Senate vote puts ACA's device tax in doubt

Sen. Al Franken
Sen. Al Franken

An overwhelming Senate majority voted to repeal the device tax as a unified Republican minority was joined by a majority of Democrats, many representing states that are home to device firms.

Because the budget amendment they passed is nonbinding and Senate leadership remains in favor of the tax, nothing will come of it immediately, but in marking the law's vulnerability, the 79-20 vote is a big win for the device industry.

A 2.3% excise tax on revenues from medical device sales was included in the Affordable Care Act after device companies, unlike pharmas, declined to negotiate cost-savings to federal programs – effectively betting that healthcare reform would fail. That bet proved costly, and the industry has lobbied furiously to overturn the tax, which went into effect in January.

Advamed, the device industry trade group, has said the tax will cost manufacturers around $194 million per month and put 43,000 jobs in jeopardy. Stryker went as far as to say it would shutter two New York plants and lay off 5% of its workforce to offset the loss from the tax, which is meant to raise $29 billion over ten years. For comparison, pharmas committed to discounts and price cuts to federal programs worth nearly $100 billion in negotiations with Senate Democrats and the White House. However, the drug industry dwarfs devices, and those agreed-upon cost-savings largely go towards shoring up the Medicare Part D prescription drug benefit, a program pharmas favor, by filling in the “Donut hole.”

Among the device industry's champions in the Senate have been Minnesota's Amy Klobuchar and Al Franken, both Democrats. Minnesota is home to Medtronic and St. Jude Medical, among other device makers.

“The medical device industry has created tens of thousands of good-paying jobs in Minnesota and 400,000 nationwide and helps save countless lives every year," said Franken in a February statement. "I've fought against this tax since it was proposed. And I am cosponsoring this legislation to repeal the medical device tax so we can ensure that this important industry continues to create jobs and produce life-saving devices. I will fight to get this bill passed and to find a bipartisan offset to replace the revenue from the tax."

Sen. Orrin Hatch (R-UT), the legislation's lead sponsor, said in February: "Simply put, this is an anti-competitive tax that pulls the rug out from underneath American innovation and job creation. Whacking medical device manufacturers with a near $30 billion tax hike stifles the development of life-saving medical devices with high costs that will, ultimately, be passed on to consumers. It's just plain, bad policy and should be fully repealed."