Obamacare and the medical device tax

Finance: Medical Device Tax Could Cost Thousands of Jobs

March 6, 2014
Medical device makers say ObamaCare excise tax on devices is crippling R&D and workforce investments. Industry group claims tax has had a negative impact on employment affecting 33,000 workers. One unintended consequence of the tax has been the offshoring of some manufacturing jobs to other countries.

Even before the Affordable Care Act (ACA), aka ObamaCare, went into effect, one of the most controversial provisions was the medical device excise tax, which levied a 2.3% sales tax on every medical device sold. Given the labyrinthine nature of the ObamaCare rules, medical device manufacturers have found it difficult to simply pass on these additional costs to the consumer since hospitals by and large are sheltered from the tax by the group purchasing organizations that actually procure the devices. Patients are shielded from incurring these additional costs by the very nature of the ACA legislation.

Since manufacturers are often assumed by the public to be more than capable of weathering additional regulations and taxes, medical device manufacturers are attempting to shift the conversation away from costs to jobs. According to a recent study of its members undertaken by the Advanced Medical Technology Association (AdvaMed), in its first year the tax has already led to the reduction of 14,000 jobs. What's more, the tax has also caused companies to forego the hiring of 19,000 new employees, leading to a total job impact on employment of 33,000 workers. AdvaMed member companies produce medical devices, diagnostic products and health information, and are responsible for producing 90% of the health care technology in the U.S.

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"During a time when there is bipartisan support for growing high-technology manufacturing jobs, these results should serve as a wake-up call," says Stephen Ubl, president and CEO of AdvaMed. "As a result of the medical device tax, we have seen an unprecedented impact on jobs and key investments in R&D."

If you accept the premise of AdvaMed's conclusions (survey responses were generalized based on the ratio of revenues of responding companies to revenues of the overall industry), then another startling conclusion from the study suggests that there are four indirect jobs for each direct job in the medical device industry. All told, this tax could lead to a total job loss of as many as 165,000 jobs.

Whether those numbers and conclusions are inflated or not, 30.6% of respondents say their companies have reduced research and development investment as a result of the tax. And nearly 10% say the tax has caused them to offshore manufacturing jobs to other countries.

Seventy-five percent of respondents indicated they have taken one or more of the following actions as a result of the excise tax: deferred or canceled capital investments; deferred or canceled plans to open new facilities; reduced investment in start-up companies; found it more difficult to raise capital (among start-up companies); and reduced or deferred increases in employee compensation.

The 2014 Performance Management Buyer's Guide is available online at www.industryweek.com/bpmbuyersguide.

Meanwhile, in a separate study of U.S. CFOs conducted by Deloitte, respondents say that ObamaCare has had little impact on the scope and quality of the health care benefits they provide employees, but has had a significant impact on costs. Thirteen percent of companies have reduced their earnings forecasts because of the act, and 8% have reduced hiring because of it.

About the Author

Dave Blanchard | Senior Director of Content

Focus: Supply Chain

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During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeekEHS Today, Material Handling & LogisticsLogistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2010), which has been translated into several languages and is currently in its second edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

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