Medical device tax tab now at $30.5B covers the medical device tax

For 2 years the medical device tax has been billed as the $20 billion price tag the med-tech industry must pay to cover its share of health care reform.

But as the levy moves closer to its January 2013 implementation, official government estimates and industry advocates now peg its price tag at $30.5 billion over the next 10 years. A analysis revealed that the med-tech tax will likely cost the industry much more than official Congressional estimates of $1.8 billion next year.

The revelation both calls into question the accuracy of current government estimates and those on which the tax was originally sold to industry, Congress and the American public by the bill’s framers.

Don’t expect the feds to refund any money for overpayment if the bill does manage to make it to 2013 without being repealed, according to Richard Price, vice president for payment and health care delivery policy at industry lobby AdvaMed.

"Congress did not establish an aggregate amount in a given year. Rather, it’s a tax rate," he told us. "There’s no excess amount that’s going to be paid back."

Although AdvaMed has not put out an official estimate on the yearly cost of the tax, Price said, the group is relying on numbers provided by the White House Office of Management & Budget and the Joint Committee on Taxation in Congress.

Both offices estimate that the device tax will raise some $1.8 billion in 2013 and average of about $3 billion a year until 2020, for a total of $20 billion. But in President Barack Obama’s most recent budget the Dept. of Health & Human Services extrapolated the tax through 2022, adding nearly $8 billion in expected revenues for a 10-year total of more than $30 billion.

The JCT, a nonpartisan panel, assists Congress in making "objective and informed decisions with respect to proposed revenue legislation," according to its latest publication, "General Explanation of Tax Legislation Enacted in the 111th Congress" (JCS-2-11), which extrapolates through 2020 the taxes the measure is expected to raise.

A analysis reveals that the tax is likely to bring in more than $2 billion in revenues next year from just 50 of the top medical device companies, meaning the estimated impact could be substantially higher than the government’s own estimates.

While several repeal efforts are already underway in Washington, Price said the impact of the tax will be felt well beyond the next 10 years, as "there is no sunset attached to this provision."

Mark Leahey, president & CEO of the Medical Device Manufacturers Assn. which represents about 250 small medical device companies across the country, said it’s time to retire the $20 billion for good, saying that those numbers were best-guess estimates at the time and are no longer valid.

"It’s frustrating to look and see that the tax has grown 50% in just 2 years," Leahey said, noting that MDMA members are more focused on the direct impact on their own firms.

"These companies are facing tough choices every day about who to lay off and what projects you can’t fund," he told us. "Unfortunately, those are the daily decisions companies are making – and none of them are about improving care."

Med-tech might have been better served under a Senate version of the Patient Protection & Affordable Care Act, which would have established the levy as a fee rather that a tax. The fee was converted to an excise tax in March 2010 as legislators worked to reconcile House and Senate versions of the bill.

"I think we all would’ve been better off if there was no tax whatsoever," Leahey said. "However, if the options were the House or the Senate version, the Senate version would have resulted in industry paying less. Had Congress stuck with the Senate version, we not have had a $30.5 billion tax."

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