Counterpoint: Medical device tax deserves the criticism it gets

  • Article by: ELAINE DUNCAN
  • Updated: October 14, 2013 - 6:16 PM

When the costs trickle down, and they will, no one will find the outrage artificial.

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There is nothing phony about outrage over the medical device tax, despite a recent commentary by Paul Scott (“Phony outrage over the medical device tax,” Oct. 10). Scott states categorically that the tax was levied on sales of medical devices “to help pay for expanding access to medical insurance.” Although it is true the tax was passed in the wee hours of negotiation on the Affordable Care Act, there is no clarity, even to this day, about where this tax money goes. Like all other excise taxes, it goes directly to the general fund. For all we know, we might be taking this medical device tax and buying guns to give to Syrian rebels.

When Scott sees representatives on both sides of the aisle taking on this cause, he calls it an “obsession” and says they are “echoing the arguments of the device industry.” What about the possibility that our elected representatives work together on certain occasions when it is good for the state? Isn’t that what we’ve come to expect from our leaders? At a time when we’d all like to see bipartisan cooperation, Scott cynically derides these efforts as advancing the pet grievance of a powerful lobby.

So why are these representatives supporting the repeal? A bit of research would help one to understand the margins in the medical device industry. The structure is the most egregious aspect of this tax, because it comes before all other operational costs can be paid. The IRS Guidance to medical device manufacturers is a mishmash of definitions, exemptions and interpretations on who does and does not pay the tax.

Theoretically, the tax applies at the point of sale, but exactly when is that? It does not apply to “retail” devices. So if a hospital buys a blood pressure cuff, the sale is taxed, but if I buy the same device at Walgreens, it is not? Why does the government make that distinction? Perhaps because, if the tax is passed through several hands, it is easier to hide the true impact on the cost of our personal health care. We will ultimately pay this tax, but because it’s buried in a morass of subterfuge, exceptions and interpretations, we’ll think it only hits those nasty manufacturers.

Which brings us to the true message in Scott’s article and the theme used over and over to justify this tax: “nor is the device industry in some special category of virtue.” How did virtue come into it? Is this now a “sin tax?” Beneath the rhetoric, the government seeks to punish the medical device industry with this tax. Quoting Scott, the industry “has been fined for defrauding the federal government. It uses the courts to deny repayment to those harmed by its goods. It charges inflated prices for its products, buys off Washington and has bought off doctors, and has no transparency in its cost structure.” Excuse me, but I thought this was about paying a tax to help people buy medical insurance in light of some imagined “windfall” to the industry.

When a device company behaves badly, the Food and Drug Administration has ample regulations enabling it to fine or even imprison unscrupulous management.

It is our hospital bills, which are already too high, that will skyrocket. It is Medicare costs, paid by you and me, that will skyrocket. Because, believe me, this tax is going to trickle down one way or the other. If only the big companies can afford it, small companies that work on small margins will disappear, and prices will jump like airline tickets. When innovative companies cannot be financed because the venture capitalists see no return on their investments, new devices won’t be developed.

The tax is certainly not “settled law”; it was ill-conceived at the midnight hour and was justified by denigrating an industry responsible for our awesome quality of life. The so-called “windfall” that was used to justify the tax has not and will not materialize, because if one thing is clear, it is that the very people who ultimately wind up paying for this nonsense tax will find that Obamacare will reduce the availability of medical devices, since insurance companies will now control who gets the devices and what kind.

Excise taxes, also known as “luxury” or “sin” taxes, have historically been used to generate revenues and limit the sales of products such as cigarettes, not life-supporting, life-sustaining products. This tax is shameful; it taxes our right to treatment and well-being. Only those who are not outraged by it are phonies.

 

Elaine Duncan is president of Paladin Medical Inc. in Stillwater.

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