Medical Device Excise Tax Remains in Limbo
President Trump and Paul Ryan (R-Wis) have not yet successfully replaced the Affordable Care Act with the American Health Care Act (“AHCA”). The medical device industry had been paying particular attention to the proposed reform because the 2.3% excise tax that was suspended for 2016 and 2017 is scheduled to go back into effect on January 1, 2018. The tax, which has already required the payment of billions of dollars by device manufacturers, has an outsized impact because it is assessed on gross sales, not profits.
Scott Whitaker, president & CEO of AdvaMed, told MassDevice.com that:
The fight is far from over for repeal proponents. The trade lobby plans to continue its ‘aggressive’ push to capitalize on the bipartisan support for repealing the tax. We cannot allow this tax to be reimposed on a vibrant and innovative American industry and look forward to working with Congress and the administration to end this tax once and for all.
AdvaMed plans to huddle with longtime Capitol Hill supporters of repealing the tax, including Reps. Erik Paulsen (R-Minn.), Ron Kind (D-Wis.), Sens. Orrin Hatch (R-Utah), and Amy Klobuchar (D-Minn.).
Whitaker believes there are several options to make the excise tax go away permanently, including stand-alone legislation. The Republican-controlled House has approved repeal of the excise tax four separate times in the past three years, including most recently in January 2017. The repeal “is probably going to get put into a budget reconciliation that only needs a simple majority vote in the Senate,” said Steve Parente, a professor and director of the Medical Industry Leadership Institute at the University of Minnesota. According to Parente, proponents feel that this time around, the chances of passing such a bill are much better with a Republican controlled House, Senate, and Presidency.
Despite the setbacks, the medical device industry continues to lobby both sides of the aisle to fight the excise tax. An estimated $158 million was spent on lobbying in Washington since 2012 by medical device manufactures, according to OpenSecrets.org, a nonprofit group that tracks and reports on money’s impact in politics. According to Opensecrets.org, in 2016 there was a reported $22.3 million spent on lobbying with more than $8 million have been spent on political campaigns.
Regardless of the failure of the AHCA bill, and the previous repeal legislation, news articles note that the medical device industry continues to look for supporters and ways to keep the excise tax suspended with potentially millions more being spent in lobbying this year.
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.
Senate’s Vote to Repeal Medical Device Tax – Form Over Function?
Despite the Senate’s recent vote to repeal the medical device tax by a margin of 79-20, Forbes reports that the vote will have little practical effect on medical device manufacturers, at least in the short term. In order to abolish the tax, the article states that the loss of potential revenue from the tax, equal to over $10 billion over 10 years, would have to be completely offset by alternative revenues. The article posits:
Is there a possibility of the medical device tax being removed (or modified) down the road? Yes there is – but that road is much more potholed and twisted than many medical device manufacturers think.
According to the article, the 2.3% excise tax on the sales price of medical devices, which was passed as part of the Affordable Care Act, currently applies to almost any FDA-registered device intended for human use. Because the tax can apply to “everything from MRIs to tongue depressors to ultrasounds to condoms,” the article notes the concern that many taxpayers may not realize that the law can directly affect them. The article discusses a number of other considerations medical device manufacturers will likely face, including whether a particular company is overpaying, the potential to limit tax liability by determining the “price” of the medical device itself (as separate from bundled services), and situations involving contract manufacturers. The full article is available here.
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