Suspension of Medical Device Excise Tax Provides Opportunity to Demonstrate Why Repeal Should be Made Permanent

by Venkat Rajan 12 Jan 2016
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In a surprising development, as part of a $1.1 Trillion spending bill, Congress voted to temporarily suspend the medical device excise tax provision of the Affordable Care Act. Since it went into effect in 2013, medical device manufacturers have been lobbying heavily to communicate the undue financial burden placed on them by the tax. So the question arises, what does this mean for device developers, if anything?

This tax free window could provide some temporary relief to offset any recent financial pressures being experienced by developers, as well as help free up capital to reinvest towards newer technology platforms. With a fast changing healthcare delivery ecosystem, this reprieve comes at an opportune time for companies looking to revamp their value positioning in the market.

More so than established companies, early stage companies and startups were feeling the burden of the tax by means of potential investors wary of the market and its upside for growth and profit. The potential for permanent repeal could help those companies looking for funding to position a more optimistic long term view of the market.

From a hospital and provider viewpoint, the immediate effect of the suspension of this tax might be minimal. It is unlikely customers will see a dramatic drop in equipment purchase prices. From most of the companies we spoke to, very few had tried to pass the tax on to customers by means of a price increase. Due to healthcare cost pressures and declining reimbursement for most hospital procedures, there was very little flexibility from customers to pay more for a given device. Consolidation on the provider side, leading to the formation of larger hospital networks, compounded issues as customers had greater leverage in negotiating volume discounts from medical device manufacturers.

Ultimately manufacturers need to take advantage of the circumstances to prove to lawmakers why the suspension should be extended indefinitely.

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