Update on Medical Device Tax

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Last night the House GOP leadership released the text for their short-term Continuing Resolution that would fund government operations through February 16th. Included in the package is reauthorization of the CHIP program for 6 years and a 2 year delay of the Medical device tax and the Cadillac tax, both retroactive to January 1, 2018.

The medical device excise tax is a 2.3% excise tax on the sale of certain medical technology that was enacted as part of the Affordable Care Act. On January 1, 2018, after a two-year legislative suspension of the tax expired, the device tax went back into effect. Companies will begin making semi-monthly payments of the tax on January 29 if Congress does not act soon.

In December, I had an op-ed “Taxing your pacemaker is a bad idea” in Crain’s Chicago Business that outlined the disproportionate impact on jobs in Metro-Chicago if the Device Tax was to go into full effect. With more than 12,000 jobs, the MedTech community in Metro-Chicago contributes $5.2 billion to total economic activity for Illinois.

Since the device tax was introduced as part of the ACA, we have seen a 9 percent decrease in early-stage investment for our MedTech companies.

The impact of the medical device tax isn’t limited to innovation. Many companies have had to delay or defer hiring as a means to pay the tax. According to the American Action Forum, if the tax goes back into effect in January, it would result in 25,000 job losses nationwide by 2021.

Including the 2 additional years of additional relief from the medical device tax represents an important step away from the full reinstatement of the tax. But the volatility caused by a delay to the tax instead of full repeal has hampered the majority of medical technology innovators’ ability to prioritize investment in jobs and R&D. An industry that has annually invested nearly $10 billion in R&D has had to redirect these funds to pay this tax. The tax has eliminated the ability to firm up budgets and plans that include investments in multiyear research projects because they require long-term certainty to proceed.

Eliminating this costly tax is the only way to send a clear message to researchers, manufacturers and medical professionals that patients’ lives and innovation matter.

On February 26 and 27th iBIO will be leading a delegation of Illinois MedTech companies for a DC fly-in to urge congress to fully repeal the medical device tax. If you are interested in joining this delegation please contact me, jconrad@ibio.org.

 

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