NCPA - National Center for Policy Analysis

Obamacare: Sending Research, Development and Innovation Overseas

October 6, 2014

The effect of Obamacare on innovation within the health care sector is staggering. Scott Atlas, senior fellow at the Hoover Institution, explains how the law has begun to change research, development and innovation -- activities which traditionally have taken place in the United States -- thanks to the ACA's $500 billion in new taxes, many of which fall on medical device and drug manufacturers. The result? Companies are moving overseas:

  • According to one CEO of a major health care company, the cost of the medical device tax that his business paid last year exceeded his company's entire research and development budget.
  • Health care companies such as Boston Scientific, Stryker and Cook Medical have not only laid off American workers but have announced plans to open new research and manufacturing facilities, as well as clinical trial centers, in foreign countries.

And as Atlas explains, the Food and Drug Administration (FDA) is doing nothing to help this trend:

  • Companies seeking approval of new medical devices face delays from the FDA. While it takes seven months to get approval of a medical device (one of just low- to moderate-risk) in the European Union, it takes 31 months in the United States.
  • According to PricewaterhouseCoopers, China, India and Brazil will see major gains over the next decade as the United States loses ground in the medical industry.

Investment in new American health care companies has also fallen precipitously. While annual capital investment in new startups was $61 billion in 2011, it was just $41 billion in 2013.

Atlas points out another contributor to the problem: immigration policy.

  • H-1B visas, which allow high-skilled foreign workers to work in the United States, are limited, and Congress has not done much to increase those limits.
  • As a result, many foreign students studying in the United States plan to return home once they graduate.
  • A study by Duke, Harvard and University of California researchers determined that just 6 percent of Indian students, 10 percent of Chinese students and 15 percent of European students studying in the United States planned to remain in America permanently.

Atlas encourages lawmakers to reform the taxes within the Affordable Care Act, first by repealing the medical device tax (a $29 billion tax) and the law's tax on brand-name drugs (an $80 billion tax). Indeed, NCPA Senior Fellow John Graham has written extensively on the damaging impact of the medical device tax, as has Senior Fellow Devon Herrick, who warned that the tax would only increase costs while sending jobs overseas.

Source:  Scott Atlas, "ObamaCare's Anti-Innovation Effect," Wall Street Journal, October 2, 2014.


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