Sen. Alexander urges excise tax repeal, says 2.3% tax could hurt medical device makers

At a roundtable in Bartlett on March 20 with a panel of leaders in the Memphis-area medical device industry, U.S. Sen. Lamar Alexander (R-Tenn.) discussed repeal of the health care law’s 2.3 percent excise tax on medical device manufacturers.

Mayor Keith Alexander and U.S. Sen. Lamar Alexander
Photo by Carolyn Bahm
Bartlett mayor Keith McDonald, and U.S. Sen. Lamar Alexander heard medical device manufacturers last week discuss their concerns about a 2.3% tax and other issues affecting their industry.

“Memphis has become one of the nation’s most important centers for medical devices, an industry that has become one of Tennessee’s top exports,” Alexander said. “This onerous $30 billion tax on revenue has cost 33,000 jobs, increased the cost of life-saving medical devices and discouraged innovation for new devices.”

In an effort to repeal the tax, he is cosponsoring legislation, the “Medical Device Access and Innovation Protection Act.”

A medical device trade association says the tax has so far caused a loss of 33,000 jobs across the country in the medical device industry, and other reports indicate companies are reducing research and development as a result.

Alexander said that last year, Smith & Nephew, a medical device manufacturer with a large presence in Tennessee, announced it would be laying off nearly 100 employees in Tennessee and Massachusetts as a direct result of the new tax on medical devices.

Bartlett mayor Keith McDonald said after the meeting, “I believe that it is an unfair tax on our medical device companies when you’re going against their net sales to tax that type of a company when they’re doing research and development for new ways to treat people. And then people wonder why does healthcare cost so much.”

Georg Schloer, president of Olympus Surgical Technologies America (which has facilities in Bartlett), also had a statement about the tax. “The Medical Device Excise Tax continues to be a challenging issue for our industry as it represents a 2.3% tax levied against a manufacturer’s or importer’s sales. This is particularly punitive to small, innovative device manufacturers and, on an annual basis, this tax is also projected to cost the Olympus Medical Business in the U.S. many millions of dollars. To date, we have chosen to absorb the tax internally and have not contemplated a reduction in workforce or a price increase to our customers as a direct result of the tax. While we do not believe the tax will diminish Olympus’ ability to deliver innovative medical products, we are also not able to invest those lost funds, either directly or through our community based partners, to grow the business.”

Tennessee’s Department of Economic and Community Development has identified medical device manufactures as among the state’s most important exports. U.S. Census data shows that the value of those exports was nearly $2.2 billion in 2013, which ranks at the top of all state exports by dollar value.

Not every industry observer is against the tax, however. The Center on Budget and Policy Priorities (CBPP), a Washington think tank, has questioned whether the tax will be as onerous as feared, saying increased demand due to expanded health coverage could offset the tax.

The tax only applies to original equipment manufacturers (OEMs).

CBPP also said the tax should not encourage manufacturers to shift production overseas; the taxapplies equally to imported and domestically produced devices, and devices produced in the U.S. for export are tax-exempt. See more at See the original article, “Excise Tax on Medical Devices Should Not Be Repealed: Industry Lobbyists Distort Tax’s Impact,” for additional information.

Alexander, the top Republican on the Senate health committee, which oversees the Food and Drug Administration, also asked the panel at last week’s meeting how improving the FDA’s medical device approval process and improving training and management at the agency, could increase innovation and get new medical devices to patients faster.

Industry experts invited to participate in the panel included Dr. William Mihalko, a biomedical engineer with the University of Tennessee Health Science Center; Steve Bares with Memphis Bioworks; Gary Stevenson with MB Ventures; Ryan Ramkhelawan, CEO of Restore Medical; Robert J. Bean, president and CEO of Transnetyx; Jeanne Forneris, vice president and general counsel for Bioventis; Ed Chin, senior director of regulatory affairs for Medtronic and Robert J. Ogg, Ph.D., an associated member of the St. Jude faculty.

Carolyn Bahm, Express editor, contributed to this story. Contact her at (901) 433-9138 or