In January 2013, the Medical Device Tax was passed into law under the Affordable Care Act (ACA). This is a 2.3% excise tax on certain medical devices; the manufacturers of these products are responsible for paying the tax, not the consumers. Since the tax was enacted two years ago, it has been a continual topic of discussion among industrial and governmental leaders.
Intended as a source of revenue to support new insurance coverage under the ACA, the tax affects FDA approved medical devices sold in the U.S. “Devices” is a broad category and includes various products: MRI and LASIK machines; cardiac defibrillators; pacemakers; heart valves; surgical gloves; bandages; and tongue depressors.
The consumer of the product plays a role in determining if the item is taxable or not. In the case of products such as bandages or surgical gloves, the manufacturer is required to pay the tax when they sell directly to medical providers (doctors, hospitals, nursing homes, etc.). The tax does not apply to products sold directly to consumers in retail or drug stores; however, when those same products are sold in bulk to a hospital, they are taxed.
In some instances, the final products are exempt from the tax but the components used in the manufacturing of the final product are taxable. For example, dentures are exempt from the tax, but their components are not. On the other hand, contact lenses and eyeglasses are not taxed at all, and neither are their component parts.
This controversial tax has greatly influenced the medical manufacturing industry. As a global leader in medical device innovation, the U.S. faced a tax burden that could prevent future growth in the industry. It was feared that the ACA (and this tax) would force manufacturers to reduce production, lay off employees, stifle advances in medical devices, and reduce U.S. economic growth.
In Congress, the debate on the medical device tax continues to this day. Repealing of the tax will provide companies the resources they need to further healthcare innovation. Additionally, the repeal would improve economic growth with new jobs in the medical device manufacturing industry.
Modern manufacturers encounter many challenges and pressures in planning their business funding. Innovation and advancing new product development are dependent on the strength of their companies. The U.S. invests heavily into new medical technologies, and these benefits are felt throughout the entire country. Medical devices can improve the quality of life for American citizens, which is why the tax debate rages on. If you’re interested in learning more about our laser cutting capabilities for the medical device industry, contact us today or download our Quality Standards Checklist.