Medical Device Tax
Congress continues to work to eliminate or delay the onerous medical device tax. The 2.3 percent excise tax on medical devices was first enacted as part of the Affordable Care Act (ACA) in 2010. The tax was designed as an offset to pay for the cost of the legislation, which expanded access to healthcare for millions of Americans. By taxing revenue instead of profit, however, the levy proved to be a significant burden for domestic device manufacturers. Since the levy was first implemented in 2013, Congress has suspended the tax twice, most recently under the Bipartisan Budget Act of 2018. Without further Congressional action, the current suspension will expire on Jan. 1, 2020, and the tax will be reinstated.
In the current 116th Congress, U.S. Reps. Ron Kind (D-WI) and Jackie Walorski (R-IN) introduced H.R. 2207, the Protect Medical Innovation Act, which would permanently repeal the medical device tax. The House bill has 226 original cosponsors including 47 Democrats. The Senate version of the bill, S. 692, was introduced on March 7 by U.S. Senators Pat Toomey (R-PA) and Amy Klobuchar (D-MN), along with 18 original cosponsors, split evenly among Republicans and Democrats.
The new Democratic House majority poses a more challenging landscape for device tax relief as many Democrats view repealing the tax as a handout to industry and a tool to defund the ACA. However, the bill still enjoys considerable bipartisan support. Passing a stand-alone device tax repeal bill through both the House and Senate may be challenging given the divided Congress and current dynamics of political polarization. As the end of the year draws closer, industry will be focused on identifying a legislative vehicle that can carry yet another extension of the device tax suspension, preventing the tax from being resurrected in 2020. With this impending deadline, it is critical lawmakers in Congress recognize the burden the tax places on device manufacturers who bring life-changing innovation to patients and support thousands of robust domestic manufacturing jobs.
Medical Device Safety Act
With the new Democratic majority in the House, the medical device industry is preparing to defend itself against a number of anti-industry legislative proposals that have historically been championed by stakeholders close to the Democratic Party. One particularly concerning proposal—the Medical Device Safety Act—has long been supported by the plaintiff’s bar in an attempt to weaken federal protections against state tort claims. The Medical Device Safety Act was first introduced in Congress in 2008 by then-Senator Ted Kennedy (D-MA) and now-Chairman of the House Energy and Commerce Committee Frank Pallone (D-NJ), and has been reintroduced in several Congresses thereafter. The bill would eliminate federal preemption laws and allow lawsuits challenging a medical device’s safety and effectiveness to be determined in state courts. Federal preemption for devices that have received Premarket Approval (PMA) from the U.S. Food and Drug Administration (FDA) was upheld by the U.S. Supreme Court in a landmark 8-1 decision in Riegel v. Medtronic in 2008. The Medical Device Safety Act would seek to end this preemption, allowing multiple state courts to challenge the validity of PMAs and essentially create a 50-state regulatory patchwork system for high-risk and complex devices.
Cosponsors of the Medical Device Safety Act have historically been mostly Democrats, but the bill does enjoy some bipartisan support from Republicans. The most recent iteration of the bill in 2017 was led and introduced by Republican Brian Fitzpatrick (R-PA). Reps. Jan Schakowsky (D-IL) and Fitzpatrick are expected to introduce the bill shortly in the 116th Congress. Non-profit organizations and advocacy groups such as ASHES (Advocating Safety in Healthcare, E-Sisters) have been actively promoting the bill, seeking additional House cosponsors and a Senate companion. This activity has coincided with recent international campaigns questioning the safety of medical devices and the FDA’s approval process such as the 2018 Netflix film The Bleeding Edge, the coordinated investigative reporting in 2018 and 2019 led by the International Consortium of Investigative Journalists (ICIJ), and a recent opinion piece by the New York Times editorial board .
While the Medical Device Safety Act represents a serious threat to any company who markets devices approved through the PMA process and should be taken seriously by industry stakeholders, Democrats have struggled in recent years to unite behind this approach: although Democrats held full control of both chambers of Congress and the White House in 2009 and 2010, the Medical Device Safety Act did not advance. Regardless of past results, this energy could change with the political winds, and the Medical Device Safety Act could play a role in a larger-scale congressional inquiry to scrutinize the safety of the entire medical device industry leading up to the 2022 reauthorization of the Medical Device User Fee Act.
