As Device Tax Takes Effect, AdvaMed Renews Repeal Efforts

Posted by Brian Buntz on January 2, 2013

The 2.3% medical device tax excise tax is now the law of the land. The tax, which will be levied on gross sales rather than profits, went into effect on January 1, despite attempts to repeal it or delay its implementation.

In June 2012, opponents of the tax took heart as the House voted to repeal it. Although prominent Democrats including Senators Amy Klobuchar and Al Franken (D-Minn.) have opposed the tax, efforts to repeal the tax or delay its implementation have thus far fallen short. In December, Obama voiced his support for the tax as a part of broader healthcare reform, saying that his health plan was going to be good for medical device companies. Obama added that the Affordable Care act will provide device companies with “30 million new customers.” He continued: “It's going to be great for business and they are doing really well right now.”

Many in the device industry have expressed their disagreement with that statement.

Opponents of the tax often point to the case of Massachusetts, which in 2006 implemented a universal healthcare law. For the most part, device companies based in the state have not seen an increase in profits following that laws implementation. The law firm McGuireWoods released a report in September that found that eight out of nine Massachusetts-based medical device companies it surveyed saw no financial benefit. Instead, most of them “saw relative underperformance.”

As for the implications of the nationwide healthcare reform, AdvaMed president and CEO Stephen J. Ubl said in a prior statement that the organization “understand[s] the general point the President is making about the benefits of expanded coverage. For a variety of reasons unique to our industry, however, the net expansion from the ACA is likely to be minimal.”

In a statement released today, Ubl, explained that AdvaMed’s “[...] effort to repeal the medical device tax will continue.” Ubl laments that the passage of the scaled-back fiscal cliff package did not address the excise tax. “We urge Congress to repeal the device tax as it returns to address the other pressing tax and budget issues facing the country, so that we can avoid going over the medical technology innovation cliff.” The organization also supports broader corporate tax reform.

At present, AdvaMed’s member companies are putting in place the accounting procedures necessary to comply with the tax, says Wanda Moebius, vice president, policy communications at AdvaMed. “As an excise tax, companies will have to start putting revenue aside to pay the tax every two weeks. Presumably, that will be effective on January 15.”

“We are going to seek opportunities to repeal the tax in 2013,” Moebius states. “We are still at this time assessing the legislative vehicles and the best path forward for that.”

AdvaMed has also expressed disappointment in recent cuts to imaging and diabetes-related services that are a part of the fiscal-cliff package passed by Congress. On January 1, the House signed off on the Senate's fiscal cliff bill that includes $800 million in Medicare cuts to advanced medical imaging services. In addition, the House approved $600 billion in cuts for diabetic supplies. 

Brian Buntz is the editor-at-large at UBM Canon's medical group. Follow him on Twitter at @brian_buntz.