On January 13, 2015, a bipartisan group of Senate lawmakers announced legislation to repeal a tax on medical devices, which was implemented to partially fund the Patient Protection and Affordable Care Act (PPACA). The repeal was authored by Finance Committee Chairman Orrin Hatch (R-Utah) and currently boasts 28 co-sponsors.
Since January 2013, the PPACA has required manufacturers of medical devices to pay a 2.3% excise tax on the medical products they sell. Products subject to the tax include hardware used in joint replacements and cardiology products such as pacemakers.
The proposed Senate Bill (the Medical Device Access and Innovation Protection Act, S. 149), would eliminate the tax and refund all manufacturer payments since its inception. The proposed legislation comes shortly after the introduction of a similar House bill. The House bill has enough support to pass, according to the Advanced Medical Technology Association and has already won 261 co-sponsors, including many Democrats.
In announcing the repeal, Senator Hatch stressed the negative impact of the tax on innovation and job growth. He expressed concern over increasing the cost of life-saving medical devices—a cost that would ultimately be passed to patients. Senator Amy Klobuchar (D-Minn.), in advance of 2013’s nonbinding Senate resolution against the tax, argued the tax would put exporters of medical devices at a competitive disadvantage in the global economy.
President Obama’s veto threat has softened since the midterm elections. In a 2012 statement of administration policy, the President vowed to veto a repeal of the tax. He characterized the tax as a fair cost to the medical device industry for the benefits of the PPACA, which he predicted would add 30 million potential consumers of medical devices. Recently, however, the President has stated he will consider any ideas GOP leaders present to him, including repeal.
According to the Congressional Research Service (CRS), excise taxes, such as the medical device tax, are typically reserved for specific goals, such as discouraging undesirable activities (for example, taxes on tobacco products), or for raising funds associated closely with government spending (for example, gasoline taxes financing highway construction). CRS economist Jane G. Gravelle, the author of a November report on the medical device tax, stated:
“These [excise tax] justifications do not apply, other than weakly, to the medical device case.”
Rather, the main motivation for the tax is the revenue itself, which is difficult to justify from an economic standpoint and may hinder the prospects of startup and emerging medical device companies.