Educated Guess: US Medical Device Excise Tax here to stay through 2016

Since its implementation in 2013 as part of the Affordable Care Act (ACA), the Medical Device Excise Tax (MDET) has drawn steady fire from industry trade groups and their allies in the US Congress. So far, however, lawmakers’ efforts to repeal the tax have fallen short due to opposing agendas of the Republican-led House of Representatives and the Democratic majority in the Senate.

US medical device excise tax (MDET) beyond repeal by Congress?Now that ostensibly pro-business Republicans control Congress,  eventual repeal of MDET seem more likely. Congressional leaders have wasted no time introducing new bills targeting the excise tax:

Bills in both chambers of Congress have attracted support from Democrats in states such as Minnesota, Utah and Massachusetts, where medical device companies play significant economic roles. Support for MDET repeal seems to cross party lines and has more to do with the geographic density of industry employment than party affiliation.

The $20,000,000,000 snag

Will such bipartisan opposition to MDET coupled with new Republican control of Congress prove successful? Chances do appear better now than they did before November 2014 for actually passing MDET repeal in Congress, but unless legislators identify a suitable alternate source for generating the anticipated $20 billion MDET is supposed to generate through 2020, President Obama will almost certainly veto it.

Thus the safest avenue to MDET repeal would be to find alternate funding sources to make up that revenue. But $20 billion is a lot of money, and any overt support of Obamacare would be anathema to many Republican legislators whose elections hinged partly on their staunch opposition to the ACA, not just the law’s medical device sales tax component. Furthermore, generating some or all of that $20 billion could require raising taxes elsewhere or creating new ones, something no politician wants to do heading into the 2016 elections.

MDET’s impact,if any, on industry

Another issue complicating successful repeal of MDET is whether the tax has actually had any negative impact on medical device companies operating in the US.

Industry trade group AdvaMed has done an effective job of keeping legislators’ attention on the issue of MDET repeal, and has made sustained arguments that the tax has resulted in lost jobs and cutbacks on new product development. In a January 2015 survey of 55 member firms, AdvaMed claimed that MDET may cost the industry as much as 195,000 jobs over the next five years, and that half of all survey respondents had reduced R&D spending as a result of MDET.

Indications from other sources, however, suggest less dire effects so far of the tax on medical device companies. A Congressional Research Service report in late 2014 found that MDET would have a much more substantial impact on consumer pricing than on medical device firms’ profits, hiring practices or product development efforts. And in Emergo’s own January 2015 annual survey of more than 5,400 medical device professionals, we found that more than half of 685 US device industry executives (56%) did not make any significant business changes in response to the tax during 2014. How those 685 executives handled the tax varied substantially by company size. .

While some politicians and groups will try to pin any job losses solely on the MDET, we may never know the true impact on industry employment and innovation. Other factors are also at play: currency fluctuations, market demand, mergers, etc. Clarity may come in time, but the longer the MDET stays in place, the less likely its chances of repeal…unless someone finds an extra $20 billion laying around.

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