US medical device tax may face repeal in debt-ceiling negotiations

The controversial medical device tax may face repeal in the heat of US debt-ceiling negotiations. Over the weekend Republicans in the House of Representatives passed a bill to keep the Federal government running past midnight on Monday by adding two amendments. The first was the delay to the implementation of Obamacare by a year, the second was the repeal of the US medical device levy.

The medical device levy is a 2.3 per cent tax on US revenues of medical devices including pacemakers and CT scan machines, however consumer items are excluded including hearing aids and contact lenses. The tax was put in place in part to fund Obamacare.

JP Morgan, equity research have reported the negative impacts form the tax:

We estimate this has created a (generally quite small) headwind to reported numbers for some companies in our coverage universe, but nonetheless, its repeal would remove this headwind and drive upgrades to numbers and potentially improve sentiment.

It remains likely that the Senate will reject the House bill however of the two amendments that were added, the repeal of the medical devices tax is significantly more popular.

Despite comfortably passing the House with bi-partisan support Democratic leadership in the Senate remains hostile to the repeal. A spokesman for Senate leader Harry Reid said:

The Senate will reject any [funding bill] that includes a repeal of the medical device tax.

The US medical device sector employs 400,000 people and has annual sales of £80bn. AvaMed, the largest trade group for the industry has been a vocal opponent of the tax. The group states on its website:

The U.S. leads the world in medical technology, but the device tax threatens that leadership because it will put an additional burden on medical device innovators already struggling under the weight of America's uncompetitive tax system.

The tax will be levied on medical device sales in the U.S. regardless of whether the company is making a profit.