Medical device tax is history, ending years of frustration for Indiana companies

Indiana’s medical device industry just got a holiday gift worth tens of millions of dollars a year, with a shiny bow on top.

President Donald Trump signed a spending package on Friday that included a repeal of a tax on medical devices that the industry has been fighting against for much of the past decade.

The repeal ends a 2.3% tax on thousands of medical devices, from stents and catheters to pacemakers and MRI machines. The tax originally was imposed in 2013, intended to raise $30 billion over 10 years to pay for subsidies to lower- and middle-class Americans to buy health insurance on the individual marketplace under the Affordable Care Act.

The tax had been on hiatus since the beginning of 2016, but was set to return at the end of this year if Congress didn’t scrap it or repeal it temporarily again. But the bipartisan federal spending package that Trump signed into law means it is history.

Indiana is home to 155 device-makers, ranging from small metal shops to multibillion-dollar manufacturers. The sector employs about 20,000 Hoosiers and has a combined annual payroll of $1.5 billion, making the state the fifth-largest maker of medical devices in the country, according to the Indiana Medical Device Manufacturers Council.

Some large device makers, such as Cook Medical in Bloomington, said the repeal will allow them to continue investing in new research and expand product lines. In recent years, Cook said the tax has cost it about $15 million a year, which has forced it to delay new projects, including products, plants and equipment.

“Repealing the medical-device tax will help bring new life-saving devices to patients around the world,” said Steve Ferguson, chairman of Cook Group, parent company of Cook Medical. “We are grateful to our elected officials for this significant action to support patients who rely on our medical technology.”

Industry groups, including the Advanced Medical Technology Association and the Medical Imaging & Technology Alliance, said the tax, if not repealed, could have taken a $20 billion bite out of the industry over the next decade.

“This is a great day for American patients, American jobs and American innovation: The medical device tax is officially history,” said Scott Whitaker, CEO of the Advanced Medical Technology Association.

Yet, the nonpartisan Congressional Research Service has estimated that the effect of the tax on businesses has been small—neither as large as supporters have predicted nor as dire as opponents feared.

The tax applies only to final goods sold to health care providers, such as hospitals and clinics. It does not apply to consumer goods, such as contact lenses, hearing aids and wheelchairs.

When the tax was put on hiatus in 2016, some device makers said they saved tens of millions of dollars a year. Hill-Rom Holdings Inc., a maker of hospital supplies for wound care and respiratory health, estimated it saved $40 million a year when the tax was suspended, which it was able to invest in modern technologies, such as vision-screening devices and high-tech hospital beds that can automatically monitor a patient’s vital signs.

The company, which moved its headquarters from Batesville to Chicago in 2015, still employs hundreds in Indiana.

The tax had fallen into disfavor in recent years with many politicians of both parties. In recent years, several bills to repeal the tax had garnered support from hundreds of congressmen and senators. One factor that played into this: the industry has large concentrations in Democratic states, such as Minnesota, Massachusetts, Illinois and California, along with traditionally Republican states, such as Indiana and Florida.