The Medical Device Tax in the Wake of 2014 Midterm Elections

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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.

Tom Cowan
Tom Cowan is an associate in the San Diego office of Knobbe Martens. His practice focuses on patent prosecuting and counseling in the mechanical and medical device spaces; trademark registration; licensing; handling cease and desist disputes for patents and trademarks; and analyzing patent portfolios including performing due diligence for patent portfolio acquisitions. Sample medical device technologies include auto-injector devices and systems, prostheses, tissue regeneration scaffolds, bone and tissue anchors, lateral flow assays, photoacoustic systems, raman spectroscopy techniques, intragastric devices, remote healthcare systems, thermoformable composites for immobilizing body parts, personal movement assistance devices, and more. While in law school, Mr. Cowan also received a Master of Science Degree in Biomedical Engineering. Prior to attending law school, Mr. Cowan interned at NASA and was a mechanical engineer at Northrop Grumman where he designed and tested spacecraft structures and mechanisms. Mr. Cowan was a summer associate at Knobbe Martens in 2012 and joined the firm in 2013.
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