Devices & Diagnostics

Bye bye device tax may not mean jobs galore

If one were to believe the device lobby, jobs would come roaring back once the device tax is permanently repealed. The reality is more complex.

By Arundhati Parmar on March 07, 2017

medical device tax

On Monday, the House Ways & Means Committee controlled by the Republican party put out its version of an Obamacare “repeal and replace” bill whose details will be hotly contested and resisted by the party in opposition.

However, one provision of the bill already has bipartisan support — killing the 2.3 percent excise tax on the sale of medical devices that the industry has long fought. That bipartisan support from the likes of Elizabeth Warren (D-Massachusetts) and Al Franken (D-Minnesota), two progressive Democrats, was partly why the device tax collection was temporarily paused.

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On Tuesday, AdvaMed, the industry lobby, cheered the proposal to permanently repeal the 2.3 percent device tax issuing this statement from CEO Scott Whitaker:

“AdvaMed commends the House Ways and Means Committee for moving forward with legislation that will permanently repeal the medical device excise tax. Bipartisan majorities in both the House and Senate are on record in support of repeal of this onerous tax, which has been associated with a significant loss of American jobs. Recent data from the U.S. Commerce Department showed that the medical technology industry experienced a decline of nearly 29,000 U.S. jobs while the tax was in effect. Conversely, an analysis by the American Action Forum demonstrated that permanent repeal of the tax could result in excess of 53,000 additional industry jobs, compared to what would occur if the tax remains in effect. Repealing the tax will provide medical technology innovators with the long-term certainty necessary to support future job growth and sustainable, cutting-edge R&D that will ultimately lead to the next generation of breakthroughs in patient care and treatment. We urge the House and Senate to act expeditiously to pass this important legislation.”

MedCity reported on the data from the Department of Commerce  that AdvaMed chose to focus on — the period covered in the data was between 2012 and 2015 when the tax was in effect — and concluded that it was missing a big part of the picture: the fact that the device industry is undergoing massive consolidation.

Consolidation causes jobs to be lost as well.

Meanwhile, another intriguing report has emerged that pushes back on some of the employment narrative emerging from the device lobby. It centers around Boston Scientific.

The report from Boston Business Journal shows that the job growth that Boston Scientific experienced during the device tax pause appears to have actually benefited foreign workers more.

Boston Scientific (NYSE: BSX) said in its recent annual filing that it ended 2016 with “approximately 27,000 employees,” and that 14,000 of those were outside the U.S. That’s up from the 25,000 global headcount it reported a year earlier, when it reported that 12,000 of its employees were out of the country — implying that its U.S. headcount remained constant in 2016.

When the publication approached the Marlborough, Massachusetts company for comment, this is how the company responded:

“Our overall number of employees has grown globally, including in the US,” the company said. “For reporting purposes, however, we generally round numbers since exact figures can vary from month to month and resources are at times redeployed to support high growth opportunities.”

The company did not provide an exact figure for 2016 U.S. headcount growth.

Note the aim to “support high-growth opportunities.” While the U.S. is the largest market for medical devices, it is a mature market, not high-growth.

Unlike Medtronic, whose CEO often described the unpopular device tax as the cost of doing business in the U.S. and wanting to focus on what he could control when asked about a repeal, Boston Scientific was a vocal opponent of the device tax.

Back in 2013, the company announced that it was laying off 900 to 1,000 workers and CEO Michael Mahoney said that the device tax had contributed in the decision to reduce the workforce.

One would think that the pause in the device tax would have brought measurable improvements in job numbers that could be seen beyond the routine rounding of numbers.

Back in 2013, PolitiFact reviewed the claim that the tax had cost thousands upon thousands of job losses and gave it a “half true” rating.

In other words, it’s time to temper the job growth expectations even with a permanent repeal.

Photo: freedigitalphotos user renjith krishnan