New tax will hurt medical device innovation

Regardless of where you live or which lever you pull in the voting booth, we can all agree that American innovation is the key to our economic leadership, but when it comes to med tech, we’re seeing less and less. The United States med tech sector is losing its competitive edge.

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In 2007, 116 early stage device companies raised approximately $720 million in initial venture capital. But that number is declining – and so is the total dollar amount of venture capital invested in medical technology companies. Last year, only 55 new companies raised just under $200 million. What makes this data more troubling is that initial start-up company financings are a leading indicator for innovation and job creation in the medical device sector.

In less than seven months, on January 1, 2013, a new tax on medical device companies (part of the Patient Protection and Affordable Care Act) is set to steamroll American leadership in medical innovation. The 2.3% excise tax will be levied on all types of medical devices, from heart stents and pacemakers to MRIs and ultrasounds. Because the new tax is on revenue, not profit, a small company that is not yet in the black would bear the biggest brunt. This tax will hit medical device companies especially hard in states that are leading the way in medical innovation; states like Pennsylvania, Minnesota, California, New York, and Massachusetts.

After touring many device companies, both large and small, we know that this impending tax may force companies to cut jobs, reduce investment in R&D, move overseas, or even shut down completely. This is the worst possible outcome not only for American jobs and American innovation, but also for the patients who might not have access to a new medical device or a new technology that could save their lives. 

We will see a better world with inventions that have the capability to change someone’s life for the better. We have the capabilities to innovate and create that life saving device right here at home. But elected officials must enact policies that enhance and provide opportunities for success American innovation.

The world is becoming more competitive by the minute, and we must step up our efforts to level the playing field. Our nation can only continue to lead the world if we let the entrepreneur, innovators, and risk takers follow their dreams without damaging new taxes. Should this more than $28 billion tax take effect next January medical innovators will suddenly face one of the highest tax rates of any industry in the world. 

This tax is a ticking time bomb that must be stopped. Together, we are leading the bipartisan effort to repeal this tax before it starts. We have 239 bipartisan cosponsors on the bill for repeal that is set to be up for a vote this week. We have an opportunity to vote for innovation and jobs — and ensure that the next great medical breakthrough is developed here in the U.S., not imported from abroad.


Rep. Paulsen (R-Minn.) serves on the House Ways and Means Committee.  Rep. Altmire (D-Pa.) serves on the House Transportation and Infrastructure Committee and the Education and Workforce Committee.