Device Tax Hits $1 Billion

The 2.3% medical device excise tax required by the Affordable Care Act aka “Obamacare, ” has cost device companies an estimated $1 billion since the start of the year.

That’s according to a July 15, 2013 report from three Washington, D.C.-based lobbying groups, the Medical Imaging & Technology Alliance (MITA), the Advanced Medical Technology Association (AdvaMed) and the Medical Device Manufacturers Association (MDMA). The figures were not verified by the Internal Revenue Service.

“The $1 billion threshold is frightening as every dollar spent paying for this medical device tax threatens medical innovation and American jobs, ” said Gail Rodriguez, executive director of MITA. AdvaMed’s Stephen Ubl and MDMA’s Mark Leahy also issued statements noting bipartisan support to repeal the tax.

The Republican-controlled House of Representatives has voted dozens of times to repeal Obamacare and the tax and the Democrat-controlled Senate overwhelmingly passed a non-binding resolution last month to repeal the tax.

The tax requires device manufacturers to pay an estimated average of $194 million per month in medical device tax payments (with a payment of approximately $97 million due semimonthly). This tax, according to the industry lobbying groups, threatens a medical device industry that helps employ 2 million nationwide, generates approximately $25 billion in payroll, pays out salaries that are 40% higher than the national average ($58, 000 vs. $42, 000) and invests nearly $10 billion in research and development annually.

Tax Impact Disputed

The device lobbying groups and Wall Street analysts have not seen eye to eye on the impact of the tax.

On April 1, 2013, Wells Fargo analyst Larry Biegelsen issued an analysis which showed the cumulative benefit to U.S. volume surgical procedures due to Obamacare will increase 3.6% by 2022 and will likely offset the 2.3% medical device tax under the new healthcare law.

Biegelsen estimated the increased healthcare coverage of tens of millions of newly insured patients represents a 1.5% tailwind to U.S. volumes across 10 key device categories in 2014, the first year coverage is expanded.

Smaller manufacturers have told us that the tax has hurt them because the tax is on revenues not profits. Larger manufacturers have attributed some job cuts to the device tax. At a meeting sponsored by AdvaMed in St. Paul, Minnesota last month, Medtronic, Inc. CEO Omar Ishrak told the audience that he has not personally been active to repeal the tax because it’s the law and it’s unlikely that spending any of his time working to repeal the tax would be effective.