March 20, 2013

US Senate Favors Repeal of Medical Device Tax

March 21, 2013—The offices of US Senators Orrin Hatch (R-UT) and Amy Klobuchar (D-MN) announced Senate passage of an amendment they introduced to the Fiscal Year (FY) 2014 Budget Resolution that would repeal the medical device tax that was included in the Patient Protection and Affordable Care Act (PPACA). The amendment passed by a vote of 79 to 20.

Earlier this year, Sen. Hatch and Sen. Klobuchar introduced the Medical Device Access and Innovation Protection Act in the Senate, which seeks to fully repeal the medical device tax. Other cosponsors of the bill are Sens. John Cornyn (R-TX), Joe Donnelly (D-IN), Richard Burr (R-NC), Al Franken (D-MN), Pat Toomey 
(R-PA), Bob Casey (D-PA), and Dan Coats (R-IN).

Under the PPACA, medical device companies are required to pay a 2.3% excise tax aimed at raising nearly $30 billion in revenue over 10 years. The Advanced Medical Technology Association (AdvaMed) has calculated that the tax, which took effect in January, is expected to cost device manufacturers approximately $194 million per month, putting 43,000 American jobs at risk, the senators noted.

“Today, bipartisan members of the Senate spoke loudly and clearly that this tax on
 medical devices simply must go. It is a drain on innovation, on job creation and on our ability to provide groundbreaking medical technologies to patients. The importance of this vote cannot be overstated,” Sen. Hatch commented in the press release issued by his office. “For the first time, Democrats and Republicans have come together in recognizing how bad this tax is. We cannot stop here—we must continue the fight to get rid of this tax, and I look forward with continuing to work with Senator Klobuchar and the other backers of this amendment and our bill to repeal this tax once and for all.”

Sen. Klobuchar stated, “Today's action shows there is strong bipartisan support for repealing the medical device tax, with Democrats and Republicans uniting behind our effort. I will continue to work to get rid of this harmful tax so Minnesota's medical device businesses can continue to create good jobs in our state and improve patients' lives.”

According to the senators, the Hatch–Klobuchar amendment would repeal the $30 billion tax on medical device companies in the PPACA in order to promote innovation, preserve high-paying jobs, and encourage economic growth for manufacturers of medical devices and therapies. They assert that this amendment would help ensure that the United States remains the largest net exporter of medical devices and prevent a loss of 43,000 high-paying American jobs in this innovative sector. The United States exports $5.4 billion more in medical devices than it imports, according to the Senators.

What comes next in the movement to repeal the device tax is unclear. The Wall Street Journal notes that the vote was largely symbolic because of the likely failure of the budget bill to which it is attached; the amendment is part of the Senate Democrats' fiscal year 2014 budget, which the paper recently characterized as a partisan tax-and-spending blueprint that stands no chance of passing the Republican-controlled House of Representatives. 

Looking further back, in June 2012, the House of Representatives passed H.R. 436, which—were it to be passed by the Senate and signed by the President—would repeal the health care reform law's medical device excise tax. H.R. 436: Health Care Cost Reduction Act of 2012  of the 112th Congress (2011-2013) was posted online by the Congressional Budget Office. At that time—as reported in the Healthwatch blog of The Hill, a Washington, DC newspaper that focuses on the US Congress and Capitol Hill—the White House Office of Management and Budget released a statement that President Obama's senior advisers would recommend that the President veto a repeal. In its statement, the White House asserted that “[t]he medical device industry, like others, will benefit from an additional 30 million potential consumers who will gain health coverage under the Affordable Care Act (ACA) starting in 2014. This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion.” The Hill reported that representatives from the medical device industry insist they will not gain extra customers from ACA,  arguing that elderly people who receive many of their products are already insured under Medicare. 

However, the solid bipartisan support shows growing momentum for repealing the tax, which lawmakers have argued hurts competitiveness and endagers highly paid jobs in the United States. The Wall Street Journal further indicated that although the tax is meant to help finance the PPACA—the signature legislative achievement of President Barack Obama's first term—33 Democrats and independent Sen. Angus King of Maine joined Republican senators in voting to repeal it.

In a statement from industry trade groups AdvaMed, Medical Imaging & Technology Alliance (MITA), and the Medical Device Manufacturers Association (MDMA), the associations applauded the Senate vote. They noted that the American medical technology industry is responsible for supporting nearly two million jobs, creating a growing trade surplus, and developing the technology essential to advancing patient care in the United States and around the world. However, they advised, with the implementation of the medical device tax in January, manufacturers have paid an estimated $388 million to the Internal Revenue Service so far this year, reallocating funds that could otherwise be directed towards investment in job creation and research and development.

“Momentum is clearly growing in Congress to repeal the medical device tax as Senators continue to hear from their constituents that the impact is real,” commented Gail Rodriguez, Executive Director of MITA, in the press release. “The tax is slowing economic growth and costing thousands of jobs. MITA encourages Congress to prevent further job loss and protect essential research and development by promptly repealing this harmful tax.”

Stephen J. Ubl, President and CEO of AdvaMed, added, “Bipartisan majorities in both the House and Senate have now voted to repeal the device tax. The reasons behind mounting support to repeal the tax are clear: Across the country, this tax is cutting high-quality jobs and investments in tomorrow's treatments and cures at companies large and small. We encourage leaders in Congress and the Administration to seize on this momentum and act to repeal this harmful tax.”

MDMA President and CEO Mark Leahey also noted that the support of the amendment shows that majorities in both the Senate and House of Representatives recognize the need for repeal of the tax. “Every day, innovators in this dynamic industry are looking at how to improve the quality of life for patients, and the medical device tax is standing in the way of progress and threatening America's leadership position. While we have more work to do, MDMA applauds this important step towards ensuring that the United States remains the global leader in medical technology innovation.”


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