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Congress Could Suspend Device Tax for 2 Years

The medical device industry must be on Santa's "nice" list.

Chris Newmarker

The U.S. Congress appears poised to suspend the 2.3% medical device excise tax for two years.

The two-year suspension of the deal is part of the huge spending and tax-break package that congressional negotiators made public early Wednesday. The House is expected to vote separately on the tax and spending measures this week, with the Senate possibly combining the two into a single piece of legislation before a vote. White House press secretary Josh Earnest suggested that President Barack Obama will sign the package if it reaches his desk, according to The New York Times.

The deal also includes another goodie for the device industry: an extra $2 billion in annual funding in the for the National Institutes of Health, which will rise to $32 billion in fiscal year 2016. The additional $2 billion includes such items as $200 million for the new Precision Medicine Initiative; a $350 million increase for Alzheimer's disease research; $150 million, an $85 million increase, for the BRAIN Initiative to map the human brain; $461 million, an increase of $100 million, to combat antibiotic resistance; $320.8 million, an increase of $47.5 million, for the Institutional Development Award; and $12.6 million for the Gabriella Miller Kids First Research Act.

Medical device industry leaders were swift to praise the deal, and urge passage.

"Suspending the tax will be an important step in addressing the harmful effect it is having on research and development and continued medical progress. On behalf of America's medical technology companies, our employees and the patients we serve, we urge Congress to act swiftly on this legislation," AdvaMed board chairman Vincent Forlenza, who is CEO of BD, said in a news release.

The tax, created to help fund the 2010 Affordable Care Act, has been a major source of ire in the device industry, though the tax's effects are debatable.

Based on surveys of members, AdvaMed claims the tax resulted in the loss of 14,000 U.S. medical device industry jobs in 2013, and another 4500 jobs lost in 2014. The group has projected job losses to eventually reach 39,000.

The major medical device companies have been reporting impacts to their bottom lines, too. Medtronic, for example, paid $135 million in its most recent fiscal year; Johnson & Johnson reported a $180 million impact. 

The Washington Post's Fact Checker, however, points to Emergo Group and Congressional Research Service reports that find the tax impacting the industry much less than what AdvaMed has contended, with many of the costs passed on to consumer. (AdvaMed argued with the Post that the competing studies were flawed.)

Even though it found the device tax reducing medical device industry employment by only 0.2% in worst case scenarios, the Congressional Research Service report did question the rationale for the tax, since such targeted excise taxes are traditionally either closely tied to what they are funding (e.g. gasoline taxes to fund highway projects) or are meant to discourage consumption (e.g. taxes on alcohol and tobacco). 

Learn more about cutting-edge medical devices at MD&M West, February 9-11 at the Anaheim Convention Center in Anaheim, CA.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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