Medical device tax repeal included in proposed $1.7T tax and spending plan

A two-year suspension of the 2.3% medical device excise tax is included in a pair of taxation and spending bills worth $1.7 trillion that are expected to receive a vote in the House this week, to the delight of industry and med tech associations.

Passage would mark victory in a long and hard battle on the part of the device industry to repeal the tax that funds the Affordable Care Act. The tax went into effect in 2013. It does not apply to devices bought by consumers, such as contact lenses.

The repeal is included in the $622 billion taxation bill that extends a number of other corporate tax credits. 

AdvaMed and fellow med tech associations the Medical Imaging & Technology Alliance (MITA) and the Medical Device Manufacturers Association (MDMA) released a joint statement applauding Congress for including the suspension of the tax in the comprehensive plan.

"MITA is encouraged by the inclusion of the two-year suspension of the medical device tax in the tax extenders package, which comes at a crucial time for the medical technology industry," said MITA Board Chairman Nelson Mendes, who is the CEO of Ziehm Imaging, in a statement. "The tax has been a drain on the economy and has halted investment in research and development for advanced imaging and other life-saving technologies. We appreciate the bipartisan efforts of Congress in taking this step to protect U.S. jobs and innovation, and we urge them to support the legislation."

The California Life Science Association also chimed in, saying in a statement, "Since its inception nearly 5 years ago, there has been increasing bipartisan support to scrap the medical device tax. While a two-year delay is welcomed news, CLSA and our device members will continue to advocate for full repeal of the tax, which is expected to cost firms nearly $25 billion and continues having an adverse impact on R&D investment and job creation, jeopardizing the U.S. position as a global leader in medical device innovation. California is home to over 1,500 medical technology companies, more than any other state in the nation, employing over 75,000 people with wages averaging $91,000 a year, making the impact of the tax on our state particularly troublesome."

Also included in the gigantic tax bill is a repeal of the so-called Cadillac Tax on high-cost health insurance plans.

Passage of the tax and spending bills are not assured, but lawmakers have a strong incentive to fund the government, or else the government will shut down. Moreover, the bills contains a variety of compromises and enticements for both parties on issues unrelated to healthcare. The most notable is a provision to lift the ban on exporting oil in return for tax credits for the wind and solar energy industries.

Senate Democrats will soon announce whether they support the tax and spending plan, Bloomberg reports. Their support is crucial because a filibuster in the Senate (requiring at least 40 no votes) would prevent the bills from receiving an up or down vote in the upper chamber.

Republicans have been determined to repeal the device tax from day one, and even brought it up for negotiation during the 16-day government shutdown in October 2013.

And in March 2013, a bipartisan group of 79 senators voted to repeal the device tax. But it was a non-binding, symbolic vote. Democrat leaders refused to allow a binding vote on repeal that would have likely been vetoed by President Obama if it passed, citing the need to defend funding for the Affordable Care Act.

The medical device tax has come under criticism for raising less money than anticipated. It raised $913 million in the first half of 2013, or about 75% of what was expected. Out of an anticipation as high as 15,000 filers, only 5,107 medical device tax forms were filed.

Meanwhile, skeptics of repeal point to a November 2014 report by Congressional Research Service, which said the tax will only result in a 0.2% decrease in device industry jobs and output.

Industry disputes that estimate. In a recent survey publicized by The Boston Globe, 71% of Massachusetts device companies said they had slowed or stopped job creation because of the tax.

The repeal would last for two years. Whether it becomes permanent depends in large part on who becomes the next president.

During a 2014 speech at the annual AdvaMed convention, Democratic presidential candidate Hillary Clinton hedged on the issue of repeal, saying "I think it [a decision] has to be made within the context of a larger set of issues that have been raised by the ongoing implementation of the Affordable Care Act," and "We have to look and see what are the pluses and minuses."

- here's Bloomberg's take
- here's a joint statement from AdvaMed, MDMA, and MITA
- here's a statement from the California Life Science Association  

Editor's Note: This story has been corrected to make clear that the device tax repeal is included in the taxation bill, not the spending bill.