IMPACT OF THE MEDICAL

DEVICE EXCISE TAX

A Status Report from AdvaMed
January 2015

introduction
Prior to implementation of the medical device excise tax on Jan. 1, 2013, assessments by
device manufacturers, studies by academic researchers, and independent analyses of the
industry suggested that this tax would have a significant, negative impact on employment,
research and development, and industry competitiveness. Supporters of the tax disputed
some of these assessments.
To provide information on the actual as opposed to hypothetical impact of the tax,
AdvaMed conducted an electronic survey of its members regarding the first-year impact of the
tax in late 2013. Consistent with the academic studies, the survey found substantial negative
impacts on jobs and R&D, as well as companies that deferred or cancelled capital investments,
deferred or cancelled plans to open new facilities, and reduced investment in start-up
companies. To assess the ongoing effects of the tax, AdvaMed repeated the survey at the
end of 2014. The responses to the survey were generalized to the industry as a whole based
on the ratio of revenues of the responding companies to revenues of the overall industry.
Respondents accounted for 49 percent of total industry revenues.

key findings
JOB LOSS

J ob losses from the tax continue to mount, albeit at a slower rate.

Two-thirds of companies in the survey said that they have decided
to slow or halt U.S. job creation as a result of the tax.
The tax resulted in employment reductions of 14,000 industry
workers in 2013 and years prior to implementation of the tax, with
approximately an additional 4,500 jobs lost in 2014.1 Furthermore,
the industry will forgo hiring of nearly 20,500 employees over the
next five years. Considering both jobs lost and jobs not created, the
tax will result in 39,000 fewer industry jobs.

195,000

LOST JOBS

Independent estimates of the relationship between direct

employment in the industry and indirect employment among
suppliers and in the general economy found a ratio of four indirect
jobs for each direct job.2
Applying this ratio to jobs lost or forgone suggests that the
impact of the tax on indirect employment could be as much as
156,000 jobs, for a total job loss due to the tax of 195,000 jobs.

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key findings (contd)

REDUCED R&D

More than one half of respondents (53 percent) said they had
reduced R&D as a result of the tax.

OTHER NEGATIVE IMPACTS

Three-quarters of respondents said they had taken one or more of

the following actions in response to the tax: deferred or cancelled
capital investments; deferred or cancelled plans to open new
facilities; reduced investment in start-up companies; found
it more difficult to raise capital (among start-up companies);
reduced or deferred increases in employee compensation.

75%

OF RESPONDENTS

ED

CANCELL

REDUC
ED

DEFERRED

FUTURE IMPACTS

While the focus of the survey is on the effects of the tax in its first two years, several questions were future
oriented. Reponses suggested that there will be additional damage if the device tax is not repealed. On
the positive side, repeal of the tax would significantly influence companies future actions.
46 percent of respondents said they would
consider further reductions in employment if
the tax is not repealed

but more than seven in 10 respondents

(71 percent) said they plan to reinstate forgone
job growth if the medical device excise tax is
repealed.

Similarly, while 58 percent of respondents

said they would consider further or first-time
reductions in R&D if the device tax is not
repealed

85 percent of respondents plan to reinstate

forgone R&D projects if the tax is repealed.

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what companies are saying

The medical device excise tax is costing us approximately $250,000 to

$300,000 per year in direct costs plus the costs of administration. This
money would likely be deployed into hiring additional people in R&D and
other projects and clinical studies.
ISTO Technologies
As a small company, the device tax has a very large impact on our
profitability. In 2012 our net income on $17 million of revenue totaled
$930,000. After the implementation of the device tax, our net income was
reduced in 2013 by $400,000.
Consensus Orthopedics
The tax has also stopped us from investing in studies in the U.S. due to a
lack of funds.
Summit Medical Products
Weve had to slow down our hiring in sales and R&D due to capital
constraints. We are still funded, but many of my peers have had to close
operations due to lack of funding. The tax puts further pressure on a
start-up sector that is already under pressure due to regulatory and
reimbursement uncertainties.
Ceterix Orthopaedics

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methodology & additional data

As noted above, the survey was conducted electronically between Nov. 20 and Dec. 12, 2014.
The survey was sent to every AdvaMed company. The 55 responding companies accounted for
approximately 20 percent of member companies, 85 percent of member company domestic
sales revenues, and 49 percent of total U.S. revenues of the medical device and diagnostics
industry.
Respondents were almost evenly divided between large and small companies, with 40 percent
having sales below $100 million and the remainder with sales above this amount.
As is typical for the industry as a whole, survey respondents were geographically diverse,
reporting headquarters locations in 21 states (Arizona, California, Colorado, Florida, Georgia,
Idaho, Illinois, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada,
New Jersey, Ohio, Oregon, Pennsylvania, Tennessee, Texas, and Utah). Respondents reported
employment in all 50 states.
Sixty-nine percent of the respondents are currently operating at a profit, while 31 percent are
not.
Responses were expanded to national estimates of employment impact using the following
methodology. U.S. total expenditures on medical devices and diagnostics in 2011 were $159.4
billion.3 This figure was assumed to equal medical technology company revenues. This
estimate was updated to 2013 using percentage increases in revenues in 2012 and 2013 for
publicly traded pure device companies, yielding total industry revenues of $165.4 billion.4
Respondents to the AdvaMed survey represented 49 percent of total industry revenues ($81.1
billion), so job losses and jobs foregone reported by survey respondents were multiplied by
(165.4/81.1) to arrive at an estimate for the industry as a whole.

1. All 2013 figures come from Impact of the Medical Device Tax, A Status Report from AdvaMed, February, 2014, unless otherwise noted. The 2013 survey included reductions
due to the tax in years prior to 2013, because some companies reduced employment in anticipation of the taxs going into effect, rather than waiting until 2013.
2. The Lewin Group, State Impacts of the Medical Technology Industry, February, 2007.
3. Guy King and Gerald Donahoe, Estimates of Medical Device Spending in the United States, June, 2014;
4. Ernst and Young, Pulse of the Industry: Medical Technology Report 2014 and Pulse of the Industry: Medical Technology Report 2012. Pure device companies are companies
that are only in the business of manufacturing devices and diagnostics. Revenue increases for conglomerates for the device portion of their business are assumed to be
similar.

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