The Medical Device Tax: Beating Up on the Little Guys

We need a better understanding of exactly why the medical device tax contained in the Affordable Care Act is so harmful to both the U.S. economy and the future of medical innovation.  Advocates of the tax say it’s no big deal for multinational, multibillion dollar corporations to pay a few extra bucks toward health reform implementation (even though those companies are being forced to lay off employees, because of the tax, at a time our economy can least afford it).

But it’s also the smaller companies, those that scrap for capital to fund exciting new innovations, that are taking a beating from this tax.  The fact that this tax is applied to revenues, not to profits, is particularly devastating for smaller innovators that are still trying to get to the point of being highly profitable.

Take Spectranetics, a Colorado Springs-based medical laser manufacturer, as a prime example.

At a panel discussion hosted by the Colorado BioScience Association, the CEO of Spectranetics pointed out that his company generally earns about $1.5 to $3 million on approximately $135 million in annual revenues.  If the device tax was applied this year on Spectranetics’ income, the company would have to pay the government slightly over $3 million, essentially wiping out the resources that could be invested into product development, clinical research or additional hiring.

And, as the company pointed out, it can’t compensate for the tax by raising prices doctors and hospitals pay for the medical lasers because healthcare providers are also being squeezed with comparatively low Medicare and Medicaid reimbursement rates.

At a time in which our economy needs an infusion of well-paid jobs and our growing healthcare needs require new medical innovation, the Spectranetics case is just one of many examples demonstrating why Congress needs to reconsider the medical device tax.