How Obamacare's Medical Device Tax Will Stifle Advancements in Health Care


An article published today in The Wall Street Journal draws attention to the financial toll the Affordable Care Act (ACA), a.k.a. Obamacare, will take on medical entrepreneurs attempting to research and create innovative new medical devices such as prosthetic limbs and pacemakers.

In an effort to pay for the ACA, Congress is bringing in a 2.3 percent excise tax on medical device sales starting in January 2013, with no exceptions being made for loss-making companies. Frank Fischer, the chief executive of NeuroPace Inc., is fearful of the impact the tax will have on the medical device industry. NeuroPace is currently seeking regulatory approval for its implantable device that detects abnormal brain activity and prevents seizures from occurring. Speaking about the tax, Fischer recognizes the stifling effect it will have on financial projections throughout the industry, commenting to the Journal that,

If we were trying to start the company today, I don't believe we'd be able to fund it. With the length of time the regulatory process has been taking over [the] last several years, and this additional issue of the tax on top of that, I believe many companies- if they weren't in the later stages of approval wouldn't get the funding to get there.

Wanda Moebius, a spokeswoman for AdvaMed, a trade association of medical device manufacturers, highlights the dangers the tax poses for both employment and medical advancement:

The medical device tax is just bad policy, it will have a very damaging effect on our industry's ability to hire and advance medical innovation, and it does nothing to make health care more accessible.

Even Democratic Massachusetts Senate candidate Elizabeth Warren has written in opposition of the tax, citing in particular the negative effects it will have on small businesses:

When Congress taxes the sale of a specific product through an excise tax, as the Affordable Care Act does with medical devices, it too often disproportionately impacts the small companies with the narrowest financial margins and the broadest innovative potential. It also pushes companies of all sizes to cut back on research and development for life-saving products.

The tax is expected to cost the medical device industry an estimated $20 billion dollars. Eighty percent of the industry consists of companies with fewer than 50 employees, many of which are located in key swings states such as Ohio, Wisconsin and New Hampshire.