Countdown to New Medical Device Tax

January first marks a new chapter for medical device manufacturers, who will be required to pay an excise tax of 2.3 percent on total revenues.

Medical devices range from small stents and CT scans to pacemakers, defibrillators, metal hips and synthetic surgical mesh. The $125-billion-a-year industry complains it will be hurt and will have to launch new products oversees or face losing profits in the U.S.

Trade group AdvaMed predicts layoffs and a reduction in research and development funding. The group hopes the tax will be delayed as part of fiscal cliff bargaining by Congress, reports Marketplace.

The impact will be felt most by startups that don’t yet have revenue to offset the additional costs. The Medical Device Manufacturers Association believes the 2.3 percent tax could take up more than half of profits.

The tax should raise $29 billion over the next ten years partially to fund the Affordable Care Act. President Obama has said the tax will not be delayed.

Companies will deposit tax funds semimonthly to the IRS, reports Mass Device.

Earlier this month, 18 Senate Democrats sent a letter to Senate Majority Leader Harry Reid asking the tax be delayed claiming it would hurt the industry which employs over 400,000 people in the U.S. The Wall Street Journal printed the letter dated December 4th which was signed by Sens. John Kerry, Barbara Mikulski, Al Franken Herb Kohl, Charles Schumer and Elizabeth Warren among others.

The senators are from state where the medical device industry has a large presence.

The medical device tax has made for strange bedfellows. The Democratic senators are joined in the anti-tax chorus by the conservative group, FreedomWorks, a creation of the Koch brothers (Koch Industries) and former Texas U.S. Representative Dick Armey. FreedomWorks believes the tax will hurt the “economic, creative and productive powers of the people directly taxed.”

The group was one of the first backers of the Tea Party.

The U.S. is home to about 40 percent of the world’s medical device and instrument market, reports the Times Argus.

It’s tough to feel sorry for the industry since it already receives plenty of considerations by the FDA. Under the 510(k) program, about 90 percent of medical devices able to bypass the expensive premarket review process that drugs must undergo to assure safety and efficacy. With a few thousand dollars and about six weeks, medical device makers are allowed to notify the FDA they want to market their product. As far as safety and efficacy, the FDA hopes the honorable manufacturer has that under control. As we have seen in countless examples that flawed approval system has allowed thousands of defective medical devices onto the market to injure countless Americans.

The medical device industry has a very loud voice and Congress is listening especially when there are potentially billions in profits to be had in American cities hoping to become industry hubs. If only patients and their demands for safety and efficacy had as loud of a loud voice.