Is surgery an option for the medical device tax?

7:53 am by | 2 Comments

Veronica CombsMany companies were hoping the medical device tax would perish on the rocks at the bottom of many fiscal cliffs that Washington has been navigating lately.

No such luck, yet; it seems to have the tenacity of an MRSA infection.

If it’s not going to just go away, can some combination of lobbyists and legislators alter the tax to make it more equitable?
Here are 3 nips and tucks that could preserve some of the revenue:

  1. Make the tax on profits, not revenue. this part of the tax seems needlessly punitive. I think the device industry has a lot of painful adjustments ahead — just to join the rest of the American businesses in the 21st century. “Right-sizing” is a reality for everyone, and innovate or die has never been more true. However, we need these jobs and taxing a business on revenue seems designed to kill them.
  2. Create a sliding scale. Several aspects of the Affordable Care Act take business size into account. Small businesses don’t have to follow the same rules as big ones when it comes to offering health insurance. Why not take the same approach with the device tax to protect device makers who are also small businesses?
  3. Consider what a device does before taxing it. Should companies that make scalpels or hospital beds be taxed the same as companies that make devices that are implanted in the human body? Are both of these product categories contributing equally to the high cost of healthcare? I’m sure that the makers of durable goods used in a hospital are always innovating and improving their products, but are prices going up at the same rate?

Are there other ways to keep some of the expected $29 billion over the next 10 years, but make the tax a little more fair?

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Veronica Combs

By Veronica Combs

I was the editor in chief at I started writing and editing in the print world and joined a dotcom right before the 2000 crash. I was at TechRepublic/CNET/BNET for 7 years. Health was more interesting to me than the latest version of Windows, so I left for a startup tracking prescription drug news. A year later, MedTrackAlert was acquired by HealthCentral, so I shifted to audience research. The fun of daily news and interviewing smart people brought me to MedCity News in February 2012.
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Minnesota Central
Minnesota Central

This is an excise tax ... excise taxes are collected on a variety of products ... firearms and ammo are taxed at 11% and that does not seem to stop consumers from buying those products.   Excise taxes are collected on tires ... why shouldn't an excise tax be applied for a knee replacement ?

Thus in regards to Suggestion #1, this makes the tax equitable for all ... if you can reduce the sales of your product versus your competitor, you pay less tax ... conversely, if you decide to reward the CEO with a big bonus, the excise tax cannot be avoided.

Regarding Suggestion #2, it has some merit .... IF small business is the problem, provide a refund for any business that does not exceed $500,000 in sales but currently the big producers will get the benefit.

Regarding Suggestion #3, some taxable medical devices, such as a scalpel, along with devices that are otherwise exempted from the tax, such as gauze or bandages. The more product definitions that the IRS is forced to rule on, makes more confusion. 

BTW, I am an investor in medical device companies, and am still bullish.

Veronica Combs
Veronica Combs moderator

@Minnesota Central Thanks for the reply and the context. 

Re suggestion #2: Is this not an issue because there are there not enough med device companies that fit the small business designation?

I will be in Minneapolis this week for a med-tech investing conference on Wednesday. Are you attending, by chance? It would be great to hear more about why you are bullish.