The Repeal of the Medical Device Tax: The Good, the Bad….. and is There an Ugly?

taxes-646509_960_720The following is a guest contributed post by Meghan Alonso, CEO of Imua Services.

This past week, Washington was abuzz with what will happen if the ACA is repealed.  For medical device manufacturers, the question about the medical device tax repeal is top of mind.  This tax, a 2.3% for innovation on new products, was enacted to raise funds for the ACA.  It was so unpopular and stifled innovation so it was suspended for 2016 and 2017.  The battle has begun to see what will happen in 2018.

The tough thing for the industry to swallow was that medical device manufacturers were taxed pre-revenue, making it difficult for the entrepreneur or startup to get their business off the ground.  That lead to the suspension.

The Good

Advamed’s CEO Scott Whitaker has been working with the ways and means committee to permanently repeal the tax.  Douglas Holtz Eakin (former congressional budget chief and current American Action Forum member) estimates that this will do 2 great things for our industry:

#1 Restore 30,000 jobs that have been waiting in the wings for a decision on the tax.

#2 Prevent an additional loss of 25,000 jobs

U.S. based companies are responsible for bringing 45% of the medical products to market globally, according to the International Trade Associataion (trade.gov).  If the tax is repealed, the U.S. can keep that market share or even expand it.  Also, this particular industry is extremely strong….the average wage is 15% higher than in other U.S. based manufacturing fields.  If jobs are lost overseas due to this tax being reinstated, many Americans will suffer paycuts.

The Bad

If the ACA and medical device tax are repealed, funding for planned parenthood and other government funded healthcare programs could lose funding.  This could be particularly bad for anyone in the women’s healthcare space…like IUD manufacturers.  If those aren’t covered by planned parenthood anymore, these companies could take a hit.

Now, this isn’t necessarily tied to the ACA or the medical device tax, but the border adjustment is something to watch.  Trump wasn’t in favor of this originally but he’s coming around to the idea.  This essentially provides tax breaks for U.S. based companies that are exporting goods.  Since the US has such a stronghold in exporting medical products (43 billion dollars annually), this could provide significant revenue.  However, most of these devices are made up of components that are sourced from overseas.  America just isn’t manufacturing the electronics that our Asian counterparts are.  Those components would be taxed, therefore, increasing the cost of goods sold.

Is There an Ugly?

I wouldn’t say there’s an ugly.  If this is repealed, it’s easier for startups to get going on innovating, it’s easier for larger corporations to grow and acquire these startups, it’s easier for companies to attract investment, and stock prices will rise for U.S. based companies.

The only potential ugly is for those companies that rely heavily on sales through government funded programs or women’s health through planned parenthood OR if the border adjustment goes through.  In this case, U.S. based companies who’s R&D or manufacturing is located overseas could see higher import taxes into the U.S.

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