ObamaCare’s Tax on Innovation

Across the country, medical technology innovators large and small are turning to cost-cutting measures to confront stiff market headwinds, including the need to offset a new 2.3 percent tax on revenue in the new Affordable Healthcare Act. So far this year, manufacturers have paid an estimated $450 million to the Internal Revenue Service, redirecting funds that could otherwise support investment in job creation and research and development. In California, where the majority of the nation’s medical device companies reside, the industry has been disproportionately hit by this $30 billion annual tax on medical devices. There are an estimated 71,947 California medical device jobs – more than Massachusetts, Minnesota and New Jersey combined – that contribute to a biomedical ecosystem that altogether pays more than $15.5 billion in annual wages and accounts for $10 billion in exports to markets around the world. These highly skilled, high-paying positions have both a direct and indirect economic benefit to their local communities and California’s economy. We should be doing everything we can to support, rather than hurt, these companies’ chances for success. St. Jude Medical, which operates a facility in Sylmar, has cutting-edge research and development dedicated to developing the next generation of products for treating cardiac and neurological disorders. Recently the company developed and marketed a new pacemaker system designed to help resynchronize the heartbeat in patients with heart failure. Several studies have shown that the device is associated with greater implant success and better outcomes. But the tax is already having an adverse impact on R&D investment and job creation at St. Jude Medical here in the San Fernando Valley, as well as at other companies such as Boston Scientific, Medtronic, and Edwards Lifesciences across the Golden State, jeopardizing the U.S. global leadership position in medical device innovation. Since producers have to pay the tax whether or not they make a profit, the tax adversely affects innovation, employment and competition in the same way that the windfall profits tax of the 1980s depressed domestic oil production. Consider this: medical technologies have brought us everything from the stethoscope to pacemakers and contact lenses. Today, advances in advances in robotic surgery, diagnostic imaging and 3-D bio-printing technology are changing healthcare paradigms, leading to quicker recoveries, shorter hospital stays and new abilities to tackle previously untreatable conditions and diseases.  Not only do we rely on medical technology for healthcare improvements, but advancements are also producing cost savings. A recent report by the Institute for Health Technology Studies found that minimally invasive coronary revascularization saves $30,800 per patient and results in 37 fewer lost days of work compared with conventional open-heart surgery. The reasons behind supporting a repeal of the device tax are clear: the tax slows the industry’s growth at a time when medicine is on the verge of historic breakthroughs that offer hope, and potentially cures, for patients. Just last month, we were encouraged by overwhelming bipartisan support for the adoption of an amendment to the Fiscal Year 2014 Senate Budget Resolution that expresses support for repeal of the medical device tax. And legislation by Rep. Erik Paulsen, R-Minn., has more than 235 co-sponsors, a majority of the House of Representatives. At a time when consensus in Washington is difficult to come by, it is obvious that lawmakers – Democrat and Republican alike – increasingly see this tax as an unnecessary burden to an industry that will provide Americans with life-altering innovations that improve, extend, and in some cases, save lives. If California is to lead the way as the global leader in medical technology innovation, device innovators must have the kind of support needed to grow and thrive, not be stifled by another tax. David L. Gollaher is president and chief executive of the California Healthcare Institute, a trade organization that promotes biomedical, pharmaceutical and medical device innovation in California. Dr. Mark Carlson is chief medical officer and senior vice president of research and clinical affairs in the St. Jude Medical Implantable Electronic Systems Division.