Over 300 Total Lots Up For Auction at Two Locations - NJ 09/26, CA 10/05

Medical Device Tax Amendment Not in Senate Bill

by Brendon Nafziger, DOTmed News Associate Editor | December 29, 2009
A key amendment
to reduce device taxes
hangs in the balance
This Christmas Democrats chortled as their long-delayed dream of health care reform looked to come true with the Senate's passage of the historic Patient Protection and Affordable Care Act H.R. 3590 on Christmas Eve. But medical device makers awoke to the legislative equivalent of an empty stocking: an amendment that would have softened the blow from the coming $20 billion medical device tax didn't make it into the final bill.

The amendment, sponsored by senators Evan Bayh (D-Ind.) and Amy Klobuchar (D-Minn.), who hail from states that are big med-tech hubs, would have helped device companies prepare for the new device tax, expected to pull in $20 billion by 2019.

To start, the Bayh-Klobuchar amendment would have pushed back the first year for the $2 billion annual tax to 2013, giving manufacturers a chance to make structural changes before the tax man's axe falls. The Senate bill has the tax starting in 2011.

To reach the goal of $20 billion by 2019, the amendment would have made up for the delay by calling for increased annual tax rates, starting at $3.8 billion a year from 2013 until 2019. After that, medical device companies would accept $2.6 million in yearly levies. (In contrast, the Senate bill raises the tax to $3 billion a year only in 2018 to reach the monetary goal.)

The amendment would also have helped shield smaller companies from the brunt of the tax with a tiered system. Medical device businesses earning less than $100 million a year would have been fully exempted from the tax, while companies making between $100 and $150 million a year would have only 50 percent of their revenues subject to taxation. Companies making more than $150 million would have all their revenue declared taxable, but all taxes would have been fully deductible.

The Senate bill passed last week, while also tiered, offers much lower thresholds for exemption. Under the bill, companies making less than $5 million dollars don't have to pay the tax, and ones making between $5 and $25 million in annual revenue will only have half their revenues declared taxable. None of the taxes are deductible.

AdvaMed, the largest medical device lobby and a strong backer of the amendment, isn't giving up hope that the House and Senate will include the amendment when they confer after the holidays to cobble together a compromise bill.

"We're still seeking the Bayh-Klobuchar amendment, including deductions, small company protections and a 2013 start date," Wanda Moebius, a spokeswoman for AdvaMed, tells DOTmed News.

House vs. Senate

The bills passed by the two branches of Congress have important differences when it comes to the tax.

In the Senate bill, Class I devices, such as surgical gloves, are exempt, as are all Class II devices that retail for less than $100. In the House bill, all devices sold in retail stores are untaxed.

More importantly, the Senate bill bases the amount of tax money a company owes on its previous year's market share, while the House bill levies a 2.5 percent point-of-sale excise tax across the board.

Which vision survives the haggling remains to be seen. When asked what she expects the final bill to look like, Moebius demurs. "I learned a long time ago never to play odds."

It remains to be seen what form health care reform will take, let alone the status of the amendment.