The Calm before the Storm

By Diane Krafft

We all know that the US medical device industry is the global leader in innovation, job creation and patient care. As seen once again during AdvaMed 2012, this dynamic industry accounts for many of the cutting-edge technologies that save the lives of people every day, and improve the quality of life globally. The US medical device industry employs over 409,000 Americans in more than 12,000 plants across the country though it is made up of small businesses with more than 80 percent of companies having fewer than 50 employees. As the global leader in this field this it is also the one industry in which the United States exports more than it imports. What the US populous and the rest of the world for that matter does not get to see is the dedication, sacrifices, and financial losses that these entrepreneurs of these small businesses put forth every day to lead the companies that our country is highly dependent upon. Many of these companies incur losses for several years before they get their life-saving product to market. From California to Maine, the medical technology job-producing states where medical device companies boost the economy are preparing for a storm. Florida, may not be on cnbcs Americas Top States for Doing Business 2012 but it is high on the list of medical technology job-producing states where medical device innovators are responsible for nearly 80,000 jobs. Florida's med-tech job multiplier factor guarantees that for every job in Florida's medical technology sector, 2.8 other jobs are created as a result. These jobs are responsible for more than $1.1 billion in payroll and $6.4 billion in sales for Florida. (Medical Device Excise Tax Will Cost Florida, http://www2.tbo.com/news/opinion/2012/oct/17/naopino2-medical-device-excise-tax-will-cost-flori-ar535061/ ). Like Florida, the swing states such as New Hampshire, Ohio, and Wisconsin will feel the squeezing effects of Obamacare. Other states like South Carolina and Indiana have already watch medical device companies cut jobs due to the upcoming medical device excise tax. As the 2012 Presidential Election draws near and the Obamacare 2.3 percent Medical Device Excise Tax looms over the industry like a hurricane gathering its strength over warm waters before January 2013 and both large and small businesses are hunkering down for the storm. Medical device companies are starting to make job cuts in anticipation of paying higher taxes, holding off on creating new jobs, suppressing expansion projects, minimizing research and development budgets, and even strategizing international partnerships to offset the excise tax. Keep in mind that this excise tax is 2.3 percent on revenue not profits. According to Brendan Benner, the vice-president of public affairs for the Medical Device Manufacturers Association, the IRS has not put out its final regulation, but a 2.3 percent excise tax on $1 million in revenue, you would be paying a $23,000 bill just for the excise tax. The company in this example would pay that $23,000 on top of any other corporate income tax it would owe on any profits, he explained. (Hatch Fights to Repeal Medical Device Tax, http://www.humanevents.com/2012/09/24/sen-hatch-fights-to-repeal-medical-device-tax-ascompanies-move-overseas/ )

Two Industries Focused on Your Health Yet Taxed So Different Tax on Medical Device Manufacturers ($20 billion/Jan 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax on revenue. Exempts items retailing for <$100. Bill: PPACA; Page; 1,980-1,986.

Tax on Health Insurers ($60.1 billion/Jan 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. Phases in gradually until 2018. Fully-imposed on firms with $50 million in profits. B Bill: PPACA; Page: 1,986-1,993. I Ask You I understand the need to reduce cost but why penalize an industry driven to developing life-improving and life-saving products for people in the US and around the world in such a different measure than the health insurance industry? Why wait to impose the annual tax on the health insurance industry? Moreover, why not allow more interstate competition among insurance companies to ease the tax burdens? The Tax on Medical Device Manufacturers is not going to create jobs, or precipitate billions of dollars to reduce the $16.1 trillion in US national debt when it is actually going to suffocate the industry. Did you know there are 314.6 million US citizens and 7.8% of them are officially out of work? There are more than 47,074,868 food stamp recipients in the US. I find these statistics sobering; moreover, a real call to action. Collectively, we MUST not let the excise tax reduce the medical device industry to such extremes that the U.S. is no longer the global leader in innovation and job creation.