Part of President Obama’s landmark health care bill, the Affordable Care Act, imposed a federal tax on medical devices. That tax was temporarily suspended in January 2016, which allowed some medical device companies (i.e., OrthoPediatrics Corp. based in Northern Indiana) to hire more workers. The CEO of OrthoPediatrics is hoping that President Donald Trump, together with Congress, will turn the temporary suspension into a permanent repeal.
OrthoPediatrics Instituted a Headcount Freeze
OrthoPediatrics, founded in 2006, develops and markets implantable orthopedic devices, such as metal plates that can be attached to bones, to treat deformities and traumatic injuries in children. It has 60 employees in its Warsaw, Indiana headquarters, and 94 sales representatives around the United States.
When the tax was in full effect, CEO Mark Throdahl said, OrthoPediatrics “had almost a headcount freeze during 2015” because of the revenue that was siphoned away by the tax. Since the tax’s temporary suspension, he said, “We’ve resumed an aggressive pace of hiring and investment.”
AdvaMed Quickly Started Lobbying
The medical device industry is seeking to frame the fight as a jobs issue. Immediately following Trump’s election victory, industry lobbying group AdvaMed wrote to him and Vice President-elect Mike Pence asking for permanent repeal of the tax.
In the letter, AdvaMed President Scott Whitaker wrote, “The medical device tax has been a significant drag on medical innovation, and resulted in the loss or deferred creation of jobs, reduced research spending, and slowed capital expansion.”
Industry complaints like these led Congress last year to temporarily suspend the 2.3 percent excise tax on the sale of non-retail medical devices, such as pacemakers, heart valves and artificial hips. It had been in effect for only three years.
J.C. Scott, head of government affairs at AdvaMed, said companies “feel a great sense of urgency in trying to get complete repeal done early next year, rather than later in the year, because companies need certainty.”
There are about 9,000 U.S.-based medical device manufacturers. The industry accounts for about 520,000 U.S. jobs and has $150 billion in direct sales, AdvaMed spokesman Mark Brager said.
Indiana (Vice President Pence’s home state) is home to several device companies. So are Minnesota, California and Massachusetts. Lawmakers from these states helped push through the temporary suspension of the device tax.
Trump Executive Order
One of President Trump’s first orders of business was signing an Executive Order that allowed government agencies, “to the maximum extent permitted by law… to waive, defer, grant exemption from, or delay the implementation of any provision or requirement of the Act [Affordable Care Act] that would impose a fiscal burden on any State or a cast, fee, tax penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”
Congressional “Repeal and Replace” Attempt
In early March 2017, House Republicans unveiled their plan to repeal and replace Obamacare, and the released legislation includes ending the medical device tax for good.
While that is a significant victory for medical device makers, there are still open questions as to how the rest of the Republican plan will affect the industry. Those questions could be just the tip of the iceberg, as an industry that is deeply affected by federal policy tries to game out what the new regime, headed by Donald Trump and his GOP allies, will mean for their businesses.
We look forward to continuing to provide updates as we continue working in what seem to be uncharted political waters.