Device Tax Repeal Passes in the House

Legislation to repeal the much-maligned medical device tax cleared the U.S. House of Representatives by a vote of 270-146 on June 7. H.R. 436, called the “Protect Medical Innovation Act of 2012,” is an attempt to remove the 2.3 percent medical device excise tax from the Affordable Care Act (otherwise known as healthcare reform) passed in 2010. The argument for the repeal made by industry and its supporters is that the tax will put undue pressure on the medtech firms, drive business and innovation outside of the United States, cause domestic job losses, and will ultimately have negative consequences not only for the industry but for citizens at large as well.

The bill was bundled with two other pieces of legislation, which of course also passed due to the favorable vote. One piece of legislation would let people cash out their flexible spending accounts (FSAs) at the end of the year, whereas now that money is forfeited if left unused. The other would allow over the counter medication to be purchased with FSAs. Currently, FSAs can only be used for prescription medication.

The issue of the tax repeal, though thus far garnering bipartisan support, did fall back along party lines at the House vote. No Republicans voted against H.R. 436, and a minority of Democrats (37) voted for it. The bill is the brainchild of Representative Erik Paulsen (R-Minn.) who, representing a state with a very vested interest in the success of medtech, has been relentlessly working to get the tax repealed since it was introduced in 2010.

Democrats opposed to H.R. 436 argue that the medtech industry ultimately will benefit from the Affordable Care Act (and all it entails) because device sales will rise as more people get health insurance coverage. On the other hand, reports that detail the negative impact of the tax focus on job cuts and loss of business rather than the potential for a rise in sales.

Advanced Medical Technology Association (AdvaMed) released a Battelle report earlier this year detailing the cost of the tax to the industry. Battelle’s analysis shows that the medical device technology industry is responsible for generating just under 1.9 million jobs in the United States, more than $113 billion in personal income for U.S. workers, $191 billion in value-added activities, and $381 billion in national economic output. According to the report, the estimated $3 billion hit the industry would take in taxes and other related costs would cost approximately 39,000 jobs and more than $8 billion in economic output. Battelle arrived at this estimate by applying hypothetical $3 billion changes to their 2009 numbers for the industry. According to their numbers, the hardest hit states would be California, Minnesota and Florida.

The report did, however, rely on a lot of hypothetical and predicted data.

President Obama has promised to veto the bill if it reaches his desk. He may not have to go through the trouble, though, as many are predicting the bill will hit a wall once it goes to vote in the Democratic majority Senate.