Though its supporters in Congress are few and far between, the tariff imposed on medical manufacturers as part of Obama’s 2010 healthcare initiative doesn’t seem to be going anywhere any time soon.
Medical Device Manufacturing Service Companies cope with Increased Taxes
No appeal is in sight for the tax, despite calls for repeal by Congress members on both sides. This is partly because the tax is set to help fund Obamacare by $30 billion, and if stricken, has no source of replacement funding to help curb the enormous cost of the program.
The tax looks to disrupt an otherwise robust medical device industry that has been on a consistent upturn for decades. Major players in the sector such as Medtronic, Stryker Corp. and St. Jude Medical have even seen net margins doubling across some years. Medtronic, for instance, saw a profit margin breach 20 percent, a figure so lofty that it’s comparable to the renowned earnings of top pharmaceutical firms.
The tariff is an excise tax, meaning it considers companies’ profits, not just sales. Ergo, it causes a much larger problem for small companies with thinner margins. In some cases, it’s possible to be taxed even in situations where the affected company loses money.
“We’re actually borrowing money to pay the excise tax,” said Tom Allen, who serves as chief executive of the company Iconacy Orthopedic Patients, an orthopedic device startup with only 13 employees.
Allen’s company is based in Warsaw, Indiana, a small town just outside of Fort Wayne. Warsaw has become a hub for dozens of medical device makers, as well as a handful of more expansive med tech companies such as the privately held Biomet Inc.
Economists share the concerns of Allen and other med tech startups, largely agreeing that the tax will suppress innovation among those who would otherwise enter and prosper in the med tech arena. Critics also point to the fact that med tech was unfairly singled out among many medical-centric industries in what’s being called a sloppy, inelegant method of forcing companies in the sector to contribute to Obamacare.
The battle isn’t over yet, however. Congress still has time to stop the bill in its tracks, but it will take stalwart effort from legislators on both sides. Despite being weaved into the bill itself, it looks like the tariff won’t become crystallized without a fight.