Blog Tag: medical device tax repeal
The Medical Device Tax Lives On
For opponents of the 2.3 percent medical device tax, it looked like the repeal/replacement of the Affordable Care Act would alleviate their concerns. However, following the failure of repeal legislation that would have killed off, or delayed, the tax, the tax is on pace to be reinstated on January 1st, 2018 after a two-year gap.
Regardless of the status of the Affordable Care Act, news articles have indicated that companies and lawmakers opposed to the tax are considering pursuing a number of different options, such as adding tax delay language into other bills. Accordingly, a group of conservative action groups are pushing Congressional leaders to pursue a repeal of the tax, including preparing a letter to House speaker Paul Ryan and Senate majority leader Mitch McConnell. Further, the Advanced Medical Technology Association will be running digital and social media ads throughout this month in a number of states, hoping for tax repeal once lawmakers are back in session in September.
While it can be difficult to truly define a correlation between job performance and the medical device tax, a member survey performed by the Medical Device Manufacturers Association found that 70% of companies added jobs in 2016-2017 and R&D increased by 19% on average. On the other hand, in 2015 the Congressional Research Service found that there were no significant losses due to the tax.
According to news sources, the tax applies to hospital and physician medical equipment, but excludes many consumer medical items (eyeglasses, hearing aids, etc.).
Potential Repeal of Medical Device Tax
With the upcoming Republican-dominated Presidency and Congress in 2017, the Affordable Care Act, or at least parts of it, look to be on the chopping block. One of the changes that may be forthcoming is a repeal of the 2.3% medical device excise tax. While currently being suspended through 2017, under the present law the medical device tax would be reinstated in 2018.
Some producers of medical devices hope that the tax is never reinstated. Mark Throdahl, president and CEO of OrthoPediatrics Corp., a northern Indiana based orthopedic company, has said that the suspension of the tax allowed the company to hire new workers and hopes for a full repeal after the Republican transition. According to Throdahl, the tax led to a hiring freeze, and suspension of the tax allowed for them to resume “an aggressive pace of hiring and investment.” Complaints from companies like OrthoPediatrics, as well as medical device associations like AvaMed, were what led to the initial temporary suspension of the tax.
Immediately after Donald Trump‘s election victory, AvaMed President Scott Whitaker wrote in a letter to Vice President-elect Mike Pence:
The medical device tax has been a significant drag on medical innovation, and resulted in the loss or deferred creation of jobs, reduced research, spending and slowed capital expansion.
According to some lawmakers, lobbyists, and industry executives, Trump and U.S. lawmakers will likely repeal the tax which could help some of the larger medical device manufacturers such as Medtronic, Boston Scientific, St. Jude Medical, and Johnson & Johnson. Senate Republican Leader Mitch McConnell has stated that repealing the Affordable Care Act will be one of the first order of business starting in January. Senator John Barrasso (R-Wyoming) has also stated that the medical device tax would likely be repealed.
There are still a number of decisions on how to approach the repeal of the medical device tax, whether in one single bill to repeal the Affordable Care Act or a number of smaller bills removing different parts of the Act. We should be receiving more clarity once President-elect Donald Trump officially takes office.
Repeal of the tax may remove approximately $2.5 billion of annual federal funding.
Congress Suspends Medical Device Tax for 2 Years
The New York Times reports that Congress has passed a $1.8 trillion package of spending and tax cuts which includes a two-year-long suspension of the medical device tax and a permanent extension of the research and experimentation tax credit (R&D tax credit). This came after an agreement between Republican and Democratic negotiators in the House reached on Tuesday, December 15, 2015. Shortly after its passage by Congress, President Obama signed the bill into law. Under the spending and tax measure, the medical device tax will be suspended for 2 years through the end of 2017, effective January 1, 2016.
According to a press release from Rep. Erik Paulsen (R-MN), the medical device tax was initially passed in the Affordable Care Act in 2010 and took effect in 2013. The Affordable Care Act imposed 2.3% excise tax on the sale of a diverse range of medical devices including pacemakers, ventilators, and artificial hips. The medical device tax has received significant criticism for the burden it placed on new entrants to and small players in the medical device space. Discussion regarding its repeal have been ongoing for quite some time.
In a joint press release, medical device industry groups including the Medical Device Manufacturers Association (MDMA), Advanced Medical Technology Association (AdvaMed), and Medical Imaging & Technology Alliance (MITA) applauded Congress for passage of the two-year suspension of the medical device excise tax in year-end legislation.
The R&D tax credit was originally introduced in the Economic Recovery Act of 1981 and has been temporarily extended since then. According to a press release issued by the Aerospace Industries Association, the most recent R&D tax credit extension lapsed at the end of 2014. Rep. Scott Peters (D-CA) lauded the permanent extension of the R&D tax credit and pointed out that: “with the credit made permanent, innovators know they can rely on this tax incentive to invest in their ideas.”
