Medical device tax targeted by new GOP Senate

Consensus on the best regulatory framework under which providers, payers, pharmaceutical companies and medical device makers can operate has been elusive on Capitol Hill in the last few election cycles. That lack of consensus is expected to continue under the new Republican-controlled Congress, and a prime target will be dumping controversial provisions of the Affordable Care Act (ACA).

Healthcare stakeholders, who’ve been known to flip their support between parties, gave generously to Republican candidates during the 2014 mid-term election cycle, ultimately boosting the number of conservative lawmakers on the Hill. Most of the activities in the last few sessions of Congress have been House efforts to repeal or reduce funding streams that would pay for ACA provisions, with those bills ultimately stalling out in the Democratic-controlled Senate.

But for the first time in eight years the GOP, sworn in on a snowy day in January, is setting the agenda in both chambers of Congress, and one of the first healthcare policies they may consider is repeal of the 2.3% tax the ACA imposes on medical device makers. In effect since January 2013, the tax is expected to provide an estimated $29 million over 10 years to offset health insurance subsidies for low-income Americans, as well as fund other ACA provisions.

Related:GOP Senate majority might target ACA device tax

Medical device manufacturers can deduct the tax as a business expense, lowering it to a net of 1.4%, and eyeglasses, contact lenses and hearing aids are exempt.  Still, some device manufacturers say the tax will kill jobs and stifle innovation, and in October 2013, some lawmakers discussed repealing it as a compromise to end the federal government shutdown.

In a November 2014 report, the Congressional Research Service (CRS) wrote that the tax won’t kill jobs and increase costs: “The analysis suggests that most of the tax will fall on consumer prices, and not on profits of medical device companies. The effect on the price of healthcare, however will most likely be negligible because of the small size of the tax and small share of healthcare spending attributable to medical devices.”

Nonetheless, the Advanced Medical Technology Association (Adva.Med), which says it represents 80% of medical technology firms in the U.S., has been actively lobbying for its repeal.

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AdvaMed, along with device makers Boston Scientific, Direct Supply and Medtronic, contributed more than $3.8 million to Republican candidates in the latest election, or 65% of the device industry’s total campaign contributions, according to Federal Election Commission data compiled by the Center for Responsive Politics.

AdvaMed also disagrees with the CRS’s analysis that the tax will have a negligible impact, calling that conclusion “flawed” because consumers don’t buy medical devices.

“Rather, the buyers are institutions such as hospitals, clinical labs, and physician practices. In a highly competitive market such as the one for medical devices, such purchasers have the ability to refuse to accept price increases. In addition, they can delay or cancel large capital purchases or substitute less-expensive for more-expensive product alternatives,” AdvaMed argued.

Medical device makers gave $92,549 to support the re-election of U.S. Rep. Erik Paulsen (R-Minn.) a third-term lawmaker who introduced a bill targeting repeal of the tax in 2012. The bill passed the House but was not brought up for vote in the Senate.

In January, Paulsen introduced a new bill to repeal the tax, and this time it might succeed. Device makers gave their second highest donation to help re-elect Kentucky Republican and new Senate Majority Leader Mitch McConnell, who on more than one occasion has said that his party will make every effort to repeal the ACA.

Cassie M. Chew is a healthcare journalist based in Washington, D.C.