Breakthrough Pathways/FY 2020 CMS IPPS Proposed Rule
The Breakthrough Devices Program was instituted in 2016 under the 21st Century Cures Act to provide expedited assessment and review of products deemed to be new and innovative breakthrough technologies by FDA. For a medical device to earn a breakthrough designation, it must: (1) provide more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases; (2) have no approved alternatives; (3) offer significant advantages over existing approved alternatives; or (4) have its availability be in the best interest of patients. Devices that meet the breakthrough designation still must meet the FDA’s premarket standard of safety and effectiveness.
Since the launch of the program, however, breakthrough status did not explicitly guarantee coverage or adequate payment from the Centers for Medicare and Medicaid Services (CMS) for these innovative products. Recognizing this inconsistency, Reps. Charles Boustany (R-LA) and Richard Neal (D-MA) introduced H.R. 5009, the Ensuring Patient Access to Critical Breakthrough Products Act, in 2016. The bill would require Medicare to cover all breakthrough products for three years, require Medicare to make a future coverage determination within those three years, and make these products automatically eligible for Medicare’s New Technology Add-on Payment (NTAP) in the inpatient hospital setting. The proposal was re-introduced by Reps. Suzan DelBene (D-WA) and Jackie Walorski (R-IN) in 2018 as H.R. 5997. The legislation did not advance in the 115th Congress, but the concept has been actively pushed by industry trade groups.
On April 23, CMS released the FY 2020 Inpatient Prospective Payment System (IPPS) Proposed Rule, which sets forth payment rates and updates to the hospital system falling under Medicare Part A. Notably for medical devices, the IPPS Proposed Rule includes a proposal to revise the calculation of NTAP for novel drugs and devices from a 50 percent add-on payment to 65 percent, effective FY 2021. In addition, CMS is proposing to automatically grant NTAP status to medical devices with breakthrough distinction from FDA, or devices that demonstrate substantial clinical improvements over existing devices, provided they meet the applicable cost threshold for NTAP. CMS is also seeking comment on how to provide greater clarity and transparency regarding the “substantial clinical improvement” criterion under NTAP and transitional pass-through payments under the Outpatient Prospective Payment System (OPPS). The automatic NTAP qualification for breakthrough products only applies to devices and not to breakthrough drugs.
The aforementioned proposals are a positive development for the medical device industry and incorporate many of the ideas outlined in H.R. 5997. With the Proposed Rule, CMS is signaling a positive step forward in ensuring adequate access and coverage for innovative devices. While the device industry will work to support CMS’ proposals and ensure the policies are finalized in the FY 2020 IPPS Final Rule, some stakeholders may oppose the policies put forth in the Proposed Rule of benefit to medical device manufacturers, including the pharmaceutical industry, which is likely to advocate for drugs to also benefit from the NTAP changes. Consumer organizations that have historically aligned themselves against industry may fight these proposals as well, in part due to the fact that NTAP is not budget neutral, which would introduce additional costs into the Medicare Program.
HCPCS and CPT Coding Processes
Additionally, on May 2, CMS Administrator Seema Verma announced changes to the Healthcare Common Procedure Coding System (HCPCS) and Current Procedural Terminology (CPT) coding processes intended to improve patient access to emerging technologies by creating more predictable coverage pathways. Verma announced CMS will begin accepting HCPCS coding applications for medical devices on a semi-annual basis, as opposed to the yearly application process that is currently used. Verma also said Medicare Administrative Contractors must begin following a new Local Coverage Determination (LCD) process for CPT Category III codes that do not fall under existing LCDs to increase transparency. While additional information on these new HCPCS and CPT processes is will be released at a future date—including the timing and implementation of the policy—this is an incredibly positive change for which the medical device industry has advocated for many years.
Jeffrey J. Kimbell, president and founder of Jeffrey J. Kimbell & Associates Inc., represents 35 clients in the life sciences community seeking legislative and policy remedies in Washington. Founded in 1998, the firm provides strategic solutions to hand-selected clients seeking creation, modification, or proper implementation of public law.
David C. Rudloff is a manager of government relations at Jeffrey J. Kimbell & Associates Inc. He previously worked as a litigation paralegal at Covington & Burling in Washington, D.C. Rudloff graduated from Davidson College in 2016 with a B.A. in political science.
Caroline P. Tucker is a manager of health policy and reimbursement strategy at Jeffrey J. Kimbell & Associates Inc. She graduated with a B.A. in the history of science and medicine from the Johns Hopkins University and with an M.S. in health policy from the Milken Institute School of Public Health at the George Washington University.