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Published on September 15th, 2017 | By: Faye Oney

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Medical device tax impacts medical device manufacturers

Published on September 15th, 2017 | By: Faye Oney

[Image above] Credit: Photog Bill; Flickr CC BY-NC-ND 2.0

 

 

2-year moratorium on medical device excise tax expires Dec. 31

 

Ceramic materials are present in many medical devices and products. From surgical implants for hip and other joint replacements, to prosthetics and dental bridges, ceramics play a big part in the medical industry.

 

According to a 2016 market report from Technavio, the global medical ceramics market is expected to grow 7% between 2016 and 2020. And due to substantial growth of the healthcare sector in Asian countries like China and India, the Asia Pacific market is expected to grow at an even faster rate.

 

A report from Allied Market Research indicates that global demand for medical ceramics is expected to reach a value of $5,841 million by 2022—a 6.2% increase from $3,850 million in 2015.

 

And the U.S. is a big player in the medical devices industry. According to a 2016 ITA Medical Devices Top Markets Report, the U.S. leads the world in production of medical devices, to the tune of $43 billion in 2015. In recent years, the U.S. experienced 1.5% annual growth in the category for specific NAICS codes (listed in the report).

 

Credit: Today’s Medical Developments

 

As the medical device industry grows, so does the demand for ceramic materials—and that’s a good thing for our industry! The ITA report also mentions that in the 2012 Economic Census, the medical device industry employed more than 356,000 people in the U.S., earning an average wage between $60,000 and $70,000.

 

Taxing innovation

 

Back in 2013, lawmakers in Washington enacted a 2.3% excise tax on certain medical devices sold in the U.S. to offset the costs of Obamacare—exceptions being eyeglasses, contact lenses, and hearing aids. In 2015, they imposed a two-year moratorium on the tax. In the next few months, Congress will decide whether or not to continue the tax, which would become effective January 1, 2018.

 

Although 2.3% doesn’t seem like much, it can be a considerable amount for smaller companies and startups that have not yet had time to generate substantial profits. For the CEO of a small biomedical company in Cleveland, Ohio, for example, the cost represented the amount he would have used to hire an employee who could have generated revenue of $300,00–$400,000.

 

A January 2015 study conducted by AdvaMed, a medical advocacy group, found that the tax had considerable negative impacts on jobs and R&D. A little more than half of respondents (53%) said they reduced the amount of funds they would have devoted to R&D.

 

Other findings include:

  • 75% said they either deferred or cancelled capital investments and plans to open new facilities, reduced investment in start-ups, and reduced or deferred employee compensation increases, and
  • Two-thirds said they planned to curtail hiring of new employees.

 

The survey also found that the tax resulted in 4,500 job losses of workers in the medical device industry in 2014.

 

Benefits of the moratorium

 

The moratorium actually produced some positives for the industry, as medical device companies now had additional funds to reinvest in their businesses. Last year, the Medical Device Manufacturers Association (MDMA) surveyed its members to gauge the impact of the moratorium’s effect.

 

Its top findings include:

 

  • 70% of companies created new jobs during the moratorium,
  • Nearly three-fourths (73%) said the moratorium improved their ability to raise capital and funding, and
  • Respondents have increased their R&D budgets by an average of 19%.

 

The future

 

When government imposes taxes on companies, it stifles innovation by slowing down job creation and suppressing R&D. We would not have the advances in medical devices—and other industries—today if it were not for the determination and vision of entrepreneurs.

 

What does the future hold for medical device companies? While nearly half (46%) said in AdvaMed’s survey that they might reduce staff if the tax is not repealed, close to three-fourths (71%) said they would restore hiring if the medical device excise tax is repealed.

 

And while 58% said they would consider reducing R&D budgets if the tax continues, 85% of respondents would reinstate R&D projects they had previously put on hold.

 

For more information on what MDMA has been doing to help medical device manufacturers, visit this link.

 


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