Obamacare impacts medical technology R&D
According to an article published by the Washington Times, funding for the medical device industry during the third quarter of 2012 reached the lowest level since 2004. The plunge in medical tech investments can be partly pegged on a provision in the Obamacare bill, which places a stiff tax on medical device manufacturers, including manufacturers of advanced wound dressings, such as ConvaTec, Smith & Nephew and Molnlycke.
“The new tax of 2.3 percent is placed on the revenues of companies that produce medical devices such as heart valves, insulin pumps and hundreds of thousands of carefully engineered and regularly improved testing, diagnostic and treatment products that make modern medicine in the United States the envy of the world,” explained the editor of theWashington Times article.
The true blow to medical device manufacturers comes in the form of taxes on sales as opposed to taxes on profits. And it is especially crippling for innovators that are new to the medical tech playing field. Henry I. Miller, a Hoover Institution fellow, who was interviewed for the Washington Times article, said that the tax is “especially pernicious.”
His opinion can be attributed to the way in which manufacturers will be taxed while taking into consideration the way in which they pay for advancements in innovation. When smaller firms sell their first product, often times, research and development costs are paid for in the first rounds of profit.
The Washington Times gave the example of a firm who achieves $2 million in sales, but only $75,000 in actual profit after R&D costs are removed. The problem is that the Obamacare tax is placed on the $2 million, not the $75,000. Therefore, the heavy tax (in this case, 60 percent of the profits) is causing medical device manufacturers to cut costs wherever they can. For some, it’s a reduction of employees while for others, it means curtailing or canceling R&D projects altogether.
The big question then is: If the tax is so damaging, then why was it put in place? “Simply put, the tax is necessary to pay for the increased cost of the Obama-devised health care system,” the editor reported. “One cannot add millions of individuals to the medical rolls without finding some means of financing those increased costs. The medical devices tax is one of the ways of doing that.”
So although it’s magnanimous to attempt to cover more Americans with the new health care system, is it worth it when the price is paid with a decrease in R&D and the U.S. jobs to support it? On the flip side, however, one can’t help but hope that the potential revenue from those added millions will offset the tax.