Medical device industry lobbying groups warned that the tax slated to take effect on January 1 will cost the industry more than the $30 billion it’s slated to raise over 10 years – it could cost upwards of $660 million annually in implementation costs alone
Based on a small survey of 81 respondents representing a broad range of medtech companies, the sales tax will require months of preparation and millions in yearly administrative costs, adding to the 2.3% top-line cut the measure is designed to yield in support of healthcare reform.
According to the survey the tax will cost the industry between $400 million and $667 million to implement, not including "some critical components of exhaustive [medical device excise tax] solutions that may lead to additional costs."
The vast majority of survey respondents also noted that their companies were not ready to comply with the new tax, the final IRS guidelines for which were released earlier this month.
AdvaMed survey respondents reported that they will need 6 to 18 months to develop new systems for full tax compliance. Around 90% said they don’t have sufficient systems yet in place and more than 50% said they need major overhauls to their existing systems as a result of the new tax.
The IRS included some conciliations for device makers, waiving some late fees during the early months of the levy and allowing companies with smaller tax liabilities to pay on a more relaxed time line.
"The IRS was smart in doing that, because it takes away the argument that, ‘well, you published this rule 23 days before, or 27 days before or something, because they have this grace period of 3 quarters where, yes they have to start paying the estimated amount but it doesn’t have to be a perfect amount," Kristian Werling, partner at the legal firm of McDermott Will & Emery where his focus is on medical device and lifesciences companies, told MassDevice.com during an interview. "It strategically takes away this argument that these regulations are too late so you should delay this tax by a year."
Those placations haven’t stopped medtech industry groups from pushing for a delay or outright repeal of the medical device tax. Lobbying efforts remain in full swing, and industry groups AdvaMed, the Medical Imaging & Technology Alliance and the Medical Device Manufacturers Assn. have combined their efforts to organize D.C. fly-ins and other activities to galvanize support for challenging the tax.
Repeal efforts were further undeterred by
President Barack Obama’s on-camera refusal to support a delay for the medical device tax.
Obama last week told reporters that he’s unwilling to delay the medical device tax, saying healthcare reform is "going to be great for business," noting that the Affordable Care Act will add 30 million people to the health insurance rolls.
AdvaMed’s new survey challenged that notion, with 90% of participants expecting a less than 2% revenue bump as a result of the expanded patient population. Around 80% expect an increase of less than 1%, according to the survey.