Medical Device Excise Tax: Implications for Interventional Radiologists

Abstract

The Affordable Care Act of 2010 represents the most sweeping health care reform in the past 50 years, extending health insurance coverage to 33 million uninsured Americans. The final bill included numerous changes in the tax code to help fund its central tenets, including one of the largest ever expansions of Medicaid and federal health insurance subsidies for low-income families. One such change is the Medical Device Excise Tax, a new 2.3% tax levied on the sale price of any medical device as defined by the Food and Drug Administration, which went into effect January 1, 2013 (1). Products subject to the tax include surgical drapes, catheters, wires, stents, and advanced imaging equipment, all of which interventional radiologists routinely use to do their work. Although the Medical Device Excise Tax is paid by the medical device manufacturer or importer, it may nonetheless have important implications for hospitals, interventional radiologists, and their patients. The medical device industry has been thriving in the United States, with estimated sales of as much as $116 billion per year and encompassing as many as 460 public and 1,247 venture capital–backed companies (1,2). It is estimated that the 10 largest medical device makers will pay 86% of the revenue collected from the Medical Device Excise Tax (2). The tax is projected to generate $29 billion over the next 10 years, and large companies such as Cook and Stryker are expected to shoulder additional tax burdens of as much as $30 million and $150 million per year, respectively (2–4). Companies with annual revenues of less than $5 million are exempt from the tax (5). However, as many small and startup medical device companies will not achieve profitability until they reach at least $100–$150 million in sales, this exemption threshold remains too low to protect these vulnerable companies (1). For example, based on 2009 revenues, NxStage would have paid an