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Industry Insights

The fate of the medical device tax: Moving from suspension to full repeal

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Congress typically levies excise taxes to discourage harmful behaviors such as smoking, alcohol consumption and gambling. While those may make strategic sense, it's puzzling when there is a decision to tax a positive behavior — that is, investment in research and development to improve patient health. Yet, that's what happened with the enactment of the medical device tax in 2012.

The 2.3 percent excise tax was originally included as part of the Affordable Care Act, but revenues from the tax have not met projections. Instead of helping pay for ACA subsidies, it had a number of adverse effects  namely threatening the vitality of an economically sound U.S. industry and stifling medical innovation across the spectrum of academic, public and private institutions. Both sides of the aisle recognize the need to correct this course, which is why repeal efforts have growing bipartisan support.

Fortunately, patients, providers and manufacturers were able to breathe a sigh of relief in 2015 when legislation to suspend the tax for two years passed with broad bipartisan support. However, with its suspension set to sunset at the end of 2017, the tax is again looming and threatening to slow down just as innovation has been picking up.

The medical device tax, a tax on sales not profits, threatened both small and large companies and nearly devastated an industry that invests nearly $10 billion in R&D annually.

In New Jersey alone, the medical technology industry directly supports an estimated 20,500 jobs and contributes significantly to the total economic activity. Full repeal of the medical device tax would allow the Garden State to continue to contribute to our nation’s economic strength and global competitiveness.

This investment in human capital delivers diverse skills, knowledge and experience that are important when trying to bring forth the latest medical technology innovation. It has given us pacemakers that allow our parents and grandparents with heart disease to live longer, richer lives.

There is no question that this tax is a threat to the medical and economic benefits this industry provides for our country. We must urge Congress to complete what it began with the device tax suspension. The stakes are too high. We can’t continue to stifle an industry whose job is to improve the health and quality of life for countless patients.

Jean Alan Bestafka, former CEO of the Home Health Services and Staffing Association of New Jersey.

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