Industry Group Links More Than 28,000 Job Losses to Device Tax

Regulatory NewsRegulatory News
| 08 February 2017 | By Zachary Brennan 

As part of its push to fully repeal the medical device tax from the Affordable Care Act, industry group AdvaMed took to the offensive on Wednesday, saying US medical technology jobs declined by more than 28,000 (7.2%) while the 2.3% tax was in effect.

Citing data from the Commerce Department, AdvaMed notes that from 2012 to 2015, the number of medical technology jobs in the US declined from 401,472 to 372,638, and though the group does not explicitly say the job losses were caused by the tax, Scott Whitaker, president and CEO of AdvaMed, said in a statement: “These numbers reveal just how devastating of an impact the device tax had on our industry and underscore the urgent need for permanent repeal.”

According to a Congressional Research Service report from January 2015, the brunt of the tax, which took effect in January 2013 and was suspended in 2016 for two years, likely fell on consumers.

“The drop in US output and jobs for medical device producers due to the tax is relatively small, probably no more than 0.2%. These small effects occur in part because the tax is small, in part because demand is estimated to be relatively insensitive to price, and in part because approximately half of production is exempt from the tax,” the report noted.

Greg Crist, executive VP of public affairs at AdvaMed told Focus: “While there are certainly a number of factors that speak to employment numbers, the delta on these specific shifts and in this specific time frame is too big to simply dismiss as due to 'other factors.' We know companies told us their economic behavior would change in the wake of this tax, and even saw some of that before the tax went into effect. We’re not saying the device tax was the lone cause of these losses, but rather the losses occurred during the same time, and their significance is too large to ignore. 

“Regarding the CRS report, we believe their analysis is fundamentally flawed. It assumes that most of the cost of the tax will simply be passed on to customers, based on the literature suggesting inelastic demand for health care services. However, this literature looks only at elasticity of demand at the level of the individual patient. Medical devices and diagnostics, however, are not generally purchased by individual patients. Rather, the buyers are institutions such as hospitals, clinical labs, and physician practices. In a highly competitive market such as the one for medical devices, such purchasers have the ability to refuse to accept price increases. In addition, they can delay or cancel large capital purchases or substitute less expensive for more expensive product alternatives,” Crist added.

The report addresses Crist's claim on buying power and refusing to accept the price increases, noting that "even if these buyers have been successful in limiting the profits of medical device manufacturers, it does not mean the tax would not be passed on. For example, suppose the market power of large payers is so great that all higher than normal profits that might be earned by medical device manufacturers are eliminated. Then these medical device firms are in the same circumstance as firms in a competitive market and must pass forward the tax in higher prices (which is a cost, just as wages are a cost) to stay in business."

The push by AdvaMed to fully repeal the tax comes at a politically opportune time, as a large bipartisan group of House representatives in early January introduced a bill to permanently repeal the tax and as President Donald Trump has signaled his support for such a repeal.


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