Regulatory Focus™ > News Articles > What's in Store for the Medical Device Tax?

What's in Store for the Medical Device Tax?

Posted 13 July 2015 | By Michael Mezher 

What's in Store for the Medical Device Tax?

Last month, the US House of Representatives passed a bill that would repeal the medical device tax levied under the Affordable Care Act (ACA). Now, the Senate Joint Economic Committee (JEC) has released a report critical of the tax, calling the tax "onerous" and "poorly conceived."

Background

The medical device tax has been controversial since before ACA was signed in 2010.

Under ACA, a manufacturer or importer of a medical device is subject to an excise tax of 2.3% of the sale price of a device. It is estimated the tax will provide close to $30 billion in funding over the next decade, however, the tax remains unpopular with both Republicans and some Democrats, who have voted numerous times to repeal or delay the tax.

In June, the House of Representatives voted 280–140 on the Protect Medical Innovation Act to repeal the tax. The 234 Republican 'yeas' were joined by 46 democrats.

JEC Report

The crux of the argument presented in the Senate JEC report, An Economic Analysis of the Medical Device Tax, is that the tax negatively impacts the domestic medical device industry and is "purely to raise revenue."

The report argues that the tax disproportionately affects small businesses, and is applied unfairly as exported devices are exempted from the tax. Narrowing the tax base in this regard, the report says, "gives incentives to medical device companies to allocate a piece of their fixed costs to foreign market research."

The report goes on to rebut key arguments that have been made in support of the medical device tax. One such argument holds that benefits to device makers under ACA outweigh the cost of the tax. To this, the report counters that the use of many medical devices fluctuates according to demographic changes, and limits to Medicare spending will "squeez[e] the margins of device manufacturers."

What's Next?

A bill introduced by Senator Orin Hatch (R-UT) to repeal the tax currently has 38 co-sponsors, five of whom are Democrats.

While it is likely the bill could gather enough support to pass the Senate, the White House has said it would veto the attempt to repeal the medical device tax.

In the event of a veto, it would be difficult, even with bipartisan support to drum up a two-thirds majority in each house to override it, especially without provisions to account for the deficit repeal would entail.

 

JEC Report


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