Taxes on medical devices in the USA worry manufacturers

The “truce” given by the American government is about to expire: what will be the future of the companies?

Written Wednesday, by Emanuele Mortarotti

Welcome back to the News section of Dispotech, your disposable excellence.

Today we will analyse a news item from the States, which we came to know through the website startribune.com: it regards the reintroduction, after a truce of two years, of taxing medical devices applied by the American government. It seems the Affordable Care Act tax is to be once more integrated, unless Congress decides to postpone the decision, or better yet (for manufacturers), abolish it altogether.

The tax in question weighs heavily on the budgets of large companies which, from this moment forward, will be paying out enormous amounts of money. This will have repercussions on the possibility of investing in human capital and/or research. The CEO of Inspire Medical Systems Tim Herbert stated that he could have hired “from 12 to 15 employees had the funds destined to this tax been put on hold for a little more time, or even abolished”; similarly, Cogentix, through its chief financial officer Brett Reynolds, announced that the “tax will cost our company between 600,000 and 800,000 dollars annually. That’s a considerable sum which we could have used to invest in the expansion of our personnel, to meet its needs offering more services, or rather to strengthen research and development. Confident that this money will be well spent once entrusted to the government, it is undeniable that we could have made good use of it internally as well”.

However, it must be emphasised that the above tax will end up in the till of the ACA (Affordable Care Act), which provides subsidies to expand healthcare services given to millions of poverty-stricken people in the United States. Created in 2010 and implemented in 2013, this tax produced approximately 5 billion dollars until it was suspended at the end of 2015.

Criticism aimed at this subsidy, which has survived numerous attempts to repeal it, is bitter and serious: defined as a veritable “research killer” by the leading producers of medical equipment, it has created discontent and separation. ACA supporters believe that the companies can recover the amount of money handed over to the government by simply increasing the prices of its devices. Cogentix CEO Darin Hammers commented: “The solution to this problem seems far too simplistic. The truth is that there is a lot of competition in our field and the market simply will not allow it. Furthermore, imposing on our customers seems unfair”.

The verdict of Congress on the tax will be announced in a few days: the two opposing factions are engaged in a face-off, each with its own good reasons. The government’s response might change many things within the sector. Which will prevail? The need to help Americans who are unable to afford costly healthcare insurance or entrepreneurial logics?

What’s your take on the situation? Want to have your say? If you’d like to give us your opinion, contact Dispotech, your disposable excellence.

Emanuele Mortarotti
Author Emanuele Mortarotti

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