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Caroll H. Neubauer

Caroll H. Neubauer

Posted: October 22, 2009 01:13 PM

A Tax That Could Hurt All of Us

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The U.S. Senate is considering a $4 billion per year tax on manufacturers of medical devices and diagnostic products that would have serious implications for the future of medical innovation in America and for the national economy.

While the health care debate has focused on important issues such as public plan versus private plan and individual mandates, the tax on medical devices should be of equal concern. It will raise the cost of health care for patients at a time when everyone is looking to reduce health expenditures. It will decrease the funds available for investment in new cures and treatments, and mean job losses in one of America's most vibrant, successful and innovative industries.

To put the $4 billion annual tax into perspective, it exceeds the $3.7 billion in total venture capitol funding that the industry received in 2007. It represents nearly half of the $9.6 billion medical device companies invested in R&D that same year, and it is four times what the industry raised in 2007 for initial public offerings (IPOs). Make no mistake about it: this is a significant amount of money for the industry, and its impact on medical progress, patients and our local economy would be substantial.

The device tax could translate into job losses in one of the country's most innovative, job creating industries. The medical technology industry employed 357,700 workers in 2006 and paid more than $21 billion in wages and offered employees a national average salary of $45,600 compared with a $35,100 average for other industries.

Even more importantly, because medical technology companies depend on other industries to supply products and services, every one job in the industry adds as many as 4.5 additional jobs to the economy nationally. For example, based on state statistics, B. Braun's more than 3,000 medical technology jobs add about 13,000 jobs to the economies of the Lehigh Valley of Pennsylvania, Irvine, Calif. and Carrollton, Texas where our principal manufacturing facilities are located. This is a significant and vital contribution to the economic health of these communities.

What makes this tax particularly onerous is that it's layered on top of billions of dollars in direct and indirect cuts on the industry that were already in the Senate Finance Committee markup of the bill. The indirect cuts are due in large part to public policy decisions that affect health care providers such as hospitals and home healthcare agencies. For example, when Medicare reimbursements to hospitals are cut, they have no choice but to reduce discretionary spending on medical devices and other items. With hospitals facing $155 billion in reductions over the next ten years, medical device companies, which account for roughly 12 percent of total hospital spending, face tens of billions in reduced revenues.

Fairness aside, however, policymakers must also consider if it makes sense to harm an industry that is a uniquely American success story and delivers medical miracles to patients everyday. This industry continues to create high-wage jobs in a troubled economy and remains one of the few U.S. industries that is still a net exporter. The $4 billion excise tax works out to a surcharge of equal to $11,000 per year for every American worker employed by our industry. It makes no sense at all to enact a new, job-killing tax that will significantly disadvantage American companies compared to their foreign competitors and at a time when our economy is still recovering from one of the deepest recessions since the Great Depression.

Medical technology is transforming the delivery of health care as we know it. The devices we make and continue to refine through our research investments detect disease earlier, support better management of chronic conditions, and deliver greater efficiencies to the health care system, the kind that can reduce costs. These innovative products stop diseases from progressing, avert patient suffering, save lives, and reduce treatment costs.

A $4 billion per year tax on medical device and diagnostics manufacturers is bad public policy. It's bad for patients. It's bad for efforts to reform health care and reduce costs. It's bad for our country.