Medical Device Tax Could Suppress Innovation

The new medical device tax will stifle technological innovation, say equipment lobbyists.

The new health care law imposes a 2.3% tax on medical medical device taxdevices, requiring that manufacturers of the devices pay for the tax added to the sales price, reports Diagnostic Imaging. Some worry that the new cost will trickle down to providers and hinder research and development, particularly for radiology.

“As radiologists, most of us chose the specialty because it’s a field that incentivizes technological innovation that can make enormous differences in patient care,” says Dr. Geraldine McGinty, chair of the American College of Radiology (ACR) Economics Commission. “Payment or health care policies that would, in any way, negatively impact innovation are things that make us feel uncomfortable.”

A recent survey by the Medical Imaging and Technological Alliance found that 29% of manufacturers believe that they will need to cut their research and development budgets to cover the anticipated $287 million cost of the device tax. The cutbacks mean that there will be fewer innovations for treating patients.

“Radiologists are responsible for caring for patients — diagnosing and staging cancer and tracking the success of therapies,” Dr. McGinty says. “So putting taxes on companies responsible for creating better imaging technology can create a burden.”

Medical device manufacturers are usually small, venture-backed companies that invest heavily in research. They often run losses for years before getting the medical devices approved by the U.S. Food and Drug Administration, selling the product and earning a profit, reports New York Post.

The process of bringing a low-risk medical device to the market can cost about $31 million. The tax applies to a company’s gross revenue on the sales of applicable devices, regardless of profitability. Therefore, companies with weak balance sheets will face bankruptcy.

Source: “Radiologists Should Worry About Medical Device Tax, Too,” Diagnostic Imaging, 1/10/13
Source: “A tax even Chuck Schumer hates,” New York Post, 1/8/13
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