"GPO" entries

How does the medical device tax affect innovation and the health/medical startup scene?

Comparative effectiveness research is key to reform

When the Affordable Care Act (ACA) was passed on a party line vote several years ago, it included a somewhat controversial provision to tax, at 2.3% starting in 2013, the sale of any medical device classified by the IRS as being taxable. The list of taxable devices includes a wide variety of products such as defibrillators, dental instruments, pacemakers, coronary stents, artificial hips, joints, and knees, surgical gloves, irradiation equipment, and advanced imaging technology. But it doesn’t stop there—patient monitoring, anesthesiology equipment, infusion pumps, and other hospital operating room digital devices are included in the IRS’s taxable device category. “Consumer” devices such as glucose monitors and potentially many upcoming “wearables” will likely also get taxed either now or soon. That’s where things get difficult for innovators and investors who want to offer next generation devices.

The medical device tax was levied partially to hinder the (over) prescription of medical devices. You and I are most familiar with devices like monitoring instruments or mobile phone sensors, but most dollars are spent on devices like stents, replacement knees, spinal fusion screws, proton beam accelerators, PET/CT scanners, etc. About $200 billion is spent on medical devices per year (about one-third the amount spent on pharmaceutical drugs). The idea behind the tax was twofold. One the one hand, Congress hoped to reduce health spending caused by the overuse of devices by taxing them. But in tandem, the influx of new patients into the health care system is expected to create more sales and revenue for device companies, allowing them to compensate for the excise the tax while bringing in more revenue for Uncle Sam.

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