Near the end of 2015, it was officially announced that the US Medical Device Tax has been suspended for two years. The Medical Device Tax was enacted as part of the Affordable Care Act of 2010 and became an impediment to innovation that springs from start-ups, and many established companies curtailed their investments in research and development and reduced their workforces to pay the new revenue tax. With this new development, medical device companies are pledging to increase investment in research and development in response to the moratorium on the Medical Device Tax. The suspension went into effect when President Barack Obama signed a $1.8 billion taxation and spending bill that contained a form of extended tax credits.
The temporary freeze follows a long hard battle by AdvaMed and med tech lobbying groups to repeal the tax. According to an AdvaMed spokesman, the House has passed a repeal of the device tax at least 5 times since June 2012. The bills included two stand alone measures, a reconciliation vote, a jobs package and a continuing resolution. Other highlights included several speeches and press releases put out by AdvaMed and other opponents of the tax. The efforts to end the tax finally paid off, albeit only for two years, though industry is betting that a temporary suspension will turn into a permanent repeal.
“America’s medical technology companies, including our nearly 2 million employees and the countless patients we serve, appreciate the broad bipartisan effort to suspend the medical device tax,” said AdvaMed Board Chairman and Becton Dickinson ($BDX) CEO Vince Forlenza in a statement. “This critical relief would not be possible without the tireless efforts by a large group of champions in Congress as well as among the patient, provider and research communities. Congress and the administration have demonstrated that they recognize the negative effects of this tax. We urge policymakers to continue their work to eliminate the device tax and address other factors that are threatening the health care innovation ecosystem.”
Medtronic expected the medical device excise tax to cost the company $210 million during fiscal year 2016. Because companies could deduct the tax when filing other taxes, the overall impact was closer to 1.5% of sales. But opponents of the Affordable Care Act funding mechanism argued that because it was a tax on sales, it hit small companies.
“Luckily now we’ll be able to go back and review that and remove the expense and cash that we had put in to the budget for the medical device tax and instead replace that with incremental programs developing new projects,” OrthoPediatrics’ CFO Fred Hite. Meanwhile, Irvine, CA’s Masimo, the maker of non-invasive patient monitoring technology, pledged to immediately begin to increase its investment in R&D and infrastructure in response to the suspension.
The tax’s impact on med tech jobs was the subject of much debate, in part due to the large amount of attention and criticism it received from congressional Republicans. AdvaMed’s claim that the tax cost more than 30,000 jobs was called misleading by the Washington Post. Meanwhile, a Congressional Research Service report claiming that the tax resulted in minimal job losses earned the ire of industry. The tax’s performance as a fundraiser is clearer. It raised $913 million in the first half of 2013, or about 75% of what was expected. As many as 15,000 filers were anticipated, but only 5,107 medical device tax forms were filed. Whether the suspension becomes permanent depends in large part on who becomes the next president.
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