The medical device excise tax has been especially unpopular (even more so, than most new tax provisions) among device makers like Stryker, Edwards, GE Medical, Siemens and Biotronic — to name a few. Why?
Because. . . the tax is to be collected (for tax years 2013, and beyond) on gross revenue — sales — not net profits. Thus, a medical device company with no GAAP earnings per share may be liable for a tax on 2.3 per cent of its sales, in a given year (accordingly deepening its losses). The thinking behind the tax had mostly to do with creating a revenue stream to offset FDA’s accelerating costs in reviewing the burgeoning number of new devices being submitted for market approval. [And, the device lobby was largely asleep at the switch, in 2010.]
To be fair, the devices — especially stents (see right), and hip replacement sets — have been (disproportionately) litigation targets, and thus are consuming federal court resources, in MDL’s, in an accelerating fashion, as well. Even so, if the compromise now being floated delays the implementation of the tax for two years, look for these device makers’ stocks to rally by about 2 per cent, largely across the board. [All device makers are required, under GAAP, to have already established reserves to accrue for these 2013 taxes. Those will be reversed, under the Collins plan under discussion.]
Bloomberg reporting on the emerging proposals here, then:
. . . .A deal built around repealing the medical-device tax would be a “hollow victory” and further divide Republicans, said Representative Tim Huelskamp of Kansas, one of the House Republicans still pushing to dismantle the health-care law.
“It would still fund 98 percent of Obamacare,” Huelskamp said of the latest Republican proposal. “That won’t be sufficient for conservatives and will be seen as capitulating to the left. . . .”
Collins’s plan would pair provisions to raise the debt ceiling and end the shutdown with a two-year delay in the medical-device tax. It would change pension rules to offset the lost revenue from the device tax. . . .
Obviously, these discussions are fluid — and much may change over the long Columbus Day weekend, but a delay on the tax won’t dent the ACA rollout in any meaningful way, while still allowing Republicans to say they got some change to Obamacare. Silly — but I get it. And it would be good news for the likes of Edwards LifeSciences, for certain.
UPDATED | 10.13.13 @ 1 AM EDT: It would appear that House Republicans will not support the above Collins compromise proposal. On Wall Street, stocks may generally decline, come Monday, on increased risk of a federal debt default, come Thursday, should Congress remain gridlocked.