Don’t Tax California Innovation: CLSA & Edwards Lifesciences Op-Ed in The O.C. Register

By Sara Radcliffe and Don Bobo | Guest Commentary in The Orange County Register
December 18, 2017

Steep excise taxes are typically implemented to discourage a particularly unhealthy or undesired activity or behavior. For example, when state lawmakers raised California’s tax on cigarettes from 87 cents to $2 a pack in April, the impact was swift and expected. Lighting up became much more expensive – and retailers statewide reported precipitous declines in their cigarette sales.

Another tax is pending, but instead of discouraging unhealthy behavior, this tax would pose a threat to the health of all Americans. The sweeping 2.3 percent sales tax levied on today’s leading medical technologies (including MRIs, artificial joints, heart valves, pacemakers and wound healing therapies), has had a similar correlative effect – in this case, unfortunately, stifling much-needed biomedical technology and innovation.

The medical device excise tax was originally passed as part of the Affordable Care Act in 2010 with the idea that it would help offset the costs of expanding healthcare coverage to more Americans. This tax has been a painful kick to a rapidly growing – and desperately needed – part of our economy.

According to data from the U.S. Department of Commerce, the device tax killed nearly 29,000 U.S. medical technology industry jobs in the first two years it was in effect. Compounding those losses, experts have anticipated millions in hiring reductions and cuts to research and development – for each year the tax remains in effect. In addition, companies like Edwards Lifesciences, a California-based developer and manufacturer of leading heart valve and critical care technologies, anticipated an impact of at least $20 million annually from the tax, which would primarily affect development of new products for future patient treatment.

Faced with these alarming facts, Congress wisely acted in 2015 to suspend the tax for two years. But as the temporary reprieve ends this month, there’s trouble looming for the California economy – and for the millions of patients worldwide who benefit from our vibrant life sciences industry.

According to the 2018 California Life Sciences Industry Report, the Golden State is home to more than 1,700 medical device and equipment manufacturers. Employing more than 77,000 people – the most in the nation and a significant slice of California’s 298,700 life sciences jobs – the Orange County region supports more than 22,000 of these medical technology jobs. From the Bay Area to San Diego, these highly-skilled positions pay well ($95,000 per year, on average) and are responsible for helping bring FDA-approved medical technologies to patients around the world – in fact, more than 440 technologies were approved from California companies in 2016.

This important work will only continue if the medical device tax is repealed.

By taxing medical technology manufacturers for selling their products to consumers who need them, the device tax forces companies into a corner. Many medical technology companies simply can’t grow their business, create new jobs, invest in research, or conduct clinical trials when much-needed capital is instead sent to the IRS. Without repeal of the device tax, California’s ecosystem that supports global innovation for medical devices, diagnostic tools and digital health technologies will suffer – as will patients.

Fortunately, members of Congress from both political parties have come together around a legislative solution. The Protect Medical Innovation Act of 2017 (H.R. 184/S. 108), introduced earlier this year, would repeal the medical device tax once and for all. The bill already has significant support from bipartisan members of Congress, including 25 bipartisan Representatives from our own state.

There are some issues so straightforward that, even in today’s fractious political climate, both Republicans and Democrats can agree. It’s time we use the power to tax wisely – and keep punitive excise taxes for harmful habits like smoking. Repealing the medical device tax will pay healthy dividends for all Americans for decades to come. Congress should swiftly and permanently eliminate this costly tax on medical technology innovation.

Sara Radcliffe is president and CEO of California Life Sciences Association, the statewide trade association for the life sciences sector in California, which helps advance public policies that foster and promote medical innovation. Don Bobo is corporate vice president, strategy and corporate development, of Irvine-based Edwards Lifesciences, the global leader in patient-focused innovations for structural heart disease and critical care monitoring. Bobo also serves as chairman of the CLSA board of directors.

Click here to view the op-ed at The Orange County Register