The Corner

Obamacare’s Toll on Medical Innovation

The Obama health law promises improved health care for consumers, but a tax it creates will inhibit American medical innovation.

The so-called medical device tax, a 2.3 percent excise tax on revenues regardless of a company’s profitability, was poorly crafted from the start, as Politico explains:

Many of the novel, cutting-edge medical technology innovations come from small companies with very few employees. Unfortunately, the medical device tax will hit these small companies and startups hardest, because it will be applied on sales, regardless of whether a company is making any profit. Small businesses often suffer losses in the early years of operation when they are investing in research and development on new products. Paying a sizable new tax while incurring traditional startup-driven losses will be more than many small businesses can bear.

Though the tax doesn’t take effect until January 1, it’s already taking a toll on medical innovators. The Ventura County Star reports:

Boston Scientific anticipates $100 million in additional taxes next year, with layoffs to follow. Medtronic estimates a $175 million loss in 2013 and will cut 1,000 workers. Stryker plans 1,170 job cuts.

Other medical manufacturers will follow: Smith & Nephew, with 770 layoffs; Abbott Labs, 700; Covidien, 595; Kinetic Concepts, 427; St. Jude Medical, 300; Welch Allyn 275; and Hill Rom, 200.

… Cook Medical put plans for five new U.S. manufacturing facilities on hold and will likely redirect growth overseas. Boston Scientific recently announced a $150 million investment in China over the next five years for new manufacturing facilities and 1,000 employees.

Rarely is tax-induced job loss so visible.

Furthermore, the consequences for American patients are significant. New medical inventions have increased life expectancy by three years, Politico explains. Innovation has also decreased mortality rates by 16 percent and disabilities among the elderly by 25 percent, Representative Erik Paulsen (R., Minn.) and Representative Jason Altmire (D., Pa.) reported earlier this year.

But if companies have to worry about making ends meet, they’ll be less able to break new ground. Add that to the tally of Obamacare’s unintended consequences.

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