Updated November 14, 12:00 p.m. with comments from AdvaMed.
Should the 2.3% medical device excise tax survive the coming onslaught of repeal lobbying, the industry will have to come up with about $2.5 billion to comply with the levy in 2013, according to new estimates.
Medtech industry lobby AdvaMed released the results of their latest analysis of the impact of the excise tax, which suggests that next year’s total federal tab may be nearly 30% larger than the industry currently pays. The report plays up the industry’s strategy of re-framing tax repeal efforts in the language of tax reform, separating it from concerns about healthcare reform.
The analysis, commissioned by AdvaMed and prepared by Ernst & Young, estimated the 2013 medical device tax burden, including both the federal income tax and the new excise tax on medical device sales.
The analysts estimated that next year’s federal income tax will amount to about $8.7 billion and that the excise tax would mean another $2.5 billion, representing a 29% increase in the federal tax burden.
The report was released just as AdvaMed, the Medical Device Manufacturers Assn. and the Medical Imaging & Technology Alliance are preparing to swarm on Capital Hill to press lawmakers to take another look at the levy. The groups launched a joint effort to organize an executive fly-in, sending more than 50 medtech executives to D.C. to rally for repeal, AdvaMed representatives said during a conference call with reporters this morning.
The medical device excise tax, which takes effect Jan. 1, 2013, is a 2.3% levy on all U.S. sales of applicable medical devices. The measure was contained in President Barack Obama’s landmark Affordable Care Act, and was designed, alongside other taxes, to help support the healthcare reform law.
The tax was slated to raise about $20 billion over 10 years to help fund the ACA, but more recent estimates, including MassDevice.com’s, put the total tab closer to $30 billion.
“American already has the highest corporate tax rates in the world," AdvaMed senior executive vice president David Nexon told reporters today. "To load this additional burden on an industry which is so important to our economy and which is facing a strong international competitive pressure makes no sense at all, it flies in the face of everything tax reform is supposed to achieve.”
Some companies have begun estimated their individual tax obligations for 2013, including breast imaging devices maker Hologic (NSDQ:HOLX) which this week published its Q4 and full-year 2012 earnings, guiding low for the next year based partially on a $25 million hit from the tax.
Becton Dickinson & Co. (NYSE:BDX) announced earlier this month that it expects next year’s excise tax to cut about 3% from its bottom line.
The tax is applied to all U.S. sales regardless of the profitability of the affected company, leaving some smaller device makers with a huge dent in their bottom lines or, in some cases, a swing back to the red.
The tax is just weeks away from taking effect, but AdvaMed remains “cautiously optimistic” that they can get a repeal effort addressed during the so-called “lame duck” period between election day and the seating of a new Congress.
A winning strategy for the medtech industry may hinge on re-framing the repeal effort as one addressing tax reform rather than healthcare reform. In February the medtech lobbying group released a set of principles for modifying the U.S. tax system, hoping to attract Democratic support for striking the tax.
"What we’ve seen is an evolution of the issue from being looked at as a healthcare reform law issue to being looked at as a tax-and-jobs issue,"AdvaMed government affairs head Juan Carlos Scott told MassDevice.com last week. "The result of that evolution is we’ve seen growing bipartisan support for addressing the tax."
The industry is hoping to use this week’s fly-in to cement the idea that repealing the medical device tax isn’t a blow to the Affordable Care Act or to efforts to reform healthcare, especially in the Democrat-led Senate.
"I think people recognize on a bipartisan basis that this act makes no sense at all from a competitive perspective, from a jobs perspective or an economics perspective," Nexon said today. "Now that the Affordable Care Act has passed and become law it doesn’t really have anything to do with the Affordable Care Act anymore, which is the greatest Democratic concern about it. It’s just another tax going into general revenue."
The next step, then, is to figure out how to get repeal back on lawmakers’ roster. There aren’t any measures yet scheduled to address the tax, but industry stakeholders are ready to spring into action as soon as an opportunity appears.
"We need to see what vehicles materialize before we know whether that opportunity exists, but we’re making ourselves ready to try and capitalize on the opportunity," Scott told us.