The medical device industry put a lot of skin in the Grand Ol’ Party ahead of the mid-term elections, which is looking like a good bet this morning. The elections, which saw sweeping Republican wins across the country, were also wins for the medical device industry on Wall Street and inside the Beltway: After 4 hard-fought years, medtech can now anticipate a repeal of the medical device tax.
When the GOP takes control of the Senate in January, Sen. Mitch McConnell (R-Ky.) will take the reins as majority leader from Sen. Harry Reid (D-Nev.). In contrast to Reid, a staunch supporter of Obamacare who’s adamantly against repealing the medical device tax, McConnell has long been a vocal critic of the Affordable Care Act and has called repealing the law a "top priority."
"Well, it’s the top of my list, but remember who’s in the White House for 2 more years. Obviously, he’s not going to sign a full repeal," McConnell said recently. "There are pieces of it that are extremely unpopular with the American public that the Senate ought to have a chance to vote on: Repealing the medical device tax, trying to restore the 40-hour work week, voting on whether or not we should continue the individual mandate, which people hate, detest and despise."
Medtech donations to political candidates favored Republicans in the run up to the midterms, by a margin of 58% to 42%. That seems to have been money well spent, s Republican control of the Senate means the stock of another solid medtech ally, Sen. Orrin Hatch (R-Utah), will also rise in Washington. Hatch, the ranking member of the Senate Finance Committee, is in line to be its chairman of the powerful committee next year.
The push to do away with the medtech tax, a 2.3% levy on U.S. sales of prescribed medical devices that went into effect last year, enjoys support from Democrats from device-heavy states like Massachusetts and Minnesota.
McConnell, Hatch and their allies face a multi-step process in repealing the medical device tax, to former Indiana senator Evan Bayh, a Democrat.
Bayh told members of the medtech community recently that under Republican leadership in the Upper Chamber, a repeal of the tax would likely play out much like the Welfare Reform Act of 1995, when the GOP was able to get then-President Bill Clinton to sign off on a bill he found politically unpalatable.
In that scenario, Bayh reasoned, a GOP-controlled Senate would vote to repeal the Affordable Care Act outright through the reconciliation process. That would then be vetoed by the president and sent back to the Senate, which would begin to pull out such unpopular pieces of the ACA as the medical device tax.
Investors reacted to McConnell’s ascension by sending the major stock indices up this morning, with the Dow Jones Industrial Average rising 0.4% to 17,444.49 and the S&P 500 gaining 0.3%, to 2,018.28. Those gains were outstripped by some of medtech’s biggest names.
Medtronic (NYSE:MDT) shares rose 1.2% to $68.74; the stock of its soon-to-be-subsidiary Covidien (NYSE:COV) was up 1.3% to $93.23; Boston Scientific (NYSE:BSX) shares were up 1.1% to $13.41 apiece; and Smith & Nephew (NYSE:SNN) shares were trading at $34.25, for a 1.4% gain. St. Jude Medical (NYSE:STJ) (+0.9% to $64.98), C.R. Bard (NYSE:BCR) (+0.6% to $164.58), and Wright Medical (NSDQ:WMGI) (+0.8% to $30.20) and Becton Dickinson & Co. (NYSE:BDX) (+1.0% to $127.57) also posted above-average gains today.
The medical device industry got another big win in Massachusetts with the election of Republican Charlie Baker as the Bay State’s next governor of the Commonwealth. The former Harvard Pilgrim Health Care CEO told MassDevice.com recently that he would would support a tax credit for Mass.-based medical device companies to offset the 2.3% excise tax.
Deval Patrick, the current occupant of Beacon Hill’s corner office, pledged over the summer to establish a special commission to study the tax credit idea. Baker’s campaign told us the commission would be a priority of his administration.
"If the committee is not yet formed when he takes office, Charlie will act to form the committee because he believes medical device companies are essential to growing the Massachusetts economy," Baker’s campaign told us in an email.