- Article by: SHAYE MANDLE
Over the weekend, the Star Tribune published commentaries by Lee Schafer (“Killing tax on devices won’t bring back jobs,” Nov. 16) and Ron Way (“Repealing device tax? Unnecessary,” Nov. 17) on why repealing the medical device excise tax is unneeded and won’t bring job growth to Minnesota.
Respectfully, both authors miss the primary impacts of the device tax and, most important, its particularly harmful effect on Minnesota’s future.
Minnesota is home to the most densely concentrated medical technology cluster in the world. Our medical technology employment relative to our population far exceeds that of California, Massachusetts or any other geography in the United States or abroad. The medical technology industry is really about small, innovative businesses. In fact, 80 percent of U.S. medical technology companies have fewer than 50 employees. In Minnesota, where we have more than 400 medical technology companies, this is our future.
The pathway to sales and profitability in the medical technology industry is long and expensive. It takes years and often hundreds of millions of dollars to innovate and receive FDA approval to sell a product. Today, Minnesota has many small companies getting their first products to market — and getting taxed 2.3 percent on these sales. But many of these companies haven’t yet overcome the numerous regulatory and compliance hurdles to become profitable.
For a small business that isn’t yet profitable, this excise tax is a growth killer. And in Minnesota, these are the companies we want and need to grow. These are the companies that, because of the tax, aren’t able to hire the next engineer or chemist needed to move forward. These are the companies that must delay the development of a next-generation product or starting a clinical trial necessary to get product approval.
Lest we forget where we came from, these are the companies that we should all hope will grow to become the next global health care leaders.
This tax also restrains our larger companies. The device tax has cost the U.S. jobs — both in direct loss and in the stifling of new jobs being created. In Minnesota, we benefit greatly from a community of innovators that includes large and small company expertise across multiple therapeutic areas. The restraint of growth or direct loss of jobs in any of our companies is bad for innovation, bad for patients and bad for Minnesota’s economy.
Consistently, supporters of the Affordable Care Act (ACA) suggest that the law itself will increase demand and customers. In medical technology, this simply isn’t true. The vast majority of medical devices, especially those that Minnesota specializes in (active implantable devices), are used by patients who traditionally have had health coverage and have been getting the therapies they need. The ACA isn’t providing a crop of new patients for the medical device industry.
Federal legislators, including Minnesota leaders like Republican Rep. Erik Paulsen and Democratic Sens. Amy Klobuchar and Al Franken, get it. Broad-based bipartisan support continues for medical-device tax repeal, because it hurts innovation, hurts small business and threatens U.S. leadership in the advancement of therapies that medical technology can provide. Make no mistake, repeal of the device tax is important for Minnesota’s economy and critical to ensuring that we continue to be the world’s leader in creating the next generation of medical technology companies.
As the media relations director at Cook Medical, I sometimes marvel at the linguistic gymnastics used by tax backers to justify a tax that has harmed if not crushed job growth, companies and patients for the two years it has been in place. Josh Sandberg points out why this tax needs to be repealed but overlooks a significant reality. It has already drained precious resources from Minnesota’s most innovative industry. What we know is that this tax is bleeding about $1.8 billion annually from the balance sheets of companies in this space. Assume that every other company is in the U.S. That means that since January 2013, which is when this tax was imposed, about $1.8 billion has claimed by this tax. Framed another way, that’s equal to 60,000 jobs not created that might have paid annual salaries of $30,000 each. Since jobs in this space conservatively create another 1.5 jobs elsewhere in the regional economy, there’s another 90,000 jobs impacted. Grand total? 150,000 would-be jobs lost to this tax. Four of five Senators want it repealed. So two majorities in three duly elected House of Representatives. It’s time to dump this tax.
Thank you for your comments! You are spot on with your analysis. I also do executive search with focus on Orthopedics and Spine and can affirm that because this tax is on gross revenue, many smaller VC backed or self sustaining companies have been forced to do more with less. One company I recently spoke with has not hired a VP of Marketing (which would have built out a small team) plus 2 engineers that are needed. Not only is it negative for jobs but also innovation.