Indiana will be disproportionately affected when the federal medical device tax goes back into effect in 2018. The state is second only to California in global life sciences exports.
The medical device tax went into effect with the Affordable Care Act. It’s an excise tax, which means companies can’t pass the cost on to consumers. Instead, the 2.3 percent levy comes off the top of all medical device sales, regardless of whether companies turn a profit.
After pressure from medical device manufacturers, Congress passed a two-year suspension of the tax in 2015. Companies hoped an extended suspension or permanent repeal of the tax would be included in the GOP tax reform bill, but it wasn’t.
With the two-year suspension set to expire, that means companies will start paying the tax again in 2018.
George Telthorst is director of Indiana University’s Center for the Business of Life Sciences. He says Indiana medical device manufacturers will likely have to cut back on expansion and innovation.
“They’re going to pull back on whether they’re going to make investments in new equipment, or hiring people, etc. until they see which way things are going to shake out,” Telthorst says.
Telthorst says while repealing the tax has bipartisan support, efforts to do so have failed because they’ve been attached to other legislation. He says without a suspension or repeal, medical device manufacturers will feel the impact immediately in 2018
“The way the tax is structured, companies have to pay as you go, I believe on a monthly basis,” he says. “So, they’re going to need to start diverting funds from their cash flow right away to the treasury.”
Bloomington-based Cook Medical says in a statement “a full repeal is needed for long-term investments in growth and innovation across the industry.”
U.S. Rep. Jackie Walorski (R-Ind.) introduced a bill earlier this month that would expand the suspension of the tax through 2022.