Final Push For Medical Device Tax Repeal Underway

The 2.3 percent medical device tax set to take effect next year will add another $2.5 billion to the industry’s annual tax bill, a new report commissioned by the Advanced Medical Technology Association (AdvaMed) contends. The report was compiled by consulting firm Ernst & Young.

AdvaMed released its findings on Nov. 14, the day before the start of a renewed lobbying effort to repeal the tax. On Nov. 15, more than 50 medtech CEOs from throughout the nation met with members of the U.S. Congress to, in AdvaMed’s words, “protect research, development, investment and innovation” by repealing the tax.

According to the report, the 2.3 percent tax will add $2.5 billion to what the industry already pays in taxes each year. According to the Joint Committee on Taxation, the additional $2.5 billion represents an amount equal to 29 percent of the industry’s total 2013 federal tax liability. The overall federal income tax liability for the medical device industry is estimated to be $8.7 billion in 2013, according to the report.

“A dramatic tax increase on a job-creating industry like medical technology makes no sense,” said Stephen J. Ubl, president and CEO of AdvaMed. “A tax bill this big will only lead to fewer jobs, reduced investment in tomorrow’s treatments and cures, or higher health care costs for the consumer. At a time when there is bipartisan agreement that the U.S. tax system needs to be more competitive, the device tax takes us in exactly the wrong direction. The device tax no longer has anything to do with the debate over the Affordable Care Act; the issue now is whether our tax system is going to support or undermine America’s ability to compete in the global economy.”

It’s been heard before—but this last push before the levy’s Jan. 1 implementation is hoped to have an effect on Congress. On Nov. 13, several hundred industry organizations and companies signed a letter addressed to Senate Majority Leader Harry Reid (D-Nev.); Minority Leader Mitch McConnell (R-Ky.); Sen. Richard Durbin (D-Ill.), assistant majority leader; and Sen. Jon Kyl (R-Miss.), senate minority whip. The letter urged the senate leaders to “add the repeal of the medical device excise tax to [their] list of priorities that should be acted on this year.” One of the key points the letter (and Ubl) made, which appeals to those on both sides of the political aisle, is that the excise tax is bound to “increase the costs of health care” as a natural consequence of the adverse impact the tax will have on patient care and innovation in the United States.

The letter also pointed out the flaw in the law’s assumption that the tax would pay for itself by increased demand for medical devices from patients who will now be able to afford them: “The tax will not be offset by increased demand for medical devices,” the letter reads. “In fact, it is important to note that there is no evidence suggesting a device industry ‘windfall’ from healthcare reform. Unlike other industries that may benefit from expanded coverage,
the majority of device-intensive medical procedures are performed on patients that are older and already have private insurance or Medicare coverage. Where states have dramatically extended health coverage, such as in Massachusetts where they added 400,000 new covered lives, there is no evidence of a device ‘windfall.’”

On Nov. 15, CEOs speaking to Congress represented the interests of members of AdvaMed as well as the Medical Device Manufacturers Association and the Medical Imaging & Technology Alliance.

The House of Representatives already has voted to repeal the tax, with 37 Democrats joining the unanimous Republican vote in the GOP-controlled House. Since the House vote in June, an increasing number of Senate Democrats have expressed support for the repeal and concern about the tax’s effect on job creation and innovation.

The medical technology industry employs about 400,000 workers directly, generating approximately $25 billion in annual payroll. The average annual salary of a medical technology worker is $58,000, compared to $42,000 for the overall national average. States including Minnesota and Massachusetts, whose economies are heavily dependent on medical technology, also have vehemently opposed the tax.

In a conference call with reporters on Wednesday, Nov. 14, David Nexon, senior executive vice president of AdvaMed, characterized the tax as a “job killer” that made little business sense

“America already has the highest corporate tax rates in the world,” Nexon said. “To load this additional burden on an industry that is so important to our economy and which is facing strong international competitive pressures, makes no sense at all.”