Breaking news story reprinted from "The Gray Sheet" - December 24, 2009
With the Senate passage of landmark health care reform legislation, it is all but inevitable that device companies will be facing a new government fee for the long term.
Breaking news story reprinted from "The Gray Sheet" - December 24, 2009
With the Senate passage of landmark health care reform legislation, it is all but inevitable that device companies will be facing a new government fee for the long term.
What's virtually certain is that the fee will collect about $20 billion by 2019 (and in subsequent decades) from the medical device industry. Less certain -- and still up for consideration in the oncoming House-Senate conference -- is when the payments will start and which companies may get a break.
Under the Senate bill, which was approved at about 7 a.m. Dec. 24 on a party-line vote, companies would in 2011 start paying their share of an annual $2 billion non-tax-deductible industry fee. Each company's contribution will be calculated from its share of total industry sales from the prior year.
Revenues of $5 million or less would not count, and those between $5 million and $25 million would only contribute half their value to calculations. Also, sales of FDA Class I products, and Class II products sold at retail for under $100, would be exempt. The total fee would increase to $3 billion in 2018.
Many in industry say this model does not give them enough time to adjust their pricing and operations to account for the tax, and that it targets far too many small, pre-profitable firms. The fight during conference negotiations will in part be for the November-passed House reform bill tax provisions that would start the tax in 2013 and make it tax deductible.
Industry's most challenging priority, however, is to increase the small-business revenue exemptions. Companies supported an unsuccessful amendment offered by Evan Bayh, D-Ind., in the Senate, which proposed to exempt revenues of $100 million or less, and half of sales between $100 million and $150 million.
Bayh's proposal would be substantially softer on smaller firms than what ultimately passed in the Senate version. And the House approach gives small-company advocates even less to work with: the House-passed health reform bill would collect the funds via a flat 2.5% point-of-sale levy, making revenue- or profit-based exclusions difficult to incorporate.
"The tax on medical devices and diagnostics presents significant challenges for our industry, but we are committed to working constructively on a number of important refinements to implementation," said Steve Ubl, president and CEO of AdvaMed.
[Editor's note: More news on the medical device and diagnostics industries is available each week in "The Gray Sheet." Visit our Web site to sign up for a free trial, or call 1-800-332-2181.]
– David Filmore (d.filmore@elsevier.com)
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