Repeal the medical device tax?

medicaldeviceIf you’re like me and live in a red state or district you’ve probably been appealed to by conservative (and even some liberal) politicians on the effort to repeal the 2.3 percent medical device excise tax in the Affordable Care Act. The advocacy probably came packaged like the cookie-cutter rhetoric that my congressional representative released in February:

“At a time when unemployment is stagnating around 8 percent, we cannot afford to stifle innovation and growth in one of our nation’s most advancing sectors – the medical device industry.  This job killing tax has already caused companies here in Indiana, like Cook Medical Group, to put plans to expand their operation and create new jobs on hold.”

Yet there is a compelling case to keep the tax written by Michael Hiltzik in the Los Angeles Times (h/t Kevin Outterson), who argues among other things that there’s no impartial reason to believe anything about the above quote is true (emphasis mine):

The medical device industry talks as though it’s uniquely burdened by its share of these trade-offs. Its pitch is that the tax will destroy innovation in the industry, put small companies out of business, send thousands of jobs overseas and drive up costs for consumers. “This very targeted excise tax is going to lead to bad outcomes across the board,” says JC Scott, the government affairs executive at the Advanced Medical Technology Assn., or AdvaMed.

Yet AdvaMed’s claims have been subjected to outside analysis and found wanting. AdvaMed’s claim that the excise tax would drive employment abroad is based on an analysis it commissioned from Diana and Harold Furchtgott-Roth, two free-market economists who assert rather than document the employment effect, and none too vigorously, at that. “Some manufacturing … may shift offshore as a result of the new excise tax to minimize losses,” they write, wanly.

Yet the logic here is questionable, since the tax is imposed on sales of devices in the U.S. no matter where they’re produced, and devices produced in the U.S. are exempt if they’re sold abroad. The authors’ suggestion that companies might move jobs overseas to make foreign sales more profitable overlooks one over-arching fact about the medical device market: It’s hugely dominated by the United States.

[…] The industry can’t cite a single objective study that supports its contentions that the tax will suppress innovation in the field and make U.S. manufacturers globally uncompetitive.

Hiltzik adds that inandof itself this doesn’t invalidate their objections (I would disagree), but “that if you ever found a study from any of them endorsing a tax of almost any variety, you could be forgiven for fainting dead away.”

In other words, beware politicians using industry-financed tax studies written by sympathetic researchers who happen to oppose any form of taxation. In political eras gone by this story could have been viewed as a simple case of politicians kowtowing to special interests — in my Representative’s case the medical device industry is quite active in the state. Of course one person’s “catering to lobbyists” is another’s “protecting the interests of constituents.” In principle it’s possible for both to be true — generally I tend to think such charges are often so vacuous as to be useless — but in this situation the former strikes me as far more likely.

The broader assertion from Hiltzik is that the medical device industry is occupying a poor position of explaining why they should be exempt from the law while offering no alternatives to the deficit-reducing tax they want repealed. That’s a good angle so much as it goes, but the big picture context of this particular debate is that several tradeoffs were made so that healthcare reform wouldn’t add to the federal deficit. For instance, hospitals and some physicians will see reduced future increases in reimbursements that help offset the cost of providing subsidies in the state-based insurance exchanges and expanding Medicaid. The industry groups representing them were largely okay with this because the legislation is going to vastly increase their customer base; in effect the tradeoff from their standpoint works out to a net-plus. The medical device industry is to going to essentially see the same benefits and greatly profit from an ACA-induced growth in usage of their products, yet are pretending that a 2.3 percent tax is a proverbial Sword of Damocles on their business. Given the lack of any objective proof that this is the case I’d say the industry is crying wolf and the tax should stay.


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