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New England Journal of Medicine op-ed: Don’t repeal the medical device tax

The following important and revealing article is provided as written from the Mass Device website (http://www.massdevice.com/), which provides its subscribers with “News and information for the medical device industry and the companies that drive it.”

April 25, 2013

A pair of Harvard Medical School physicians weighs in on the medical device tax in the New England Journal of Medicine, casting doubt on opponents’ arguments and saying it shouldn’t be repealed.

A pair of Harvard Medical School physicians say the medical device tax should not be repealed, writing in the New England Journal of Medicine yesterday that it’s an important bulwark of the healthcare reform law.

In an op-ed piece for the medical journal, the doctors say the arguments for repealing the tax that it will drive medtech investment offshore, cost American jobs and stifle innovation are largely without merit. And even if some of those arguments prove valid, Kramer and Kesselheim argue, the benefits of healthcare reform far outweigh any damage from the tax.

“Losing the revenue that would have been provided by the medical device excise tax would not by itself cause the [Affordable Care Act] to crumble, but it would send a powerful signal to other groups and their lobbyists about the law’s vulnerability to piecemeal erosion. Resolving the conflict over the device tax, then, may either strengthen the ACA and its laudable push toward universal health care or weaken both before progress really begins,” write Drs. Daniel Kramer and Aaron Kesselheim, whose disclosure forms reveal grants from the FDA’s Center for Devices & Radiological Health, The Robert Wood Johnson Foundation, the the Agency for Healthcare Research and Quality, the Pew Charitable Trusts and the Harvard Catalyst Clinical & Translational Science Center.

Kramer and Kesselheim argue that the $2 billion to $3 billion in annual revenue from the 2.3% levy on U.S. sales of medical devices is an important part of the funding for the healthcare reform law, estimated at $100 billion annually also the annual sales estimate for the device industry cited by the authors. Dire predictions from the industry about the effects of the tax, especially claims by national lobby AdvaMed, about its impact on medtech employment, small- to mid-size companies and innovation, are unproven, they write.

“Although some of these claims may prove valid, predictions regarding the tax’s harmful effects on the device industry rest on several unproven assumptions. Decisions regarding layoffs are difficult to trace to single policy changes. With regard to off-shoring, it is unclear how the tax would provide an incentive to move production abroad, since it applies to domestic sales irrespective of the site of manufacture. And since international sales remain unaffected by the tax, the competitiveness of U.S. companies abroad should not be impeded,” Kramer and Kesselheim write. “In addition, individual companies’ profits may be preserved by shifting costs to consumers, a tactic that will be aided by the expansion of insurance to millions of new patients.

“The argument that the excise tax would harm innovation is perhaps the most difficult to prove or debunk, because the relationship between profits and innovation is not straightforward. Certainly, a company’s revenue funds its research and development, but there is no evidence that a tax would affect these investments,” they write.