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Congress Passes Two-Year Suspension on Medical Device Excise Tax, Again

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The Affordable Care Act’s widely unpopular medical device excise tax is off, again, for now.

Congress passed a stopgap bill for federal spending through Feb. 8 — after a 3-day government shutdown due to a lack of votes in support of the legislation — that includes the second two-year suspension on the 2.3 percent device excise tax.

The tax was enacted in 2013 as a mechanism to pay for other ACA provisions. It received its first temporary moratorium, with bipartisan support, under the Consolidated Appropriations Act of 2016 and came back into effect on Jan. 1.

The new two-year suspension had not been included in the original version of H.R. 195, which became law Jan. 22 — just a week before the first payments on the tax were going to be due.

The on-again, off-again device tax saga continued with industry voices getting louder, stressing to Congress that reenactment would not just hinder innovation efforts and job creation, but also impact access to medical technologies.

Industry associations have applauded the recent efforts to at least provide more time for those required to begin making the semi-monthly payments. Prior to the enactment of the stopgap bill, the U.S. Internal Revenue Service notified devicemakers of a decision with the Department of Treasury not to enforce fines until the fourth quarter, due to the “short time frame between the end of the moratorium period and the due date of the first deposit” (IDDM, Jan. 22).

Now, the device tax is further suspended through 2020, though the real push has been for a full, permanent repeal of the tax.

Despite bipartisan support for a permanent repeal, industry has faced a continued struggle to get the issue on the list of priorities for Congressional leaders, Medical Alley Association President and CEO Shaye Mandle told FDAnews.

The uphill battle was made harder by with having to adapt to a new administration, Mandle said, adding that while it is “huge to the industry, it is still small in the entire federal budget.”

Political Uncertainty

“I know in the mix of everything else, people were forgetting our folks,” Mandle said. “But a lot of members of Congress felt that this did need to be dealt with immediately.”

Why provide another suspension, rather than a permanent repeal? Mandle believes a second suspension versus a permanent repeal, and two years versus something broader was “the least controversial way to solve an immediate problem.”

The discussions for or against the device tax have not been about the merits of the tax, but rather how else the ACA is going to receive needed funding, Mandle added. According to CBO estimates, the device excise tax was worth $19.6 billion over ten years as of last September.

Still, devicemakers were making major decisions around the uncertainty of the fate of the tax that would have a substantial impact on their bottom lines. For example, one of the large, Medical Alley member companies froze internal hiring in anticipation of the tax’s return.

Another mid-to-large company made plans to cut its R&D spending by 14 percent after this had been increased by more than 4 percent the year prior while under the assumption that the tax was not going to return.

These larger companies had the “quality infrastructure to pay the tax in the past,” Mandle said, adding that smaller member companies were having to decide between hiring engineers to inch closer to profitability or tax administrators who would just be for compliance and not add value.

These were the stories shared with Congressional leaders as real-life examples of the tax’s impact that ultimately helped get the second suspension, according to Mandle.

Renewed Push

Medical Alley anticipates that Congress will take up and resolve the tax by year’s end. If not, addressing this would become the association’s top priority for early 2019, though the goal would not be to have yet another suspension.

What’s going to be different this time? Industry associations like AdvaMed, the Medical Device Manufacturers Association and Medical Alley, are going to increase their efforts, spending more time and resources getting the message across to those members of Congress “who don’t have a Medtronic plant in their backyard and may not be thinking about this,” Mandle said.

He believes the approach will be more consistent and engaged this time, targeted at every member of Congress. It will also focus on the people who would be impacted by constraints on medical technology.

Members of Congress need to understand that “this is truly a national issue, not just a jobs issue in a few places like Minnesota that really do have a dependency on the industry,” Mandle said. “It’s an important part of the overall healthcare conversation. If we’re trying to get to lower costs and better outcomes, medical technologies is an important part of that.” — Ana Mulero

Reprinted with the permission of FDAnews’ International Devices & Diagnostics Monitor publication

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