Published in Health Care

Med device industry targets lame-duck repeal of federal excise tax

BY Sunday, November 25, 2018 08:51pm

The lame-duck session of Congress offers the opportunity for advocates to finally convince lawmakers to repeal a federal tax on medical devices.

Enacted in 2010 as part of the Affordable Care Act, the 2.3-percent excise tax on the gross sales of medical device companies has twice been suspended by Congress for two-year periods. Unless Congress acts on another delay or a full repeal, the device tax resumes in 2020.

Stephen Rapundalo COURTESY PHOTO

The U.S. House in July voted 283-132 to repeal the medical device tax, and industry groups that have been pushing for years to get rid of it hope to get a Senate version of the repeal taken up by committee in December.

“This needs to have the light of day,” said Stephen Rapundalo, CEO of Ann Arbor-based MichBio, the Michigan life sciences industry association that’s been working with national trade groups to push repeal.

“The time is now. We don’t want this to drag over to the next session and essentially have to start from scratch,” Rapundalo said.

That’s particularly true as Democrats take control of the House on Jan. 1.

When it first took effect in 2013, the medical device tax was expected to generate $29 billion annually in net revenues for the federal government to support and offset the cost of the ACA, according to the Congressional Research Service.

The medical device industry has targeted the tax from the beginning. Among the arguments against it is that as a tax on sales, rather than profits, it disproportionately burdens small and startup device companies.

Opponents also complain the burden of the tax results in less money for investment in R&D and job growth, although a 2015 economic analysis by the Congressional Research Service “suggests fairly minor effects, with output and employment in the industry falling by no more than two-tenths of 1 percent,” according to a summary of the report.

National industry trade groups such as the Advanced Medical Technology Association, known as AdvaMed, and the National Medical Device Manufacturers Association have led the repeal push. 

Trade media covering the medical device industry reported earlier this month that AdvaMed planned a major push to secure passage of the Senate repeal bill during the lame-duck session.

“We’ve got a window of three or four weeks here where we can still get this done. So our focus is going to be laser-like on full repeal and full repeal only. If it doesn’t get done this year, then we will reassess where we are and talk about an alternative approach,” AdvaMed CEO and President Scott Whitaker said in a Nov. 15 conference call with media, according to the online trade publication massdevice.com

From 2014 to 2016, the U.S. medical device industry grew by 2.9 percent. That’s below the 4.3 percent growth from 2001-2016 for the sector, and the 4.4-percent growth rate over the same period for the entire biotech industry that includes pharmaceutical, research and testing labs, distribution companies, and agricultural feedstock and industrial biosciences.

The statistics come from an annual report by Columbus, Ohio-based Techonomy for the Biotechnology Innovation Organization (BIO). The report shows medical device employment in Michigan declined 0.8 percent from 2014 to 2016.

Rapundalo suggests the findings support the argument that even with the two-year suspensions by Congress, uncertainty about the device tax’s future has curtailed R&D spending and job growth in the industry.

“If nothing else, it shows there certainly isn’t any growth and that this industry is being careful about how it deploys its dollars if they have to pay the tax,” he said. “They’re still living with the fear that it’ll be reinstated.”

Full repeal would provide “certainty for companies in order for them to do their long-term investment,” Rapundalo said.

A July report by the Washington, D.C.-based Tax Foundation that was largely critical of the device tax suggested that if Congress were to enact a repeal, medical device companies “could begin hiring more, investing in more research, and generally spend more comfortably knowing the tax was gone.”

Rapundalo notes that repealing the medical device tax permanently has bipartisan support in Congress. The House repeal bill gained the support of 57 Democrats who voted with Republicans in July.

Of the 24 senators co-sponsoring the Senate repeal bill, known as the Medical Device Access and Innovation Protection Act, 10 are Democrats. Neither of Michigan’s two Democratic U.S. senators, Debbie Stabenow and Gary Peters, are among the co-sponsors.

“That (bipartisan support) should be enough of a message to the Senate. This is not a partisan issue. This is an issue about jobs and securing a future for the device industry, which is the largest in the world,” said Rapundalo, who’s “cautiously optimistic” a repeal can pass in the lame-duck session.

“I’m hopeful that logic might prevail,” he said. “But the timing and the opportunity exist to do it now. It’s just a matter of putting it on the agenda.” 

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