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Will Congress Repeal the Medical Device Tax for Good?

Maybe, but whether it would happen separately or as part of the repeal/replacement of the Affordable Care Act is anybody's guess.

Nancy Crotti

With nearly a year to go before the medical device tax suspension expires and Congressional Republicans determined to repeal the Affordable Care Act (ACA), why target the device tax again, and separately from the ACA?

Upon his return to Washington, D.C. last week, U.S. Rep. Erik Paulsen (R-MN) wasted no time in reintroducing his perennial bill to excise the tax permanently. A Senate version is expected soon. Industry advocates are glad that the 2.3% tax, part of the ACA, is still being treated as a stand-alone issue, if only to get the attention of lawmakers while the repeal and replacement of the ACA is still very much up in the air.

They also believe the device tax repeal will pass well before the temporary suspension expires in December, whether or not it is rolled into a general ACA repeal.

"We're pretty optimistic that this is going to get done sooner or later. That's not an indication that it will move separately from the ACA repeal," said J.C. Scott, head of government affairs for the medtech trade group AdvaMed. "But we are by no means taking it for granted."

Congress chose in December 2015 to suspend the device tax for two years as part of a spending and tax breaks deal hammered out with President Barack Obama.

The industry has called the tax a jobs killer, but analysts at S&P Global Ratings have said they do not expect a permanent device tax repeal to affect results much: "Although the tax on device companies is 2.3% of revenue, in practice that has often represented only about 1% of revenues for the global medical device companies we rate, because it only applies to U.S. sales, and even then only to the portion of value-chain created in the U.S. (for example, substantially less than the full value when the intellectual property assets and/or manufacturing process occurs overseas)."

Having the bill reintroduced now serves to redirect lawmakers' attention to the tax rather than allowing it to be swallowed up in the cacophony surrounding the ACA repeal/replacement, according to Scott and AdvaMed public affairs chief Greg Crist. That doesn't necessarily mean that lawmakers would vote on the device tax separately from the ACA, Scott added.

"Our job is to make sure that it stands out for strong reasons that align with the timing," Crist said. "We're saying do it now for the investments and all the decisions that this sector needs to make."

Both AdvaMed and the Medical Alley Association, a Minnesota-based medtech trade group cited broad-based, bipartisan support for a permanent device tax repeal. Previous attempts to kill it drew Senate support from Amy Klobuchar (D-MN) and Orrin Hatch (R-Utah.) At press time, neither senator's office had confirmed that they would again sponsor the bill in the Senate.

"I have a great deal of confidence that this permanent repeal of the device tax will pass," said Medical Alley CEO Shaye Mandle. "Obviously, Erik (Paulsen) wanted to get this issue singularly out in front. I think at this point, it is most likely that the device tax permanent repeal will happen as a standalone."

Either way would be fine with Paulsen, according to a spokesman.

"Regarding the Congressman's decision to reintroduce this legislation, he's hopeful this initiative will advance in this Congress, whether it's on its own or as part of a larger package," the spokesman said in an email.

Nancy Crotti is a contributor to Qmed.


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