New Congress Comes Out Swinging at the Medical Device Tax

With Republicans firmly in control of both houses of Congress, a renewed move for repeal of the medical device tax wouldn’t be long in the making.

In fact, it took less than a day for members of the 114th Congress to dust off the repeal issue, which most industry experts still consider of paramount importance.

The 2.3 percent excise tax was designed as a way to help pay for the Affordable Care Act (ACA), and has long been a target for repeal for lawmakers who represent states with concentrations of medical device makers. The tax is expected to generate approximately $30 billion in ten years.

On the first day of the new Congress, H.R. 160 “The Protect Medical Innovation Act,” was introduced in the U.S. House of Representatives, sponsored by Reps. Erik Paulsen (R-Minn.) and Ron Kind (D-Wis.), and now has 261 co-sponsors.

A week later, on Tuesday, Jan. 13, a bipartisan coalition in the Senate introduced S. 149, “The Medical Device Access and Innovation Protection Act.” The proposed legislation was sponsored by Senators Orrin Hatch (R-UT) and Amy Klobuchar (D-Minn.) and was introduced with a bipartisan group of original co-sponsors—Al Franken (D-Minn.), Pat Toomey (R-Pa.), Joe Donnelly (D-Ind.), Richard Burr (R-N.C.), Rob Portman (R-Ohio), Bob Casey (D-Pa.), Dan Coats (R-Ind.), and Jeanne Shaheen (D-N.H.).

“Every dollar medical device manufacturers spend on this onerous tax is a dollar taken away from American innovation, job growth, and the ability to provide groundbreaking medical technologies to patients in need,” said Hatch, chairman of the Senate Finance Committee and long-time champion of the tax repeal effort, who led the group of 10 senators, evenly split between Republicans and Democrats. Hatch has called the tax a “job killer.”

In an unusual step, however, both of the newly introduced bills in the House and Senate would repeal the tax retroactively, going back to the last day of 2012. So not only would the tax be repealed, but taxes already collected would be refunded.
The Internal Revenue Service began collecting the medical device tax on the first day of 2013.

Studies commissioned by the medical device industry project larger effects, with a loss of 30,000 to 40,000 jobs, reduced R&D investments and relocating manufacturing abroad.

But the Congressional Research Service, in a recent report, said the effect would be more muted—a drop of less than 1 percent in employment for the industry, noting that industry-commissioned studies overlooked the fact that “about half of output is exempt from the tax.”

The effects on jobs, research and company profits are “modest,” the report said. As a result of the tax, researchers estimated that 47 to 1,200 workers could lose their jobs. They account for one one-hundredth to two-tenths of 1 percent of jobs in the industry. “These relatively modest effects occur partly because the tax is relatively small,” the report said.

“A number of concerns have been raised about the effects of the tax on research and innovation in the medical device industry,” according to the researchers. “The relatively small effects on the industry suggest that innovation and research would be minimally affected.”

It is unclear if Congress will be able to find money to offset the revenue the medical device tax is expected to bring in over the next decade, which would be lost in a repeal.

Many Democratic leaders have defended the tax, claiming that manufacturers have more customers thanks to ACA, so they can afford to pay the levy. The medical device industry claims the  numbers aren’t that simple.

Support for repeal is not new. The House passed legislation to repeal the tax in 2012, 2013 and again last fall. The Senate endorsed repeal as part of a nonbinding budget blueprint in 2013.

President Obama has threatened to veto repeal legislation. The White House feels that passage could embolden rollback attempts for other taxes and fees that finance the healthcare law.

Senate Republicans have 54 votes, and five Democrats have sponsored the bill, which brings the numbers close to being able to survive a filibuster but not close enough to be veto-proof, which requires two-thirds majority.

Despite the unknowns, medical device industry groups have praised the quick move by lawmakers.

The Advanced Medical Technology Association (AdvaMed), the Medical Imaging & Technology Alliance (MITA), and the Medical Device Manufacturers Association (MDMA) have been steadfast in their calls for repeal.

“This tax is an anchor on American economic growth. Our industry has long been an engine of growth, driving medical innovation and producing well-paying manufacturing and advanced science and technical jobs. That’s why there is broad bipartisan support to repeal this tax and we urge Congress to act quickly,” Stephen J. Ubl, president and CEO of AdvaMed, said in a formal statement. “Today’s news that U.S. leadership in medical research is eroding underscores the need to address this tax quickly before further harm is done.”

“We’re encouraged to see continued bipartisan momentum behind repeal of the harmful device tax,” said Gail Rodriguez, executive director of MITA. “MITA appreciates Senators Hatch and Klobuchar’s leadership in introducing this bill in the Senate. Our industry’s jobs and the U.S. economy cannot wait any longer.”

“Senators Hatch and Klobuchar are passionate leaders of the bipartisan efforts to repeal the medical device tax, and MDMA thanks them and all their colleagues who recognize just how destructive this policy is for innovation,” said Mark Leahey, president and CEO of MDMA. “The United States needs more good paying, high-tech manufacturing jobs, and patients throughout the world are looking to this dynamic industry to alleviate suffering. Repealing the medical device tax would help medtech innovators solve both of these pressing challenges.”