Those in the medical device industry are applauding a two-year suspension of the medical device tax.
The 2.3 percent excise tax on an American manufacturer’s sales of medical devices made and shipped in the U.S. began Jan. 1, 2013. Then, in 2015, companies got temporary relief with a suspension of the tax. However, it was set to go back into effect this month.
But now that the U.S. House of Representatives recently passed a resolution to keep the government funded through Feb. 8, it also agreed to suspend the medical device tax for two years.
The federal government wrote the medical device tax into the Affordable Care Act as part of the funding that now helps uninsured Americans get health coverage.
However, since its inception, many companies have expressed concerns that the tax hinders their growth plans and ability to invest in employment, research and products.
The amount of time and money a company spends to fully develop a medical device could be as much as $2 million to $5 million, yet the life cycle of the product is often a few years, said Jeff Tyber, president and CEO of Tyber Medical Inc., a medical device manufacturer in Hanover Township, Northampton County.
“One of the main reasons why it’s a big burden for us is the life of the device is short,” he said.
There has been a significant reduction in the average selling price of medical devices, Tyber said.
“As the selling price decreases, you get margin erosion,” Tyber said. “The reimbursement payments that Medicaid and Medicare are paying are lower now.”
He said the medical device tax has stopped the company from hiring more employees, but now that it’s suspended, he plans to hire more. He has 25 employees.
RESEARCH AND DEVELOPMENT PRESERVED
Olympus Corp. of the Americas, a global manufacturer of medical devices headquartered in Upper Saucon Township, touted the benefits of the suspension of the tax.
The company makes its products in Olympus facilities primarily in Japan, Germany and in the U.S. in Minnesota, Ohio, Tennessee and Washington.
“We greatly appreciate Congress’ recent passage of the two-year suspension of the onerous U.S. medical device tax, as it will allow our company to continue to focus on advancements in the medical device space,” Olympus spokeswoman Stephanie Sherry said.
“With suspension, Olympus can continue to invest the majority of roughly 10 percent of its annual global budget on research and development focused on pioneering technologies for the identification and minimally invasive treatment of disease.”
The company also is funding new projects, such as the upcoming grand opening of a second national service center in Tennessee that will bring more than 280 new jobs that will enhance and expedite the customer service provided to hospital and clinic customers, she said.
TAX COLLECTION DAY WAS JAN. 29
Members of the life sciences industry support a repeal of the tax, as well.
Chris Molineaux, president and CEO of Life Sciences Pennsylvania, a trade association in Wayne, said the full and permanent repeal of the medical device tax has been a top priority of his organization’s advocacy efforts since the introduction of the tax. Molineaux recently sent a letter to members of the life sciences community describing the group’s efforts in Washington.
While this bill presents only a temporary suspension of the tax, it is an important step in the right direction as the Internal Revenue Service was set to begin collecting the tax on Jan. 29, he said.
“It’s a job-killing and R&D-killing tax,” Molineaux said. “When companies have to choose between paying the tax and hiring new employees, they have no choice.”
Even those companies who are not profitable yet would have to pay the tax, he added.
“Fortunately, that has been avoided for another two years, but we won’t be satisfied until that tax is fully repealed,” Molineaux said.
PERMANENT SOLUTION SOUGHT
Tyber said he is hopeful for a permanent repeal.
“I do think the Affordable Care Act will continue to go under change,” Tyber said. “The amount we contribute to our employees’ health insurance has skyrocketed.”
The medical device tax was purely an attempt to gain revenue to pay for the Affordable Care Act, he said.
“We hope that it will hopefully keep the health insurance premiums at a lower rate,” Tyber said.