I want to talk a bit about the always news-worthy medical device excise tax, which is amongst the most notorious pieces of the Patient Protection and Affordable Care Act legislation, at least within my niche of market research. The tax was implemented on January 1, 2013 and played to the tune of 2.3% of the sale of taxable medical devices; a significant chunk. I might begin to lose you here, but I can't help but draw comparisons between the ongoing tax saga and a Kardashian reality show, except the tax is consequential. Stay the course with me; I'll try my best to explain.
You see, depending on who you spoke to, the tax could have seemed like the best, most romantic idea. Think of the emotions the Kim and Kanye wedding must have evoked in their faithful fans. It was built, among other things, to assist an additional 30 million people to obtain health coverage under the Affordable Care Act by raising up to $30 billion dollars in its initial decade. Also like a Kardashian reality show, there were also those that believed that the unwitting consumer, taking the role of the reality show viewer, would be the only ones to suffer as the burden would trickle down to them. Perhaps the biggest backlash was the potential for the tax to stunt the prominence of intellectual contribution in the form of limiting research and innovation funding; almost too easy to compare to the Kardashian clan's assault on the brain cells . The move was also thought to make the industry less attractive to funding from venture capital and therefore render offshore manufacture more attractive. Bloomberg Businessweek reported that an industry-commissioned study estimated that the tax would cost up to 43,000 US jobs and slice up to $6.7 billion off of annual revenue. Although Bloomberg Businessweek went further to label those estimates as aggressive and indicated that demand from millions of new customers would negate some of the damage, the article maintained that the economic evidence supported the conclusion that medical device sales would suffer.
In light of all this, like the public friction in the Kim and Kris Humphries marriage, there has been an aggressive push for a repeal of the tax, albeit in the face of the reluctance from those of firm belief in the virtues of the tax. To complicate things, towards the end of summer, it was reported that the IRS has had trouble instituting and collecting levies from device manufacturers. The Treasury Inspector General for Tax Administration (TIGTA) acknowledged that the IRS cannot identify all of the manufacturers required to pay the device tax. The IRS had initially projected the number of medical device firms to file 9,000 to 15,600 tax returns, yet only 5,107 returns have been filed according to TIGTA. Additionally, the amount the IRS eventually collected was approximately 24% less than what was anticipated.
The reality soap opera, however, seems to offer a hint at a possible conclusion. In September of 2014, the majority Republican US House of Representatives voted to approve the Jobs for America Act, which would effectively repeal the tax and even go further to refund payments since its inception. The bill passed by a vote of 253 to 163, largely along party lines. Although the economic consequences of the bill would be massive, one thing is for certain: medical device companies breathed a collective sigh of relief with the news of the senate vote. The Medical Imaging and Technology Alliance (MITA), Advanced Medical Technology Association (AdvaMed), and the Medical Device Manufacturers Association (MDMA) all threw their support behind the bill. It remains to be seen, however, whether or not the Senate, currently controlled by Democrats, will eventually take up the bill. The upcoming elections for the United States senate scheduled for November of this year should make things that much more interesting. Stay tuned for the next episode.