July 18, 2011

• The Honorable John Boehner Speaker of the House
  U.S. House of Representatives
• The Honorable Eric Cantor Majority Leader
  U.S. House of Representatives
• The Honorable Kevin McCarthy Majority Whip
  U.S. House of Representatives

• The Honorable Nancy Pelosi Minority Leader
  U.S. House of Representatives
• The Honorable Steny Hoyer Minority Whip
  U.S. House of Representatives
• The Honorable James Clyburn Assistant Minority Leader
  U.S. House of Representatives

Dear Speaker Boehner, Majority Leader Cantor, Majority Whip McCarthy, Minority Leader Pelosi, Minority Whip Hoyer, and Assistant Minority Leader Clyburn:

As Congress explores policies to grow the economy, encourage job creation and innovation, we respectfully request that you add the repeal of the recently enacted medical device excise tax to your list of priorities of legislation that should be acted on this year. We believe that implementation of this $20 billion excise tax will adversely impact patient care and innovation, and will substantially increase the costs of health care. On behalf of the more than 400 undersigned organizations, companies, and venture capital firms representing hundreds of thousands medical technology jobs, we ask that you bring the device repeal legislation, which has the support of more than 175 Members [editor's note: 229 as of April 16, 2012], to a vote this year.

As you know, the medical device industry is a unique American success story – both for patients and our economy. The United States is the world leader in manufacturing life-saving and life-enhancing treatments, and the industry is an important engine for economic growth. The industry employs more than 400,000 workers nationwide; generates approximately $25 billion in payroll; pays out salaries that are 40 percent more than the national average ($58,000 vs. $42,000); and invests nearly $10 billion in research and development (R&D) annually. The industry is fueled by innovative companies, the majority of which are small businesses with 80 percent of companies having less than 50 employees and 98 percent with less than 500 employees.

Unfortunately, beginning in 2013, the health care law will impose a new $20 billion excise tax on medical technology companies that will stifle innovation and U.S. competitiveness. Despite the 2013 implementation date, the tax is already having an adverse impact on R&D investment and job creation, jeopardizing the U.S. global leadership position in medical device innovation. If this tax is not repealed, it will continue to force affected companies to consider cutting manufacturing operations, research and development, and employment levels to recoup the lost earnings due to the tax. It will also adversely impact patient access to new and innovative medical technologies.

In short, this tax on innovation should be repealed for the following three important reasons:

• The tax will stifle innovation and cost thousands of high-paying jobs. It will increase the effective tax rate for many medical technology companies, thereby reducing financial resources that should be used for R&D, clinical trials and investments in manufacturing. The impact will be especially hard on smaller companies whose innovations are not immediately profitable.

• The tax will increase health care costs as confirmed by a report issued in April 2010 by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS). In some cases, the 2.3% tax will be passed on to consumers, leading to higher health care costs.

• The tax will not be offset by increased demand for medical devices. In fact, it is important to note that there is no evidence suggesting a device industry “windfall” from healthcare reform. Unlike other industries that may benefit from expanded coverage, the majority of device-intensive medical procedures are performed on patients that are older and already have private insurance or Medicare coverage. Where states have dramatically extended health coverage, such as in Massachusetts where they added 400,000 new covered lives, there is no evidence of a device “windfall.”

At a time when the federal government is working to promote investment in U.S. industries of the future, it is inconsistent that a tax of this magnitude would be considered on the medical device industry. We must do all we can to encourage and promote research, development, investment and innovation. Instead, increased taxes, such as this one on the medical device industry, coupled with the increased regulatory uncertainty the industry also faces, will lead to further job losses, hinder the development of breakthrough treatments and delay patient access to medical technology.

We respectfully request timely action on legislation to repeal this $20 billion tax. [Editor's note: The tax is now estimated at $30.5 billion.]