Congressman Seeks to Repeal Medical Device Tax

Rep. Erik Paulsen (R-Minn.) has introduced the Defend Medical Innovation Act, legislation that immediately would repeal the 2.3 percent excise tax included in healthcare reform, which would take effect in 2013.

“The medical technology industry is an American success story, responsible for life-saving technologies and tens of thousands of jobs in Minnesota alone,” said Paulsen, who is co-chairman of the U.S. House of Representatives’ Medical Technology Caucus. “Once it takes effect, this tax will harm job growth, slow innovation and raise costs. The right thing to do is stop this tax now, before its negative impact takes hold.”

In a statement, Paulsen stressed the importance of keeping the medical device industry in the United States healthy and competitive, noting that medical U.S. firms employ more than 350,000 people. In addition, the average salary for workers in this sector is $70,000, or 49 percent more than the average private sector job, and 18 percent more than the average manufacturing job.

While a total repeal of the tax would be a significant load off the industry’s back, many see a complete reversal of the tax unlikely.In the meantime, industry advocacy groups have indicated that a “carve out” to the tax could be a more realistic possibility.Aside from the bottom-line burden the tax imposes on device firms, critics argue that the law doesn’t distinguish between the percentage of tax paid by small and large firms—and that this tax is particularly burdensome on small and midsize medtech companies. Industry insiders say that innovation would be significantly stymied by the law—especially because most of the innovation comes from small, cutting edge firms with fewer than 50 employees.

For example, legislation to amend the currently approved version could exempt the first $150 million of a company’s revenue from the new tax, giving nascent companies the chance to grow their business before being hit. A graduated scale would kick in as company revenues increased. That would be similar to a tax structure in place now for pharmaceutical firms. Such a system was included in previous versions of proposed healthcare reform legislation, but was not included in the current law.

According to the Washington, D.C.-based Advanced Medical Technology Association (AdvaMed), there are more than 6,000 medical device companies in the United States and fewer than 5 percent have annual sales of more than $100 million. According to AdvaMed officials, the tax impacts smaller companies especially hard, since some have no profits and almost all rely entirely on domestic sales for their revenues (the excise tax is levied against domestic sales only).