Forbes has produced a compellingly straightforward editorial, aimed in part at debunking the myth that the pain of the device tax will be offset by an increasing “customer base” from expanded insurance coverage. The piece may have zero impact on the politicians who’ve been arguing about it for a few years now, but for the casual observer and industry watcher it’s a neat summary of the state of events and opinion.
Find the Forbes article here. In it, author, Henry Miller reminds us, as if we needed reminding, that 400,000 Americans are directly employed in the device sector and that medtech has brought us dramatic life-changing, enhancing or extending therapies in recent decades, from CT Scanners to pacemakers – all the usual candidates – you get the picture.
So, being a successful and profitable sector it seems it was too soft a target for a “cash-strapped” US government to ignore. But it was always going to be tricky to level the pain out for industry. If a tax on profits was introduced, the big, established companies would grumble it was favourable to the newbie loss-maker innovators. And it would have been difficult to find a way of preventing avoidance or reduction of those stated profits.
The answer was obvious. Introduce a sales tax of 2.3%. The trouble here is that small companies don’t make any profit for years, and yet are expected to endure another tax hit, delaying that moment still further. As the Forbes piece points out, even on sales of $1M, with an example stated profit of $100K, the device sales tax would be £23k, wiping a quarter off the bottom line.
Now readers may think that’s not such a bad thing. After all, the tax has already brought $1Bn into government coffers. And $77k profit is still a profit. The trouble is that the medtech industry works on a long-evolved equilibrium, with innovators gaining necessary investment to bring their ideas to fruition before being (usually) acquired by the big fish and then, with all that marketing muscle, driven into the clinical environment. The result is that devices get to market as quickly as FDA regulatory requirements allow. Disincentivising investment is not likely to be a good idea for the industry or for patients as it will slow or stop the innovation flow.
The Forbes piece closes with a pretty succinct summary of the state of play:
“The U.S. remains the global leader in medical device development and manufacturing, although reports from PricewaterhouseCoopers and others show that even without the excise tax its lead was tenuous, in part due to regulatory uncertainties and dysfunction that thwart innovation.
We need to create a more nurturing entrepreneurial climate, one in which ingenuity and innovation are rewarded, not penalized. We’re getting the opposite.”
I’ve said before that there was an inevitability about the opposition to this tax levy, and that in the end US medtech industry would “suck it up” and find a way through. I predicted two things. Firstly that it would get passed on as price increases and secondly that companies would cut costs. Didn’t take a genius, I know.
And it seems the Forbes author Henry Miller sees it somewhat the same.