Medical Device Tax Returns to Dismay of Industry

Posted January 5, 2018

After a two-year reprieve that many in the healthcare technology industry expected to be permanent, the medical device tax is back.

This 2.3% excise tax on medical device sales, first imposed by the Affordable Care Act (ACA), was reinstated at the start of 2018 to the disappointment of many in the medical device industry. Following the passage of the ACA in 2010, the tax drew increasingly bipartisan opposition. It was eventually suspended—but not repealed—at the end of 2015.

The medical device industry has decried the tax, which was intended to raise $26 billion in revenue for ACA programs, as a barrier to innovation that increases healthcare costs.

“When the device tax was suspended, we reinvested our tax savings into programs including our own R&D, investments in early stage med-tech companies, and innovative projects with leading medical facilities,” said Boston Scientific in an emailed statement. “The reinstatement of the device tax threatens continued investment in programs like these. We are disappointed in Congress’s failure to take action before year-end despite bipartisan support for full and permanent repeal, and hope that Congress will repeal or suspend the tax [in January].”

A repeal of the tax appeared in versions of the Republican healthcare bills that failed to advance last year. And while the Tax Cuts and Jobs Act of 2017, signed into law by President Donald Trump in December, repealed some parts of the ACA, cut some taxes, and repealed others, in the end, the medical device tax remained untouched. However, device makers are likely to benefit from a decrease in the corporate tax rate from 35% to 21% of income.

In a Dec. 21 statement, the medical device trade association AdvaMed encouraged a repeal of the tax “once and for all” from Congress and President Trump.

“This is a tax on innovation, a tax on jobs, and a tax on the health and well-being of millions of American patients. It makes no sense from either a healthcare or a tax policy perspective, which is why bipartisan majorities for years in both the House and Senate have called for this tax to be repealed,” AdvaMed wrote in support of legislation co-sponsored by Reps. Tom Reed (R-NY), Josh Gottheimer (D-NJ), and Kurt Schrader (D-OR) to repeal the tax. That bill, the Bipartisan Market Stabilization and Innovation Act was introduced on Dec. 20 and is in committee.

In addition to legislative action, AdvaMed President and CEO Scott Whitaker also wrote to President Trump directly to ask for “administrative relief” by waiving biweekly deposit requirements to the Internal Revenue Service. A potential retroactive repeal of the tax would still result in an expensive and cumbersome refund process, he wrote.

AdvaMed previously reported that manufacturers cut more than 28,000 jobs from 2012 to 2016, the last time the tax was in effect. Despite the reported job losses, overall net profits for the 102 largest U.S.-based medical technology companies increased by 19% from 2012 to 2013, the year the tax was implemented, and by 7% the year after that, according to a survey of company data by the Government Accountability Office.