B. Braun Executive Urges Medical Device Tax Repeal
The Morning Call reports that an executive from B. Braun Medical Inc. has urged federal lawmakers to undo a tax on medical devices. According to the report, Bruce Heugel, the chief financial officer of B. Braun, recently appeared before the Senate Committee on Finance, Subcommittee on Health Care, and testified during a hearing to request repeal of the medical device tax.
The hearing, titled “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation, and Patients,” addressed the possibility of a tax repeal which has enjoyed support in the House and Senate. During the hearing, Heugel stated that the tax has reduced industry profits by 29 percent, which means that companies have fewer dollars available to reinvest in new products:
We have a responsibility to our employees, shareholders and community not to end up like Bethlehem Steel,” Heugel said. “So when the new medical device tax takes away $33 million through 2015, we are forced to launch painful counter-measures.
Sen. Debbie Stabenow (D. Michigan), the sole Democrat at the hearing, asked how the device tax could be repealed in a way that would not add to the federal deficit. According to the report, Heugel responded that the Affordable Care Act has provided more care, and that the companies providing that care already are being taxed, creating more tax revenue.
Bills to Repeal Medical Device Excise Tax Introduced
Congressman Erik Paulsen (R., Minn.) and Senator Orrin Hatch (R., Utah) recently introduced bills H.R. 160 and S.149, respectively. Both bills are part of an effort to repeal the 2.3% excise tax on medical device manufacturers and importers imposed by the Affordable Care Act, commonly known as ObamaCare. Guidance from the IRS on the medical device excise tax can be found here.
Where previous attempts to modify or repeal the medical device excise tax have stalled in the Senate, the Washington Times reports that prospects of the repeal passing both houses of Congress are bolstered by the newly Republican-controlled Senate. Further, as is reflected on Congress.gov, both bills have significant bipartisan support, and, according to The Hill, efforts to gain more supporters are ongoing.
But, The Hill reports that Republican and Democrat supporters of the repeal disagree on how to offset the revenue that would be lost should the tax be repealed. Further tempering optimism for repeal of the excise tax is a January 9, 2015 report from the nonpartisan Congressional Research Service, entitled “The Medical Device Excise Tax: Economic Analysis,” which states in its summary that the effect of the tax on the medical device industry will be minor because of the relatively inelastic demand for medical services, the small tax rate, and the numerous exemptions from the tax. Contrary to industry reports on the tax that predict significant adverse effects on innovation and employment, the Congressional Research Service’s report suggests that “most of the tax will fall on consumer prices, and not on profits of medical device companies.”
H.R. 160 has been referred to the House Ways and Means Committee while S.149 has been referred to the Senate Finance Committee. Check back here for further developments on efforts to repeal the medical device excise tax.
The Medical Device Tax in the Wake of 2014 Midterm Elections
Repeal of the medical device tax has seen frequent news coverage since the tax’s enactment in 2010 as part of the Affordable Care Act. The tax, which went into effect in January, 2013, imposes a 2.3% sales tax on a range of medical devices and accessories, from pacemakers to dentures to tongue depressors. Repealing the medical device tax became a major issue during the 2013 government shutdown, but there was insufficient support to successfully repeal the tax. However, following the 2014 midterm elections – in which the Republican Party increased its majority in the House and gained a majority in the Senate – there is renewed interest in the issue.
With about 7,000 medical device companies competing in the $125 billion medical device market in the U.S. – the world’s largest – there has been no shortage of lobbying efforts. Lobbying on medical devices and related supplies increased steadily from 1998 to 2008, with about $30 million spent each year since 2008 by device makers and industry groups lobbying the Hill. Recent lobbying efforts have focused on the medical device tax and resulted in broad bipartisan support for its repeal. Eighteen Senate Democrats supported delaying the tax in December 2012. In the most recent midterm election cycle, 60% of medical device companies’ support was given to six Republican candidates while only 40% was given to four Democratic candidates. The top two recipients include Rep. Erik Paulsen (R-MN) – industry giant Medtronic is based in Minnesota – and Sen. Mitch McConnell (R-KY), who will drive the agenda in the Senate next year as the Senate leader.
The Republican-controlled House has approved repeal of the tax three times in the last two years, most recently in September 2014. The Democrat-controlled Senate also backed repeal during a series of non-binding votes on a 2013 budget resolution. Now that Republicans control both chambers, it appears that repeal may be submitted for Presidential signature early next year. Despite being opposed to past efforts to repeal the tax, President Obama may now be more willing to consider signing it: when asked after the recent elections about the Republicans’ plans to repeal the tax, the President did not rule it out.
Industry participants see a real chance of passing the repeal. J.C. Scott, chief lobbyist for the Advanced Medical Technology Association, the industry’s main lobbying group, says device makers are “cautiously optimistic” that the repeal could happen this time. Further, the nonpartisan Congressional Research Service released a report last week stating that the tax is challenging to justify.
It appears the stars may have aligned for proponents of repealing the medical device tax. Only time will tell. For now, you can find answers here from the Internal Revenue Service to frequently asked questions about the medical device excise tax.