Medtronic spent $10 million lobbying against it.

Besides being very vocal, AdvaMed also put its money where its mouth is with a $4 million effort to repeal the law. Was it worth it? Considering the Medical Device Tax cost Medtronic $112 million in 2014, it’s a no brainer. The industry applauded the recent announcement that this tax has been suspended. What are the long term implications?

Affordable Care Act Roots

The Medical Device Excise Tax went into effect January 1, 2013. From that point medical device makers paid a 2.3% tax on revenue under the law. The impacts of the tax were widespread, including workforce layoffs. In many companies, research and development was slowed or halted due to the shortage of funds.

Small Companies Hit Hardest

Larger corporations absorbed the tax impact as best they could. But the smaller enterprises were often stretched beyond their limits. With smaller and tighter budgets, entire projects were put on hold indefinitely due to the excise taxation. The pinch was especially painful since the tax was on revenue, not profit.

Reasons For Repeal of the Medical Device Excise Tax

Besides heavy lobbying, lawmakers also looked at the facts surrounding the device industry upon deciding for the tax suspension. Prior to the tax law taking effect, Amy Klobuchar (D-Minn.) and Kay R. Hagan (D-N.C.) authored a letter to voice concern over the negative impact the tax could have on the medical device industry and the overall economy. The letter was signed by 16 other Democrats, including John Kerry (D-Mass.), Joe Lieberman (D-Conn.), Charles Schumer (D-N.Y.) and Al Franken (D-Minn.).

The letter stated:

“The medical technology industry directly employs over 400,000 people in the United States and is responsible for a total of two million high-skilled manufacturing jobs. Additionally, this industry is also one of the few that enjoys a net trade surplus, significantly boosting U.S. exports around the globe.”

Many other critics of the law said that it stifled innovation in a field where the US continues to hold a leadership role.

Concerns About Repeal

Those against the suspension of the law are concerned where the dollars will come from to replace the tax income. In the first half of 2013, the tax raised $913 million. For now, the suspension comes within a package of tax cuts which the next president will likely modify.

The Future of Medical Device Innovation

The Medical Device Excise Tax has only been suspended for two years. That means it could come back to haunt medical device manufacturers in 2018. Although it may not see a permanent repeal, indefinite or repeat suspension could be an option. Another possibility is that the tax takes on a different iteration, such as a tax on profits not sales.

Many companies included the tax in their 2016 budget. Now they’ve been given significantly more wiggle room. Shelved projects are returning to the table. R&D and infrastructure in particular have received new life. Hopefully, new hires will be on the way soon as well.

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