San Diego — Carlsbad’s Ra Medical Systems is among the medtech companies that say the return of a 2.3 percent excise tax on medical devices sold in the U.S. threatens expansion and hiring plans.
Congress failed to deliver on promises to kill the tax, which resumed Jan. 1 after a two-year moratorium. San Diego, home to a robust medtech sector that includes giants like NuVasive, will be particularly hard hit if continued repeal efforts fall short.
Ra Medical CEO Dean Irwin said company tax payments may amount to millions, and it could have to reduce or delay planned hires, mainly in sales and research and development. The company makes excimer lasers and catheters to treat people with cardiovascular and dermatological diseases.
“The tax is very short-sighted. Long term, we need to invest in new technologies that are less expensive and more effective, as opposed to taxing the innovation that makes the United States a source of all this fantastic technology,” Irwin said.
Corporate Tax Cut Could Help
For medtech giants, the recent reduction of the corporate rate tax to 21 percent could cushion the impact. But not so much for smaller but fast-growing companies like Ra Medical, as it’s a tax on sales, not income.
Ra Medical relies on sales revenue to build out the company.
“So it goes right off the top, and we expect that to have an impact of millions of dollars this year,” said Irwin. He later added: “When you’re in high-growth mode you’re not as concerned about profits as much as you are about sales.”
The tax comes as Ra Medical ramps up sales on its recently released the DABRA Catheter and Laser System, a device that treats a disease known to lead to amputations. Last year Irwin anticipated the laser sparking a huge jump in annual revenue, from $10 million in 2016 to potentially $100 million.
“If this were an income tax that would be better, because it would reward us for reinvesting the capital. Instead, we’re being punished by increasing sales,” Irwin said.
Supporting Affordable Care Act
The tax was first imposed in 2013 on makers of devices like catheters and artificial joints to help pay for the Affordable Care Act, also known as “Obamacare.” Trade groups felt confident it would be done away with in 2017, citing bipartisan support.
But efforts to scrap the tax were tied to failed legislation to repeal and replace Obamacare. Now the industry is looking at additional vehicles, including a Jan. 19 spending bill to prevent a government shutdown, according to industry groups.
Author: Jared Whitlock