Device tax half as costly as expected: Medtronic

Medtronic, a giant Minneapolis-based medical-device manufacturer, said it expects to pay about $25 million, or about half of what it originally forecast, this year as a result of the new medical device excise tax.

The tax, which went into effect Jan. 1, requires manufacturers to pay a 2.3% excise tax on the sales of certain medical devices.

The tax has been criticized by some lawmakers and the device industry. Reps. Erik Paulsen (R-Minn.) and Ron Kind (D-Wis.) reintroduced a bill this month that would repeal the tax and say this time they have bipartisan support.

However, others say the tax is the industry's contribution to financing the healthcare reform law.

In a third-quarter earnings call with analysts, Medtronic Chief Financial Officer Gary Ellis said the tax was “a little lower than we expected” due to a provision in the final rule that said existing inventory is not subject to the tax. The IRS issued the final rule in December.

“There will be a little bit of a slower ramp up on the device tax itself just based on what the existing inventory levels that are out there for the various businesses,” Ellis said during the call.

Medtronic had initially forecast that the tax would cost the company up to $50 million during the company's current fiscal year, which ends in April. Ellis said the adjusted estimate is closer to $25 million.

The tax has also become a concern to providers, who had urged the IRS to pass a provision that would prevent device manufacturers from passing through the tax to their customers. At least eight medical suppliers have contacted hospitals to say they plan to add the tax to the price of the products they sell, according to letters sent by the manufacturers to healthcare providers.