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Medical Device Tax: Ready for Repeal?

The 2.3 percent excise tax on medical devices has been one of the more publicly controversial inclusions in the five-year-old Patient Protection and Affordable Care Act (PPACA). Expected to raise $30 billion over 10 years to pay for provisions in the healthcare law, the tax has underperformed thus far, raising $913 million in the first half of 2013—which is only around 75 percent of what was expected. Reportedly, only about a third of eligible companies have filed the medical device tax forms.

There has been strong opposition to the tax from industry organizations and leading medical device companies, including Medtronic and Baxter, demonstrated by a six percent increase in lobbying spend from 2013 to 2014. The medical device trade association, AdvaMed, conducted a survey of its member companies in 2013 and 2014 to determine the impact of the tax on the industry. The report, released in January 2015, states that 195,000 jobs could be lost over the next five years, 39,000  from the medical device industry and 156,000 from suppliers and manufacturers. Additionally, 53 percent of AdvaMed members reported cuts to R&D spending, which could negatively impact industry innovation.

The non-partisan Congressional Research Service (CRS) released a similar report in January 2015, which counters AdvaMed’s job loss claims and estimates that the tax will only result in a 0.2 percent decrease in industry jobs (roughly 1,200). The report also cites that health reform may, in fact, drive innovation by encouraging companies to develop more cost-effective medical technology. Perhaps asserting claims from industry, the CRS states that “from the perspective of traditional economic and tax theory, however, the tax is challenging to justify.”

Despite conflicting views—and research—repealing the tax is a priority of the Republican-led Congress. In mid-June, H.R. 160, the Protect Medical Innovation Act of 2015, passed the House of Representatives with a two-thirds majority vote, making it veto-proof. The bill originally drew bipartisan support from Minnesota, Massachusetts, and California Democrats, all hailing from states that tout a large medical device industry prescence. Another two-thirds vote is required in the Senate to override an expected veto by the President.

While there has been a swell of support to eliminate the excise tax, some are hesitant to support a repeal without addressing the revenue that will be lost. Previous unsuccessful bills have included items such as ending tax breaks and subsidies for oil and gas companies, but they have struggled to gain co-sponsors. Utah Senator Orrin Hatch (R) introduced S. 149: Medical Device Access and Innovation Protection Act in January, but despite the 38 co-sponsors—five of whom are Democrat—no movement has occurred since. The Congressional Budget Office (CBO) recently reported that enacting H.R. 160 would increase federal deficits by $24.4 billion over the next ten years. Without a viable solution to offset revenue loss from eliminating the tax, a repeal is unlikely within the near future.

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