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The Journal Gazette

Monday, January 09, 2017 10:00 pm

Medical device tax hampers innovation


From artificial joints to replacement heart valves, hospital beds to radiation therapies, the economic and human impact of medical technology innovation cannot be overstated. Medical technology companies that innovate quickly and at high levels of quality create and sustain well-paying jobs and, most importantly, save and improve the lives of patients. And that is why permanent repeal of the medical device tax must be a priority for the 115th Congress in 2017.

The 2.3 percent excise tax on medical devices, which went into effect Jan. 1, 2013, was temporarily suspended in late 2015 thanks to the leadership and support of Sens. Joe Donnelly and Dan Coats; the Republican members of the Indiana House delegation; and Gov. Mike Pence. These lawmakers have long understood the negative impact of this particular tax on innovation, job creation and the economy.

As Pence noted in a letter to President Barack Obama in 2014 on the need for the device tax’s repeal, "The life sciences and medical device industry is important to Indiana. Indiana is second in the nation, behind California, in exports of life sciences products at a value of more than $9.7 billion. The average job in Indiana’s medical device companies pays 56 percent more than the average wage in Indiana."

For the past year, medtech companies in Indiana like Hill-Rom in Batesville and Genesis Plastics Welding in Fortville have benefited greatly from the suspension of the crippling and burdensome device tax. They have been able to redirect money saved to reinvest in research and development in their employees and in their communities.

Ann Waterhouse, director of regulatory affairs at Hill-Rom, reports that the company has been able to "continue to fund early career rotational programs to better train recent graduates, and that employees can now travel to collaborate on industry standards and long-term impact projects."

At Genesis Plastics Welding, a contract manufacturer for medical devices, President and CEO Tom Ryder states that their "medical device contracts for R&D have increased by 15 percent while production purchases have increased by 5 percent, causing an increase of our employment by 10 percent," primarily due to the reclaimed funds previously lost to the device tax.

But without a permanent fix – in this case, repeal of the device tax – uncertainty looms. Why? Because successful innovation begins with R&D, and R&D requires significant, multi-year financial investments. And that, in turn, affects every aspect of a company’s innovation cycle – from workforce retention and job creation to employee compensation and benefits, facility expansion and the medical device R&D pipeline itself.

Fostering innovation – not hampering it – can lead to the creation of high-quality, well-paying jobs and better care for patients, and make a significant and positive contribution to Indiana’s economy and competitiveness here and abroad. The two-year suspension of the device tax was a good start.

Also encouraging is the recent congressional passage of the 21st Century Cures Act, which enjoyed overwhelming bipartisan support. The Cures Act will improve the innovation ecosystem and accelerate the availability of and access to breakthrough medical technologies and devices.

It is difficult to argue with Benjamin Franklin’s oft-quoted assertion that death and taxes are the only two certainties in life. Indiana’s medical technology companies, their employees and the patients they serve urge Congress to ensure that the only certainty in 2017 is permanent repeal of the medical device tax.

Scott Whitaker is president and CEO of the Advanced Medical Technology Association. Kathy Heuer is executive director of the Indiana Medical Device Manufacturers Council. John J. Greisch is president and CEO of Hill-Rom Holdings Inc.