WASHINGTON – The House included a measure killing the medical device excise tax in its 2020 spending package, which now heads to the Senate for approval.
The medical technology industry, including hundreds of Minnesota companies, fought unsuccessfully for years to permanently kill the 2.3% tax on gross sales of medical devices that became law as part of the 2010 Affordable Care Act.
Collection of the tax began in 2013, as set out in the health reform law. But device makers, who spent millions of dollars lobbying against the tax, succeeded in having its collection suspended since 2016.
After a four-year hiatus, the tax was set to take effect again in January.
Scott Whitaker, CEO of the Advanced Medical Technology Association (AdvaMed), celebrated inclusion of the device tax repeal in the House resolution.
No longer facing the uncertainty of when the tax might return, Whitaker said, "the U.S. med-tech industry — the world leader in medical innovation — can focus now on developing the next generation of treatments and cures for patients in need, and creating good-paying, high-tech jobs in communities across the country."
The tax hurt small and midsize device and technology companies more than big corporations because it was based on sales rather than profits. Startups encumbered by debt were especially vulnerable.
The House passed bills repealing the device tax in 2015 and 2018 only to have them stall in the Senate. In 2015, the Obama administration threatened to veto a repeal. Democrats feared that repeal was a first step in Republican plans to undercut the funding mechanisms for the entire Affordable Care Act.
In 2018, a contentious lame-duck Senate session kept the repeal bill from becoming a priority. So continued suspension of collection was an easy out.
The fact that a Democratic majority in the House blessed repeal in 2019 showed the evolution of the issue.
The tax produced roughly $5 billion during the three years it was collected.
The Senate must act on a continuing budget resolution by Dec. 20 to keep the government operating. Senate leaders from both parties have given no indication that they oppose repeal. So having device tax repeal tucked into this must-pass legislation virtually assures the death of the tax.
Supporters of the tax questioned industry complaints that it was hurting device-sector employment and innovation.
Medical Alley, a trade group representing much of Minnesota's massive med-tech sector, said the tax discouraged research-and-development spending, as well as business expansion. Its continued existence, even in a dormant form, kept companies second-guessing about time frames for investments and paybacks, Medical Alley said in a statement.
"Device innovators now have the certainty they need to take bold steps [and] make bigger R & D investments over the long haul," Medical Alley President and CEO Shaye Mandle said.