download pdfJobs, R&D Cuts are Likely Steps to Deal with Device Tax Survey of MedTech Execs Shows Anticipated Impact of Impending Medical Excise Tax
Posted on March 14, 2012 in MassMEDIC Press Releases
Jobs, R&D Cuts are Likely Steps to Deal with Device Tax
Survey of MedTech Execs Shows Anticipated Impact of Impending Medical Excise Tax
BOSTON, MASS. – March 14, 2012 – Job cuts and slashing of R&D budgets are two of the likely
options the state’s medical device companies will take to address the impending tax on their products,
according to a new survey of senior executives of the firms.
The Massachusetts Medical Device Industry Council (MassMEDIC) conducted a survey last month
among medical technology manufacturing companies in the region to gauge their plans and readiness
for the coming Medical Device Excise Tax (MDET) and its impact on company operations.
The MDET, which goes into effect January 1, 2013 and raises $20B over a 10-year period, was
established to help finance the Affordable Care Act that was signed into law in March of 2010. The
amount is based on a 2.3 percent excise tax that will be levied on the sale of most medical devices,
regardless of whether a company generates a profit.
“We warned two years ago that medical device companies would be forced to deal with this tax by
preparing for job cuts and reductions in R&D spending,” said Tom Sommer, President of
MassMEDIC. “The U.S. leads the world in developing and manufacturing medical products, it doesn’t
make sense that on one hand the government is promoting exports and manufacturing jobs, while on
the other hand it is implementing policies that will cut jobs in this sector and harm its competitive
advantage – the development of innovative medical technologies.”
Forty-two senior executives of medical device manufacturers were surveyed by MassMEDIC. Key
findings of the survey include:
• As of February 2012, 10 months before the tax goes into effect, only 25 percent of responding
companies have put systems into place to comply with the MDET.
• 44 percent of respondents stated that their companies would pass the cost of the new tax on to
end users such as hospitals, clinics, purchasing organizations and doctors. This would result in
higher costs for medical devices sold in this country.
• 39 percent of respondents stated that their companies would assume the cost of the MDET,
implementing internal cost reductions to meet revenue losses, taking the following actions:
− 50 percent will cut R&D operations
− 25 percent will implement workforce reductions
− 25 percentwill outsource manufacturing to lower cost areas
The survey also found that 49 percent of respondents said that the MDET would have a ‘significant
impact’ on their company’s operations, while 75 percent said it would ‘have an impact’.
Proponents of the health care reform law argued that medical device companies will experience a jump
in revenue as a result of millions of newly insured citizens. Industry representatives at the time said
that the overwhelming number of devices used by patients is already covered by private insurance
plans or through Medicare.
In Massachusetts, the state’s universal health care law has been in effect for six years. With nearly 100
percent of the population now covered by health insurance plans, the KPMG survey participants were
asked if their companies had experienced an increase in unit sales in Massachusetts since 2006. None
of the respondents reported an increase in unit sales in that time period.
The US Department of Treasury will be responsible for collecting and administering the MDET. The
department issued proposed regulations on the collection of the tax earlier this year. No timetable has
been set for the release of final regulations.
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About MassMEDIC:
The Massachusetts Medical Device Industry Council, an organization of nearly 400 manufacturers,
suppliers, research institutions, and academic health centers, promotes the unique interests of the Bay
State’s growing and vibrant medical device sector. Through a variety of programs, informational
seminars, advocacy campaigns and other projects, MassMEDIC provides medical device
manufacturers and suppliers with information on industry trends and regulatory policies, and creates
forums that allow members to exchange ideas and information on issues affecting the industry. For
more information on MassMEDIC, please contact us at (617) 414-1340, or visit our web site at
www.massmedic.com.