New IRS guidance sparks stepped-up calls for repeal of medical device tax

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It was only Feb. 3 that the IRS released guidance for implementing the Patient Protection and Affordable Care Act’s 2.3 percent excise tax on manufacturers and importers of medical devices—due to kick in next January—but the action has already reignited a firestorm of protest. This will surprise no one who has followed industry’s anti-tax drumbeat, which began upon the release of a Sept. 2011 economic analysis forecasting the loss of 43,000 American jobs at the hands of the tax.

“The anticipated tax has already forced companies to lay off workers and to reduce critical R &D that will help drive the next wave of treatments and cures,” said Steven J. Ubl, president and CEO of the Advanced Medical Technology Association (AdvaMed), the industry group that has been leading the charge against the tax. “The unique characteristics of our industry make it ill-suited for blanket application of existing excise tax authorities, which were drafted for other industries at an earlier time. We will be carefully examining the proposed regulations.”

Ubl’s comments came the day of the IRS guidance release. The following Monday, Feb. 6, Rep. Todd Rokita (R-Ind.) and 74 fellow congressional Republicans sent a letter to Speaker John Boehner, Majority Leader Eric Cantor, Majority Whip Kevin McCarthy and Ways and Means Chairman Dave Camp urging action on HR 436, the Protect Medical Innovation Act of 2011. This legislation was introduced by Rep. Erik Paulsen (R-Minn.) to remove the medical device tax.

“This onerous tax, which companies are required to pay regardless of whether they even make a profit, is bad policy driven solely by the need for revenue to fund Obamacare without regard for the severe ramifications for consumers and health innovators,” wrote the 75 representatives. “Action is needed immediately to repeal this tax."

Meanwhile, Paulsen released a prepared statement. The Feb. 3 IRS document, he wrote, “further highlights the fierce urgency of repealing this job-crushing tax on innovation before it is too late,” as it provides “further proof that the medical innovation tax will increase healthcare costs while putting thousands of jobs on the line.”

As for the particulars of the guidance, the proposed regulations seek to clarify what constitutes a taxable medical device. The gist of the government’s argument is that every device is subject to the tax if it is intended for use on humans and is subject to FDA regulatory oversight.

The guidelines also provide that the term “taxable medical device” does not include eyeglasses, contact lenses, hearing aids “and any other medical device determined by the [HHS] Secretary to be of a type that is generally purchased by the general public at retail for individual use."

The tax was written into the healthcare reform law as a way to raise $20 billion over the next decade to defray the costs of insuring millions of uncovered Americans.

The IRS is accepting comments on the proposals until May 7. A public hearing on the issue is scheduled for May 16.