December 31, 2012 is when the Affordable Act’s infamous medical device tax was put into effect. An excise tax that would take 2.3% from the top of sale prices of medical devices.
The argument against the tax was that it would “stifle innovation and increase health care costs”. The argument for the tax was that the industry had plenty of excess money to spend on it- massive profit margins were the result of an anti-competitive market which was driving up the cost of medical devices and burdening the health care system. This tax would reform a playing field in need of urgent spending cuts.
Fast forward a little less than 2 years and we are in October of 2014. The questions now stems, has the implementation of the 2.3% excise tax actually helped the medical device industry? Or the healthcare system itself? NO.
Medical device news source, MassDevice, has deemed the tax “a bad public school teacher: It’s a drain on the system and seemingly impossible to get rid of”. In 21 months the tax has proven to be futile:
- The IRS “cannot [even] identify the population of medical device manufacturers who ought to be paying semi monthly deposits”.
- The tax return filing was overestimated by 50%, collecting only 1.4 billion for the IRS in medtech tax revenues
Stephen Ubi, the president & CEO of AdvaMed, a US technology trade association, told reporters this week at the 2014 Chicago Convention: “[It] is playing out exactly as we have feared. It’s cost us high-paying jobs, reduced R&D spending, stifling new innovations. It’s been a nightmare for the IRS to implement and there’s no evidence of a windfall”.
As a result of this failure, there has once again been a strong push from both industry and lobbyists. The House of Representatives have created a new job package called “Jobs for America Act” which would repeal the medical device tax and refund all payers of the 2.3% tax up to this date.
This new bill is now coming to the forefront of debate, and it seems that it is likely to be passed in the upcoming months. More importantly, what does this mean for new US medical device companies and international medical device companies entering the US market? Well, the nightmare of the infamous 2.3% tax might be something of the past- and it might just stay there.