ACA medical device tax carries price tag of $665M

New research out of Iowa State University found companies slashed funding for research and development after a tax was implemented on medical devices as part of the Affordable Care Act (ACA).

The study in the latest edition of Research Policy, looking at the 2.3 percent excise tax imposed on medical devices in 2013, found it significantly reduced research and development investment, sales revenue, gross margins and earnings since ACA implementation in 2013. The researchers estimated losses as:

  • R&D expenditures: $34 million
  • Sales Revenue: $188 million
  • Gross margins: $375 million
  • Earnings: $68 million

“Highly advanced equipment in hospitals is a critical aspect of medical care,” Lee said in a release. “Some devices such as coronary stents require high-research investment. If medical device firms stop or reduce that investment, we won’t have better equipment and devices for complicated surgeries or procedures.”

In January, the moratorium on the medical device excise tax was extended to 2020, which Lee said could provide time to consider other options that do not target any one industry. He suggested policymakers expand the tax base to include multiple industries, such as insurance companies, which have profited from an increased demand of healthcare after the ACA.

“If there is a broader tax base, the negative effects will be reduced,” Lee said. “The government needs to raise revenue to cover the costs of the Affordable Care Act, but there are other ways to do it without harming a research and development intensive industry.”