Market insight in association with
Is the US medical device excise tax back for good?
Following the conclusion of a two-year moratorium, the US medical device excise tax was reinstated on 1 January 2019. However, less than three weeks after being restored, the tax is yet again on the chopping block. The question now is whether the tax will be repealed once more, or will be allowed to continue.
Originally enacted as a part of the Affordable Care Act (ACA) in 2013, the medical device tax imposes a 2.3% tax on the domestic sales of medical devices, to be paid by the device manufacturer or importer. The tax was met with a multitude of criticisms from manufacturers, and it was suggested that the tax could potentially lead to cuts to R&D efforts, layoffs and delayed investment in company expansion. Viewed as being particularly crippling to small device companies and medical device start-ups, the tax poses significant challenges to continued device innovation in the US market.
After three years in action, the tax was signed into a two-year repeal, effective during 2016–2017, by former President Barack Obama. There was hope that the tax would be permanently abolished after President Donald Trump’s election, but repeated attempts to repeal and replace the ACA in 2017 failed. Additionally, the tax reform package that passed both the US House and Senate in December 2017 omitted any change to the medical device tax’s reinstatement.
However, less than three weeks after being restored, the tax is again up for repeal as part of the House’s budget plan to avoid a government shutdown on 19 January. The latest plan, which was revealed by House Republicans on 16 January, would extend the government shutdown deadline another four weeks and once again suspend the medical device tax until 16 February. Several other bills awaiting Congress’s attention, most of which aim to amend the ACA, will affect the future of the medical device tax if passed. One such bill in the Senate would permanently kill the medical device tax and balance the lost revenue by ending energy industry tax breaks.
While the likelihood of the House’s government shutdown extension passing is questionable, it is clear that both the medical device industry and government representatives will continue fighting to end the tax, assuming it remains in play. While the tax will cause large players to lose 2.3% of their revenue, small companies will feel the brunt of its effects.
The current market trend of large conglomerates acquiring smaller players with innovative technologies will falter as those smaller companies struggle to expand and fund continued R&D, and innovation in the US market could also take a hit. Additionally, as the need for devices to combat growing public health concerns including diabetes and cardiovascular disease intensifies, the tax could put a damper on providing patients with the latest and most advanced treatments they require.
For more insight and data, visit the GlobalData Report Store.
Share this article