— Rep. Steve Scalise (R-L.A.), news conference, June 16, 2015
The Fact Checker often gets a case of deja vu listening to politicians.
Earlier this year, we awarded Two Pinocchios to the bipartisan claim that the 2.3 percent medical device tax imposed under the Affordable Care Act was eliminating thousands of jobs.
The debate has returned, and so has the claim that the medical device tax has resulted in more than 30,000 jobs lost in the United States. Let’s revisit this claim with updated research.
The excise tax applies to non-retail medical devices such as X-ray equipment, MRI machines, surgical instruments and pacemakers. It does not apply to products such as glasses, contact lenses and hearing aids. The effective tax rate is about 1.5 percent, because businesses can claim a deduction from their federal taxes.
One of the main arguments for repealing the tax is the notion that it is causing massive job losses in the United States. (We previously checked some of the other arguments.)
Scalise’s staff sent us a survey by the trade group Advanced Medical Technology Association, or AdvaMed, which is pushing to repeal the tax. AdvaMed’s electronic survey of its members reaffirmed the group’s earlier findings of job losses in the industry in 2013 (the first year of the tax) and the years leading up to it.
The survey found that there were 18,500 job losses in the industry between 2010 and 2014. (The tax was implemented in 2013.) It also found that the industry will forgo hiring about 20,500 employees over the next five years. Using the combination of jobs reportedly lost and jobs that may not be created, the survey predicts that the tax will result in 39,000 fewer industry jobs.
Fifty-five out of nearly 300 AdvaMed companies responded to the survey. They represent 49 percent of the total U.S. revenue of the medical device and diagnostics industry, according to AdvaMed. AdvaMed declined to provide the full list of questions asked.
However, a more wide-ranging survey released by Emergo Group, a medical device industry consulting firm that has not taken a position on the medical device tax, found different results.
A January Emergo Group survey asked 685 senior managers at U.S. medical device companies about the effect of the tax. More than one response was allowed per company, and the respondents do not provide their company name. Using e-mail addresses, Emergo Group found at least 440 unique company domain names (or 440 unique companies). An additional 130 used free e-mail domains and could indicate unique companies, according to Emergo.
Of the respondents, at least 23 unique respondents had domain names that correspond with AdvaMed member companies.
Respondents represented a cross-section of company sizes: 22 percent were from companies with one to nine employees; 37 percent were from those with 10 to 49 employees; 22 percent were from those with 50 to 240 employees; and 18 percent were from those with 250-plus employees. More than 80 percent of medical device companies have fewer than 50 employees, according to Emergo.
About 14 percent of respondents said they cut staff to make up for the medical device tax, and nearly 57 percent said they did not make any significant changes in response. Larger companies were more likely to use staff reduction to cut costs, compared with smaller companies, which could not afford to do so.
In a statement to The Fact Checker, AdvaMed called the Emergo study flawed, partly for not limiting survey responses to one per company. AdvaMed survey respondents covered a large share of the U.S. industry’s revenue and, therefore, their responses are “readily generalizable to the industry as a whole,” the statement said.
But most companies in the U.S. medical device industry are small businesses whose assets are less than $1 million, according to the non-partisan Congressional Research Service (Table 1). In contrast, the top 1 percent of firms by asset size account for the majority of revenue. So the companies in the AdvaMed study may comprise a larger share of the industry revenue but a small portion of the actual industry.
The CRS report, updated in January, estimated between 0.01 percent and 0.2 percent of industry jobs being lost as a result of the tax. (AdvaMed said the CRS findings are “seriously flawed…ignore the most recent data on the actual as opposed to the hypothetical impact of the tax, and fail to acknowledge critical facts about the industry and the tax.” The group also criticized a similar, earlier version of the CRS report.)
Further, Bureau of Labor Statistics statistics show steady employment in the industry in recent years. The Fact Checker analyzed Bureau of Labor Statistics data for medical device industries as identified in Table 2 of the CRS report, minus ophthalmic goods (many of which are exempt from the tax):
“The BLS data reflects total employment in the industry, which is affected by a whole host of commercial factors other than the device tax. Our survey asked for layoffs specifically due to the device tax. At a time when the industry was impacted first by the recession and then by the recovery, aggregate figures don’t really tell you anything about the device tax impact,” AdvaMed said in a statement.
Scalise’s staff did not respond to additional requests for comment.
The Pinocchio Test
Scalise said the tax “has led” to more than 30,000 jobs being lost, which inaccurately described the AdvaMed survey results. If you believe the survey, 18,500 jobs have been lost from 2010 to 2014; you get to 30,000 only by adding in jobs that respondents supposedly expect to forgo over the next five years.
Moreover, there are strong reasons to be wary of the AdvaMed research. A broader survey found that smaller companies — which make up the majority of the industry in the United States — have not cut jobs in response to the tax. About 18 percent to 25 percent of the larger companies (with more than 50 employees) had cut staff, but the majority of the industry did not make any significant changes related to the tax.
Moreover, the BLS data show that the job loss is nowhere as endemic to the industry as Scalise makes it seem. Preliminary 2014 data show there was net growth in jobs in the industry, suggesting that claims of massive job losses have been trumped up for political purposes.
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