Debra Sherman’s article Trade Groups Identifies Medical Device Makers Passing on Federal Tax provides the report that manufacturers of medical devices have resorted to imposing federal tax on hospital medical devices, patients, and taxpayers. The US Congress imposed a tax of 2.3% on manufacturers of medical devices. This tax is a constituent element of the Affordable Care Act (Sherman, 2013, Para.1). The aim of taxing sales for organizations that engage in manufacturing and importation of medical devices is availing about $30billion that is required for providing health care insurance cover to the Americans over the next one decade. This plan implies that the main concern of the US government is to ensure that even the people who cannot afford healthcare insurance can access it through cost-sharing strategies. However, manufacturing organizations have set certain profit margins, which are necessary for them to conduct business normally.
The policy for taxing all manufacturers of medical devices whenever they make sales beyond $5 million became a law at the dawn of 2013. The law requires importers of medical devices worth $5 or more to pay a tax that is equal in amount to the US-based manufacturers of such devices. The government insists that organizations should not pass on this cost to hospitals, which would then pass the expenses to patients. However, every indication makes it clear that many organizations have no option other than passing the cost to the hospitals if they have to maintain their current number of employees. For instance, Sherman (2013, Para. 6) reports that Invacare “expects the impact of the tax to be less than $1.5 million since it intends to pass the cost on to the market.” From an economic perspective, such a decision is reasonable.
Increased taxation results in increased costs. Organizations must recover these costs through higher pricing of their commodities. If higher pricing is illegal in the context of the new taxation policy for all organizations and importers of medical devices, it implies that they need to look for alternative ways of recovering the costs. For instance, medical device manufacturing organizations may opt to lay off some employees. The wages and salaries of layoffs will go into financing the 2.3 % taxation policy. While this alternative sounds satisfactorily important for the organizations, they must achieve their productivity levels with a lower number of employees.
The overall impact of the taxation policy may amount to overworking of employees and/or deteriorating working conditions. In the US, there are labor laws on minimum wages and working hours per week. Consequently, overworking employees may fail to work efficiently. This situation leaves the only option for the medical device manufacturing organizations to compel people to work at unsafe speeds. This strategy ensures higher production rates at minimal labor costs. The alternative is equally bad for employees as layoffs. This case raises the interrogative of whether the 2.3% taxation policy that targets manufacturing organizations and importers of medical devices is appropriate.
Posing the above question to medical device manufacturing organizations, legislators, legal and economic experts, and hospitals among other stakeholders may attract mixed reactions. Legislators believe that organizations have an obligation to contribute funds towards financing the Affordable Care Act. Hospitals responded positively to this call by voluntarily making their contributions. Healthcare Supply Chain Association backed this effort. It launched a website to help create awareness “of some manufacturers’ efforts to shift costs of the tax directly to hospital, healthcare providers, patients, and taxpayers” (Sherman, 2013, Para.1). Medical device manufacturing and importing organizations may perhaps largely oppose this policy on the grounds it imposes higher costs, which reduce profits.
Organizations manufacturing medical appliances cannot pass the 2.3% taxation cost to the end user of the devices. They have to channel a part of their profits into financing the Affordable Care Act through the taxation policy. This assertion reveals why the policy may not be popular among organizations such as “Allergan Inc, Cerner Corp, Waters Corp, Alere Inc, Invacare Corp, Integra Life science and Staar Surgical Co, Cardica Inc, Iridex Corp, and Misonix Inc” (Sherman, 2013, Para.4). The author identifies these organizations as those cited by Healthcare Supply Chain Association as seeking to shift the taxation policy costs to end users of medical devices.
Some organizations are clear on their take on the taxation policy. Sherman (2013) quotes the supply chain administrator of Beverly Slate Memorial Healthcare System who complains that some manufacturers had already incorporated the 2.3% tax as one of the key items while invoicing her organization. This claim implies that the new taxation law is highly unpopular among the manufacturers of medical devices. They continue to look for ways of passing the costs to hospitals and care provider in general. The unpopularity of the law can receive economic scholars’ backing since it subverts the economic principles for operation of business organizations.
In conclusion, based on the expositions made in the article, it is clear that manufacturers and importers of medical devices are not willing to embrace the 2.3 % taxation policy. This inference suggests unwillingness to support the Affordable Care Act by sacrificing a part of their sales’ earnings. Any compulsion through a legal framework such as the 2.3% tax on manufactured and imported medical devices worth more than $5 million and above will continue creating friction between various stakeholders in the US healthcare sector.
Reference
Sherman, D. (2013). Trade Groups Identifies Medical Device Makers Passing on Federal Tax. Chicago Tribune. Web.