Secretary of the Treasury Testifies Before Budget Committee on Device Tax

During testimony before a U.S. Senate budget panel last week, U.S. Secretary of the Treasury Jacob Lew said that there may be occasion to renegotiate the 2.3 percent medical device excise tax.

“Maybe there’s a way of looking at it differently than the way it was designed,” Lew told Sen. Kelly Ayotte (R-N.H.) during testimony before the Senate budget committee April 16.

Although President Obama previously said he would veto the repeal of the tax should it ever reach his desk, according to recent statements by Sen. Al Franken (D-Minn.), he may be willing to rethink the issue should a replacement for the tax be found.

Ayotte pointed out that the tax punishes startups most severely, while larger companies will likely be able to push through the taxation relatively unscathed.

“There’s not much around here that we get 79 votes for in the Senate,” Ayotte said. “I hope [President Obama] would commit to working with both sides of the aisle on overturning this tax.”

“It’s always a dangerous business to reopen something when it’s a critical funding element in a complicated piece of legislation,” Lew acknowledged. “We all agree that having the best technology available for our patients is a very high priority. It’s also important to note the dramatic increase in the cost associated with the reimbursement for these medical devices. I would only point out that [the medical device industry] has been a very profitable business.

“[The tax] is something that, if it were to be removed, it would have to be replaced,” Lew continued. “The idea was not to target startups. It has a much broader effect than that and many, if not most, of the sales are not [from] startups.”

CEO of the Advanced Medical technology Association (AdvaMed), Stephen Ubl, shot a letter to the treasury secretary immediately, challenging some of the points he made in his testimony. He highlighted that there has been no increase in reimbursement for medical technology relative to other health services, and that national spending on medical technology has remained at a steady 6 percent of national health expenditures for the past 20 years.

“Moreover,” he wrote, “because the industry is highly competitive, prices for medical technology have risen during the same period at an average annual rate of only 1 percent—less than a quarter the rate of other medical goods and services and less than half the rate of the overall CPI (consumer price index).”

Ubl insisted that tax repeal is not simply a move that would favor the device industry, but “central to tax reform and economic growth.”

“When combined with the high and uncompetitive corporate tax rate already levied on American-based research & development and manufacturing, it is a profound disincentive against locating these activities in the United States—whether the manufacturer is a U.S. company or a U.S. subsidiary of a foreign company. That is directly contrary to the administration and our industry’s shared goal of keeping and growing good jobs in the United States,” he wrote.

In the past, AdvaMed has stated it would not support a sliding-scale tax where smaller companies would pay a lower rate. The advocacy organization is pushing for a full repeal of the tax.