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The chief executive of OrthoPediatrics Corp, based in northern
Indiana, said his company has been able to hire more workers since
the temporary suspension effective last January of a federal tax on
medical devices. The tax was imposed as part of outgoing President
Barack Obama's signature 2010 healthcare law.
Throdahl said he hopes the incoming Republican-led Congress and
president will permanently repeal the tax.
Trump and U.S. lawmakers are likely to do that, according to
lawmakers, lobbyists and industry executives, in a step that also
would help larger medical device makers such as Medtronic Inc,
Boston Scientific, St. Jude Medical Inc and Johnson & Johnson.
Tax cuts are Republican gospel, and Trump's new Republican
administration is widely expected to make them happen.
The medical device tax may be one of the first on the chopping
block. It was first imposed in January 2013 as a funding mechanism
for the Affordable Care Act, dubbed Obamacare, a law that has
brought medical coverage to millions of previously uninsured
Americans. But Republicans hate Obamacare and this particular tax
has powerful enemies in both parties.
Senate Republican Leader Mitch McConnell said repealing the
Affordable Care Act, dubbed Obamacare, will be the first order of
business in the Senate when it convenes in January.
Whether cutting taxes, including the one on medical devices, will
deliver more jobs remains to be seen. The Congressional Research
Service, a nonpartisan arm of Congress, said in January 2015, when
the medical device tax was fully in effect, that it was having only
"fairly minor" impact on production of devices and employment in the
industry.
That may not matter much, as Republican lawmakers and lobbyists
increasingly try to link tax cuts to job creation, perhaps sensing
this connection will resonate with Trump, who made big promises in
his campaign about restoring U.S. industrial employment.
The medical device industry, in its long-running assault on the
device tax, is seeking to frame the fight as a jobs issue.
Immediately after Trump's Nov. 8 election victory, industry lobbying
group AdvaMed wrote to him and Vice President-elect Mike Pence,
Indiana's governor, asking for permanent repeal of the tax.
In the letter, AdvaMed President Scott Whitaker wrote, "The medical
device tax has been a significant drag on medical innovation, and
resulted in the loss or deferred creation of jobs, reduced research
spending, and slowed capital expansion."
Industry complaints like these led Congress last year to temporarily
suspend the 2.3 percent excise tax on the sale of non-retail medical
devices, such as pacemakers, heart valves and artificial hips. It
had been in effect for only three years.
'HEADCOUNT FREEZE'
OrthoPediatrics, founded in 2006, develops and markets implantable
orthopedic devices, such as metal plates that can be attached to
bones, to treat deformities and traumatic injuries in children. It
has 60 employees in its Warsaw, Indiana headquarters, and 94 sales
representatives around the United States.
When the tax was in full effect, Throdahl said, OrthoPediatrics "had
almost a headcount freeze during 2015" because of the revenue that
was siphoned away by the tax.
Since the tax's temporary suspension, he said, "We've resumed an
aggressive pace of hiring and investment."
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There are about 9,000 U.S.-based medical device manufacturers. The
industry accounts for about 520,000 U.S. jobs and has $150 billion
in direct sales, AdvaMed spokesman Mark Brager said.
Indiana is home to several device companies. So are Minnesota,
California and Massachusetts. Lawmakers from these states helped
push through the temporary suspension of the device tax.
Repealing the tax would further improve the already favorable tax
profile of Medtronic, one of the largest U.S. medical device
companies. Two years ago, Medtronic did an "inversion" deal, which
is when a U.S. company shifts its home base to another country, at
least on paper, to cut its tax bills. Medtronic is now technically
based in Ireland, though it is still managed in Minnesota.
Asked whether Medtronic expects the tax to be repealed, company
spokesman Fernando Vivanco said, "It's much too early to speculate
on future tax policy."
Republicans said the industry has little reason to fear that the tax
will ever return. Senator John Barrasso, a member of the Senate
Republican leadership, said Obamacare repeal legislation will move
next year in a way that will circumvent expected Democratic
resistance.
"The plan is to move the entire piece that we moved last year,"
Barrasso said, referring to Republican-backed repeal legislation
that ultimately was vetoed by Obama.
"And it did include the medical device repeal, so I would expect
that to be part of the list as well. It's to repeal the taxes
related to Obamacare," Barrasso added.
J.C. Scott, head of government affairs at AdvaMed, said companies
"feel a great sense of urgency in trying to get complete repeal done
early next year, rather than later in the year, because companies
need certainty."
Repealing the tax would worsen the federal budget deficit.
"Any time you repeal a tax, that is a loss of revenue to the federal
government," said Jack Hoadley, a research professor at Georgetown
University's Health Policy Institute.
But this tax was never a big one, relatively speaking. When imposed,
it raised barely $2.5 billion a year, less than expected. By
comparison, federal tax subsidies to help people obtain health
insurance under Obamacare in 2016 were estimated to be $660 billion,
the Congressional Budget Office said.
Ever since the tax was put on hold, it has been viewed as
endangered.
"At the time it was suspended, we were told by people in Washington
that in all probability it will not be reinstituted. But still,
we'll all sleep better at night knowing that it's gone,"
OrthoPediatrics CEO Throdahl said.
(Additional reporting by Caroline Humer in New York; Editing by
Kevin Drawbaugh and Will Dunham)
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