A tax that could hurt us all
The U.S. Senate is considering a $4 billion per year tax on manufacturers of medical devices and diagnostic products that would have serious implications for the future of medical innovation in America and for the Lehigh Valley economy.
While the health care debate has focused on important issues such as public plan vs. private plan and individual mandates, the tax on medical devices should be of equal concern. It will raise the cost of health care for patients at a time when everyone is looking to reduce health expenditures. It will decrease the funds available for investment in new cures and treatments, and mean job losses in one of America's most vibrant, successful and innovative industries.
To put the $4 billion annual tax into perspective, it exceeds the $3.7 billion in total venture capitol funding that the industry received in 2007. It represents nearly half of the $9.6 billion medical device companies invested in R&D that same year, and it is four times what the industry raised in 2007 for initial public offerings (IPOs). Make no mistake about it: this is a significant amount of money for the industry, and its impact on medical progress, patients and our local economy would be substantial.
For Pennsylvania, the device tax could result in job loss in one of the state's most innovative, job creating industries. Pennsylvania has more than 17,000 medical devices and diagnostics jobs, and they pay well. The average medical technology industry salary in Pennsylvania is $44,800, compared with a $33,500 statewide average for other industries. That means extra money pumped into our state and regional economies.
Even more importantly, because medical technology companies depend on local industries to supply products and services, every one job in the industry adds an additional 3.74 jobs to the economy. To put that in local terms, the 1,917 B. Braun jobs in the Lehigh Valley help create more than 7,000 additional jobs in our region.
What makes this tax particularly onerous is that it's layered on top of billions of dollars in direct and indirect cuts on the industry that were already in the Senate Finance Committee markup of the bill. The indirect cuts are due in large part to public policy decisions that affect health care providers such as hospitals and home healthcare agencies. For example, when Medicare reimbursements to hospitals are cut, they have no choice but to reduce discretionary spending on medical devices and other items. With hospitals facing $155 billion in reductions over the next ten years, medical device companies, which account for roughly 12 percent of total hospital spending, face tens of billions in reduced revenues.
Fairness aside, however, policymakers must also consider if it makes sense to harm an industry that is a uniquely American success story and delivers medical miracles to patients everyday. This industry continues to create high-wage jobs in a troubled economy and remains one of the few U.S. industries that is still a net exporter. The $4 billion excise tax works out to a surcharge of equal to $11,000 per year for every American worker employed by our industry. It makes no sense at all to enact a new, job-killing tax that will significantly disadvantage American companies compared to their foreign competitors and at a time when our economy is still recovering from one of the deepest recessions since the Great Depression.
Medical technology is transforming the delivery of health care as we know it. The devices we make and continue to refine through our research investments detect disease earlier, support better management of chronic conditions and deliver greater efficiencies to the health care system, the kind that can reduce costs. These innovative products, many of which are made right here in the Lehigh Valley, stop diseases from progressing, avert patient suffering, save lives and reduce treatment costs.
A $4 billion per year tax on medical device and diagnostics manufacturers is bad public policy. It's bad for patients. It's bad for efforts to reform health care and reduce costs. It's bad for the Lehigh Valley and Pennsylvania.
Caroll H. Neubauer is Chairman and Chief Executive Officer of B. Braun Medical, Inc., which is headquartered in Bethlehem and operates a major production facility in Hanover Township. He is also a member of the board of the Advanced Medical Technology Association (AdvaMed).