When the short-lived government shutdown ended on January 22, so did this year’s implementation of the 2.3% medical device excise tax (MDET). The tax was to be effective on January 1, 2018, and the first payment to the Treasury Department would have been due by January 29, 2018. The stopgap spending law retroactively delayed implementation of the tax and extended the moratorium until the end of 2019. The MDET is now set to go into effect on January 1, 2020.
The 2.3% MDET will be imposed on the sale of any “taxable medical device” by the manufacturer, producer, or importer of the device. A “taxable medical device” is any medical device, as defined by the Federal Food, Drug, and Cosmetic Act, intended for use in humans, with some limited exceptions. Eyeglasses, contact lenses, and hearing aids are specifically exempt from the MDET. There is also an exemption for devices that are generally purchased by the general public at retail for individual use (retail exemption).
Generally, devices that fall under the retail exemption are regularly available for purchase and use by individual consumers who are not medical professionals, and the design of the device demonstrates that it is not primarily intended for use in a medical institution or office or by a medical professional. Both prescription and over-the-counter medical devices may fall under the retail exemption. For example, adhesive bandages and wheelchairs do fall within the retail exemption, but mobile x-ray systems and nuclear magnetic resonance imaging systems do not.
The MDET was originally envisioned as part of the Patient Protection and Affordable Care Act and was intended to help compensate for the cost of health insurance subsidies. The MDET originally took effect on January 1, 2013, but the Protecting Americans from Tax Hikes Act of 2015 established a two-year moratorium on the MDET. The first MDET moratorium was in effect January 1, 2016, through December 31, 2017. The moratorium has no effect on MDET liability incurred before the moratorium. The stopgap spending law also delays implementation of the excise tax on high cost employer-sponsored health coverage, which is commonly referred to as the “Cadillac tax.” The Cadillac Tax will now go into effect in 2022 instead of 2020.
Medical device industry trade associations, such as the Advancing Medical Technology Association (AdvaMed), have urged a full repeal of the MDET. AdvaMed argues that the MDET places an unnecessary burden on medical device companies that will stifle innovation and lead to job losses. The MDET will now go into effect in 2020, but it will likely continue to face significant pushback from industry.
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