Well, to monkey with the adage a bit, critics argue a proposed tax could be the death of innovation in the medical device sector if left unchecked.

As part of healthcare reform legislation that the Senate Finance Committee voted on Oct. 13 to send to the floor for a vote, Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, included a provision that $40 billion in fees ($4 billion a year over 10 years) be levied against the medical device manufacturing industry. The tax would apply to any manufacturer of medical devices sold in the United States, including foreign device firms and importers. The proposal does not set aspecific rate for companies, but fees would be imposed based on individual manufacturers’ U.S. sales during the prior year. The legislation exempts companies with less than $5 million a year inrevenue. Firms making between $5 million and $25 million annually in sales would get a 50 percent reduction in the tax assessed to larger firms making $25 million a year or more.

To add insult to injury, on Nov. 7 the U.S. House of Representatives passed its healthcare reform proposal—originally drafted without any fees for device companies—with a $20 billion (over 10 years) proposal similar to the Senate Finance Committee version. Though half of the Senate’s proposed total, the industry is equally, adamantly and understandably opposed. There are differences between the structure of the two plans. The House’s tax would not be effective until 2013. The Senate tax would begin in 2010. Second, the House tax is an excise tax, paid at point of sale. It is rumored that the Senate could lower its $40 billion mark closer to the House’s total.

In a statement to House leaders, Stephen Ubl, president and CEO of AdvaMed, said his group “appreciates” the decision to limit the amount of the tax, but said it is “still burdensome.” Hesuggested that the tax be differentiated by FDA product class to recognize the diversity of medical device products and the thousands of companies that develop and manufacture them. AdvaMed officials also suggested that small manufacturers with less than $100 million in annual gross revenue should be exempted from the tax, perhaps through a rebate mechanism. He added that protections should be put in place to make adjustments if the 2.5 percent tax rate generates more revenue than lawmakers anticipated.

To put these numbers in perspective, the medical technology sector spent roughly $9.6 billion in total research and development investment in 2007.

There’s still wiggle room for the device industry, however. If the full Senate passes a separate bill, it will have to be merged with the House plan, giving the device industry and other stakeholders weeks or even months to chip away at policies they don’t like, though the White House is pushing forpassage this year.

There’s no question that healthcare reform is critical—perhaps imperative is a better word. The current system is inefficient, and more Americans need access. But the situation will not improve if sanctions are imposed against those who hold the keys to solutions that help provide the mostefficient and effective care. This tax will stifle R&D, curtail innovation (which has made the U.S. device industry the world’s leader) and result in swift job losses. Who does that help? Today’s standards of care were yesterday’s breakthroughs. What happens in an environment where those ideas aren’t given a chance to demonstrate their value or even to reach the market?

Thomas Novelli, director of federal affairs for the Medical Device Manufacturers Association, told Orthopedic Design & Technology that his group “remains adamantly opposed to the proposed fee” and that they will continue to fight for its removal. I hope his efforts—along with those of countless others—are successful in combating this ill-conceived idea.

Christopher Delporte
Group Editor