Medical-Device Industry Boosts Efforts to Fight Excise Tax

By Peter LoftusFeaturesDow Jones Newswires

As companies celebrate expected savings from the U.S. tax overhaul, one industry is battling the reinstatement of what it sees an onerous levy: a 2.3% excise tax on sales of medical devices such as pacemakers and artificial knees.

The tax took force again on Jan. 1 after the expiration of a two-year suspension that was approved by Congress and signed by President Barack Obama in 2015. The tax was originally enacted with the Affordable Care Act in 2010 to help fund some of its provisions and medical-device makers paid it from 2013 through 2015. The status of the device tax wasn't addressed by the tax overhaul enacted in December.

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The medical-device industry is now spending millions of dollars on a new advertising and lobbying campaign to pressure Congress to either permanently repeal the tax or suspend it again. The industry has opposed the tax from the start, saying it hurts device makers' ability to create jobs and invest in developing new devices.

The device trade group AdvaMed on Friday began running TV ads in several states where the industry has a big presence, such as Minnesota, California and Indiana. AdvaMed said it planned to spend millions of dollars on the campaign, which will include print and digital ads.

"Congress has just raised taxes on life-changing medical devices," a voice-over says in one ad, which shows actors portraying patients who have benefited from devices. "Now, new treatments and cures could be out of reach for patients and families across the country."

AdvaMed has run ad campaigns promoting the industry before, but it is rare for it to run TV ads focusing on a specific issue like this, said Vincent A. Forlenza, CEO of Becton Dickinson & Co., a maker of medication-delivery devices such as insulin syringes, and a member of AdvaMed's board of directors.

A repeal or suspension of the tax would reduce federal revenues by about $1.37 billion this year, rising to about $2.7 billion in 2026, according to the Joint Committee on Taxation, the nonpartisan arm of Congress that analyzes tax policies.

Mr. Forlenza said he and other industry CEOs and AdvaMed officials have been meeting with members of Congress to urge action on the tax.

"If reinstated, it's going to have a profound impact," said Kevin A. Lobo, chief executive of device maker Stryker Corp. "We will have to make cuts and we will have to stop investments." He said he has spoken with members of Congress to urge them to repeal or suspend the tax.

Mr. Lobo estimated that Stryker, which makes artificial hips and knees and other devices, paid about $100 million in excise taxes in 2015, the last year the levy was in effect, and would pay about $120 million this year if it isn't repealed or suspended. The two-year moratorium on the tax allowed Stryker to increase its spending on research-and-development to about 6.5% of sales from 5.9% of sales in 2013, he said.

The excise tax, though, "is an important source of revenue to support health coverage and programs under the ACA," said Eliot Fishman, senior director of health policy for Families USA, a nonprofit group advocating for affordable health care. Without it, "we would be concerned about ensuring that funding for ACA health coverage and programs is maintained at current levels and that no other programs important to families are harmed."

A proposal to repeal the tax was included in Republicans' proposed legislation to dismantle the Affordable Care Act that Congress failed to enact last year. The idea has some bipartisan support: Democratic members of Congress have previously supported efforts to repeal or suspend the tax, including Sen. Elizabeth Warren of Massachusetts and Sen. Amy Klobuchar of Minnesota, who represent states that are home to large medical-device companies.

The industry hopes Congress will take action soon so it can avoid having to make the first payments that are due by the end of the month. Last month, AdvaMed sent a letter to President Donald Trump saying it was hoping for a repeal or suspension of the tax, and asking that his administration take steps to waive collection of the tax in the meantime.

In December, separate from the tax overhaul, Republican members of the House including Rep. Kevin Brady, chairman of the Ways and Means Committee, proposed the excise tax be suspended for another five years. Short of a full repeal, AdvaMed hopes Congress would consider incorporating that proposal into broader legislation to continue funding the federal government's operations when the current funding expires Jan. 19, said Scott Whitaker, AdvaMed president and CEO.

Write to Peter Loftus at peter.loftus@wsj.com

(END) Dow Jones Newswires

January 05, 2018 16:01 ET (21:01 GMT)