however, found that roughly 14,000 jobs have already been shed, with an additional 19,000 lost in foregone hiring. Even if the CRS analysis is accepted, however, it’s not particularly comforting: the reason manufacturers may not be harmed by the device tax according to CRS? Most of the tax will be passed on to consumers.

While discussions on the tax continue, innovation will also continue this week as a focal point for Congress. This Tuesday, the Senate HELP Committee will hold a hearing on the future of medical innovation. The House Energy and Commerce Committee will hold its eighth hearing on its 21st Century Cures Initiative to reform the Food and Drug Administration and National Institutes of Health on Thursday, April 30.

In Depth: Innovation

Whether improving processes, creating products or developing new ideas, the application of technology can enable real changes in how state government works, both in quality of services delivered to constituents, cost savings and quality of life. States have the opportunity in our national balance of government power, to address policy…

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