Devices & Diagnostics

Reconciliation bill could lessen hurt of device tax on Invacare

Passage of a reconciliation bill under consideration in the U.S. Senate would lessen the impact of a new medical device tax on Invacare Corp. in Elyria, Ohio, according to the Cleveland Plain Dealer. Initially dismissed as “absurd” by Invacare Chairman and CEO A. Malachi Mixon, the new tax to raise money to pay for insurance […]

Passage of a reconciliation bill under consideration in the U.S. Senate would lessen the impact of a new medical device tax on Invacare Corp. in Elyria, Ohio, according to the Cleveland Plain Dealer.

Initially dismissed as “absurd” by Invacare Chairman and CEO A. Malachi Mixon, the new tax to raise money to pay for insurance coverage for 35 million more Americans appeared, disappeared and reappeared in health reform legislation in recent months.

Alterations to the reform package already have passed the U.S. House of Representatives. One of the changes pushes the tax’s start date to 2013 instead of 2011, which would give Invacare extra time to plan how to pay, Invacare spokeswoman Lara Mahoney told the Plain Dealer.

The reconciliation bill also would convert the tax from an “industry fee” designed to raise $2 billion in its initial years and $3 billion starting in 2017 to a 2.3 percent excise tax on initial sales of medical devices, the Plain Dealer reported.

The Treasury Department would decide which devices are exempt from the tax after the reconciliation is passed, the Plain Dealer said. It’s possible the Treasury Department could exempt some of Invacare’s products, Mahoney said.

In its present form, the new tax would hit mostly big medical device makers, according to MassDevice, the online journal of the medical device industry in Massachusetts and New England.

In early January, Invacare disclosed in a Securities and Exchange Commission filing that the new tax could cost the company between $12 million and $14 million a year on sales of its home medical equipment. To save money this year to pay the tax–which at the time was due in 2011–Invacare said it had “already taken steps to suspend matching contributions under its 401(k) retirement plan, suspend merit pay increases for management employees and freeze new hiring,” according to the filing.

A month later, Mixon said in an earnings release: “The likelihood of a massive health care reform bill has been diminished by the outcome of the Senate election in Massachusetts. The Obama administration’s No. 1 priority seems to have moved from health care to jobs and the economy. As a result, the company is optimistic that the medical device excise tax will not materialize, although there is still discussion in Congress on how to achieve health care reform in the future.”

In January, Mixon had hoped the tax would go away. Barring that, he hoped it would be applied to device profits rather than to sales. Finally, he hoped implementation of the tax would be delayed. The delay was one hope realized.