Medical Device Tax suspended

President Barack Obama last week signed into law an omnibus tax and spending bill that pauses the medical device tax for 2 years, hours after the U.S. Senate approved the $1.8 trillion measure on a 65-33 vote.

The 2-year pause on the medical device tax, a 2.3% levy on all U.S. sales of medical devices, is estimated to cost $3.4 billion, according to the Joint Committee on Taxation.

“I’m not wild about everything in it,” Obama said during press conference Dec. 18. “I’m sure that’s true for everybody. But it is a budget that, as I insisted, invests in our military and our middle class without ideological provisions that would have weakened Wall Street reform or rules on big polluters.”

The law also enshrines a research & development tax credit worth $113 billion over 10 years.

The medical device industry has fought tooth-and-nail against the tax since it was 1st floated as a way to fund the Affordable Care Act. Since then, numerous bills to do away with it have circulated on Capitol Hill, including the “Protect Medical Innovation Act of 2015,” sponsored by Rep. Erik Paulsen (R-Minn.), that the CBO evaluated last summer. In June, 46 Democrats joined the vote to approve the Paulsen measure; in August, the Senate said it would take up a companion measure before the end of the year, although those plans might be obviated if the omnibus spending package goes through.

Estimates of the impact of the medical device tax have varied wildly since its 1st airing in 2009; 4 years of political deadlock, which included a federal government shutdown over the issue, have done little to add clarity. Federal government officials have projected that the tax will raise about$30 billion over 10 years. Back in July 2013 a report released by a coalition of medical device lobbying groups estimated that the tax had cost the industry $1 billion during the 1st 6 months of that year.

In July 2014, learned via a Freedom of Information Act request to the Internal Revenue Service that the tax bureau collected only $1.4 billion from the medical device tax in 2013, far short of all predictions. An audit by a U.S. Treasury inspector general revealed that the IRS collected a little more than $913 million during the 1st half of 2013, well shy of the $1.2 billion it expected the tax to bring in.

Scott Huennekens, president & CEO of Verb Surgical and chairman of the Medical Device Manufacturers Assn., said the moratorium on the tax is a milestone on the way to permanent repeal.

“MDMA has fought against this misguided policy since it was 1st proposed in 2009, and while suspension of the medical device tax is a positive step, we will remain focused on repealing a policy that only serves to punish a vital sector of America’s innovation ecosystem,” Huennekens said in prepared remarks.

“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. 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,” added AdvaMed chairman and Becton Dickinson & Co. (NYSE:BDX) CEO Vincent Forlenza.

Masimo (NSDQ:MASI) said it would increase its spend on infrastructure and R&D in response to the tax pause.

“We applaud the bipartisan efforts of Congress and the administration to suspend the medical device tax for two years,” founder, chairman & CEO Joe Kiani said in prepared remarks. “This 2-year moratorium will allow us to immediately begin to increase our investment in our infrastructure and research & development.”