The 2.3% sales tax applies to all medical devices. It was suspended in 2016 and 2017. Now their manufacturers are hoping for a permanent repeal.
This article first appeared August 31, 2017 on Medpage Today.
By Joyce Frieden
WASHINGTON -- When Congress returns next week from its August recess, its "to-do" list will likely include repeal of the Affordable Care Act's (ACA's) unpopular tax on medical devices, although how high it will be on that list isn't clear.
The 2.3% sales tax -- collected in 2013, 2014, and 2015, but not in 2016 or 2017 when Congress voted to suspend it temporarily -- applies to all medical devices. Now their manufacturers are hoping for a permanent repeal.
"We've been working on many levels -- in the districts, in the states, to make sure device tax repeal remains a Tier 1 priority," said Greg Crist, a spokesman for AdvaMed, the device industry trade group, in a phone interview. But, "there are a lot of competing elements with only 12 legislative days in September," he said, citing Hurricane Harvey relief and a looming deadline to raise the federal death ceiling as other issues Congress must deal with. "When they come back, timing will be critical."
The repeal proposal does have at least one thing going for it: bipartisan support. "If you put it on the floor of the House and Senate tomorrow, it would pass overwhelmingly; it's overwhelmingly bipartisan," Crist said. "What clouded the case for the last few months was politicization around the Obamacare repeal effort." Supporters run the political gamut from Republicans including senators Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) to Democratic senators Elizabeth Warren (D-Mass.) and Al Franken (D-Minn.), both of whom have many device manufacturers in their states.
Why repeal the device tax? "The medical device tax is not only counter-productive but punitive," Grace-Marie Turner, president of the Galen Institute, a right-leaning think tank in Alexandria, Va., said in an email. "The costs of the tax ultimately are passed along to consumers, raising the costs of their health insurance. And the medical device tax also stifles innovation in one of the most vibrant and important industries in the country, also suppressing job creation. It has to go."
The Galen Institute was one of 36 conservative groups that sent a letter earlier this month to House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting device tax repeal. "If Congress allows it to go into effect in 2018, the medical device tax could lead to more than 25,000 lost jobs by 2021," the letter said, citing research by Robert Book, PhD, a conservative health economist. "Over the next decade, this excise tax is projected to increase taxes by $30 billion."
Repealing the tax would cost the government a little less than $20 billion over 10 years, Crist said. As to how that money should be made up, "We certainly want to work with leaders to address that," but he noted that the tax wasn't "going to fund further research and development for the device community; it was strictly a 'pay-for'" -- that is, a general revenue enhancement.
The tax does have a supporters. Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a left-leaning think tank here, argued in a 2015 blog post that the tax would not hurt medical device innovation. "To the contrary, health reform may well spur medical device innovation by promoting more cost-effective ways of delivering care," he wrote.
In addition, "the tax will not have much effect on employment, as a careful economic analysis by the Congressional Research Service finds," he continued. "In fact, by extending health coverage to many more Americans, health reform will increase the demand for medical devices and device manufacturers' revenue. A study by Wells Fargo Securities finds that health reform will increase device sales by 3.6% over its first decade."
AdvaMed, for its part, noted earlier this year that the industry had lost 29,000 jobs during the years that the tax was in effect, citing data from the Commerce Department.
There also remains the possibility of simply continuing the tax's temporary suspension for another year. "When you look at Congress, it is much more likely to kick the can down the road than make a permanent change," Elizabeth Carpenter, senior vice president at Avalere, a healthcare consulting firm here, said in a phone interview. "Certainly, a 1-year extension [of the delay] comes with a lower price tag and satisfies the device industry for the time being."
Although it would be possible to pass a repeal or delay bill as a stand-alone measure, it's not very likely, according to Crist. "While it is possible, and it would pass because the votes are there, just finding the floor time for a singular bill such as that this late in the year makes a stand-alone very difficult to call to the floor," he said in an email.
Which then raises the question of what other bill it might be attached to. "There are certainly a number of potential vehicles this fall where not just the device industry but other industries across the healthcare system are looking to advance their priorities, whether it's a package that includes a debt limit increase, funding the government, or CHIP [Children's Health Insurance Program] reauthorization," said Carpenter.
However, members of Congress have argued that some of those other bills, such as the CHIP reauthorization, should be "clean," with nothing else attached to them. "That is the question with a number of potential vehicles -- is the debt limit increase clean? Is the CHIP reauthorization clean?" she said. "All of those must face their own unique political circumstance, and it's too soon to tell how they all will come together."