2.3% tax: what impact on medical device innovation?

Today, we add our voice to others commenting on a feature of the new Affordable Care Act: a 2.3% tax on revenues from the domestic sales of medical devices. This tax is set to go into effect in 2013 to partially pay for the cost of healthcare reform.

I find it ironic that the name given to the healthcare reform act – affordable care – may end up having an opposite effect. My fear is that if this happens, it will result in one of two consequences:

• Medical device companies will be forced to make a trade-off decision between reducing costs which may lead to more lay-offs or prioritizing international markets over domestic ones; or
• Medical device companies will be forced to build this cost into the price of the products and pass the cost to the patients, which will drive up the cost of care for everyone.

Additionally, one of the inevitable negative effects of raising taxes is on innovation and competitiveness. This tax could move the break-even point further away, forcing companies to sell more product or increase the price in order to establish or maintain the same profitability. This means new investments in R&D will look less attractive and US companies will find it harder to survive against their foreign competitors.

You can read reactions from corporate leaders in the Catheter Valley near Boston, from companies like C.R. Bard, Navilyst, Covidien and AngioDynamics, by clicking here.