The Medical Device Tax, instituted as part of the Affordable Care Act, is a tax of 2.3 percent on the sale price of medical device products. There has been considerable pushback against the tax—with members of Congress from both sides of the aisle arguing that it stifles innovation and costs jobs. While there has been a lot of talk about a repeal, the issue has seemed to stall until recently.
In late April, the United States Senate Committee on Finance held a hearing entitled “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation and Patients.” In the lead-up to the hearing, Finance Committee Chairman Orrin Hatch (R-UT) stated that the Committee plans to mark up a bill to repeal the tax “soon,” notes Cooley Health Beat.
The hearing itself is quite interesting. Senator Patrick J. Toomey (R-PA) started things off by holding up various medical devices—including a mechanical heart pump, a spinal implant, and a vagal nerve stimulator for epilepsy—all of which vastly improve patients’ lives but which took millions of dollars in losses to bring to market before ever showing a profit. The device tax only magnifies these losses. Toomey noted that at least one manufacturer, in order to offset the costs of the medical device tax, would be building its next factory outside the U.S. Further, the tax has cost jobs, as a number of speakers testified.
Toomey also raised an important point when discussing how the tax works in practice:
My view is that the tax, the Medical Device Tax, is not only onerous on its scale, but it’s bad in its design. It is a tax on sales, not a tax on profits. And so these companies that I alluded to that spent large sums of money making these product and bringing them to market, they were losing money years, even when they started to have sales. The initial sales those years were not enough to be profitable. To impose a tax on those sales prior to there even being a profit, it just adds to the debt load that these companies have to carry. And there is only so much debt that can be financed. This is one of the concerns that I have. The design of this tax is very very unfortunate.
In the House: Protect Medical Innovation Act “prior to Memorial Day recess”
Even more recently, a group of 18 Democrats in the U.S. House of Representatives urged House leaders to pass H.R. 160, the “Protect Medical Innovation Act,” that would repeal the device tax. The bill is sponsored by Rep. Erik Paulsen (R-Minn.) and Rep. Ron Kind (D-Wis).
In a May 1 letter written by Rep. Scott Peters (D-Calif.) and co-signed by 17 other Democrats, the lawmakers said that the medical device tax is blocking new medical technology breakthroughs and ultimately harming patients. Furthermore, the tax is harming the employment outlook of a vibrant sector. “The medical technology industry directly employs over 400,000 Americans,” states the letter. “The industry is primarily comprised of small and medium-sized businesses and American companies representing 38% of the global market.” Importantly, “[o]f the 6,500 medical device manufacturers in the United States, 80% employ fewer than 50 employees,” notes Peters.
The letter was addressed to House Speaker John Boehner (R-Ohio), Minority Leader Nancy Pelosi (D-Calif.), Ways and Means Committee Chairman Paul Ryan (R-Wis.), and Committee Ranking Member Sander Levin (D-Mich.).He urged the House leaders to pass H.R. 160 by the Memorial Day recess.
The sticking point in getting a medical device repeal has been the lack of a budget offset. Last year, the Joint Committee on Taxation estimated that the tax would raise about $28 billion over the next decade. H.R. 160 doesn’t include a way to offset that expected source of revenue. The White House has indicated that the President would veto a measure that doesn’t account for the budget.