A pediatric device company CEO speaks out against the device tax

The head of an Indiana company specializing in pediatric orthopedic devices asserts that the 2.3% medical device industry tax is forcing him to freeze hiring and pull back on product development. But OrthoPediatrics CEO Mark Throdahl's decision to publicly criticize the tax and its impact now could carry more mileage than past standard-bearers, considering the perceived deficit of pediatric-friendly devices and medical equipment in the marketplace. His words, as a result, add more opposition momentum to a tax-repeal push that is now well into its second year.

Throdahl told his story to The Daily Caller (a conservative blog founded by Tucker Carlson) in the context of an issue that has become a marathon battle for the medical device industry, which has been fighting the tax in earnest since it kicked in on Jan. 1, 2013, as a mechanism to help pay for the Affordable Care Act. The tax is designed to help keep support the Affordable Care Act, a law that is drastically boosting the number of patients with health insurance and will arguably add more device customers in some ways. But opponents say the tax is already hampering everything from job growth to industry R&D due to the extra cost.

With that in mind, having the CEO of a pediatric-focused medical device company tell how a tax designed to help patients is actually hurting them is an argument that has impact on multiple levels.

Consider that the FDA has had a mandate in place for some time now to spur the creation of more medical devices designed for children. Just last fall, the agency gave out $3.5 million in grants to 7 research consortia to spark development. This is considered to be an important matter to address in healthcare, because children have different sizes, growth spurts and body chemistry that can adversely affect the safety and effectiveness of everything from imaging equipment to implants--all typically designed for adult patients.

And so bringing OrthoPediatrics into the device tax battle is a smart move. The Warsaw, IN-based company, launched just in 2006, employs 50 people and began an international expansion in 2011, according to its website. Its sole focus is on pediatric implants and instruments focused on long bone deformity correction and trauma and spine, and plans call for expanding into sports medicine. Throdahl told The Daily Caller that the company continues to grow at 40% annually and that revenues are growing. But the company isn't profitable yet. With that backdrop in mind, Throdahl said he's had to slash his company's product development and freeze hiring to compensate for the tax.

"In terms of magnitude, [the tax] is about the size of our entire product development budget," Throdahl explained to The Daily Caller. "We have had to reduce our development budget. We're developing less products than we otherwise would. It has cut into our development expenses. The only way we can trump up the money to pay this tax is to reduce expenses."

His comments come in the wake of AdvaMed's new industry survey that documented the loss of 33,000 jobs and counting due to the device tax, either through layoffs or decisions to not fill positions. About a third of respondents (at the end of 2013) also said they've slashed R&D spending due to the tax.

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