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Medical Device Industry Can Afford 2.3% Device Tax


The drumbeat was pretty loud as the government headed toward a shutdown – repeal the 2.3 percent tax on medical devices that was going to partially fund the Affordable Care Act. The medical device lobby called the tax an unfair burden that would hurt the industry and its ability to generate lots of jobs.

Since January, medical device makers have paid a 2.3% tax on sales of some medical devices such as hip replacements and pacemakers. The projected $30 billion over the next decade was earmarked to help pay for the health law and expand medical insurance coverage for all Americans. This was just one of several taxes expected to bring in more than $100 billion over 10 years.

The device industry went on a $30 million lobbying frenzy. Members of Congress, especially those from leading medical device industry states such as Minnesota, Massachusetts and New York, joined with AdvaMed, the industry lobby, to have the tax overturned.

The effort lost its thunder when the government shutdown was averted.

But consider just how many advantages the medical device industry already enjoys, one reason it can afford the tax. Truly dangerous devices, approved for market by the Food and Drug Administration (FDA) through its premarket approval process, are Class III medical devices. Defibrillators and heart pacemakers are considered Class III.

Charles Riegel was implanted with a Medtronic Evergreen Balloon catheter in 1996 but the balloon burst when it was being inserted into a blocked coronary artery. Emergency surgery saved his life for a short while. In 2004 Riegel died but his widow continued a lawsuit against Medtronic over its faulty and defective device.

The 2010 Supreme Court.

The 2010 Supreme Court.

The U.S. Supreme Court decided the Medtronic medical device enjoyed immunity from lawsuits. The federal Medical Device Amendments of 1976 superseded state law. The Medtronic device had received federal approval. There was nothing a state court could do to challenge the regulatory standard.The Riegel decision meant that about 1,000 lawsuits pending against another Medtronic product, a defective defibrillator, were also dismissed and it set a precedent for immunity for other FDA-approved medical devices.

Another advantage the medical device industry enjoys is that it is free of competition. Hospitals cannot shop prices for competing brands because they are required to sign confidentiality agreements with manufacturers, driving up costs for all Americans. Occasionally doctors will purchase the brand they prefer but then volume pricing is not available. All of this means higher prices in general for medical care and medical devices.

When the Government Accountability Office compared the cost of implantable medical devices it found prices could vary by thousands of dollars. The New York Times, in an editorial, reports that Americans spend about 50 percent more than other countries over the top five medical devices amounting to about $26 billion. Guess who pays? We all do, whether individually or through government programs such as Medicare or private health insurers. The excessive profits go directly to the medical device industry.

Instead of lobbying against the Affordable Care Act and a 2.3% tax, which the industry can well afford, why not focus on better quality, safer and more cost-effective medical devices to be more responsive to patient’s needs and not just its own.

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