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Who Really Pays?

Pursuant to the federal health care legislation of March 2010, a new section 4191 was added to the Internal Revenue Code.  This new code section provides for an excise tax of 2.3% on sales of medical devices other than eyeglasses, contact lenses, hearing aids, and other medical devices purchased, at retail, by the general public for individual use.  In other words, Class I medical devices sold to the public are generally excluded from the excise tax.  The application of this new excise tax takes effect for sales by the manufacturer, producer, or importer of medical devices after December 31, 2012.

An earlier version of the health care bill that was introduced by the Senate had a starting date in 2010 and it would have cost the medical device industry approximately $40 billion in excise tax over ten years.  Several large medical device manufacturers and industry groups were able to influence members of Congress so that the final version of the law begins with medical device sales in 2013.  Starting in 2013, the final version of this excise tax provision is expected to cost the medical device industry approximately $20 billion over ten years. Read more »

On February 20, 2008, the United States Supreme Court issued a momentous decision in Riegel v. Medtronic.  This decision represents a major victory for the medical device industry since it provided that medical devices, which are approved under the Food and Drug Administration’s pre-market approval (PMA) process, cannot be subject to a products liability or other personal injury claim under state law.

The Riegel case was decided based on certain language contained within the Medical Device Amendments of 1976 (MDA), which preempt state law claims for damages when a medical device has undergone the PMA process.  While this case does provide relief to manufacturers with respect to those medical devices that did receive pre-market approval from the Food and Drug Administration, it is important to note that medical devices which only meet the “section 510(k) process” (a section of the MDA describing the review process) do not get relief from state law injury claims.  This particular issue has already been decided by the U. S. Supreme Court in the 1996 case of Medtronic v. Lohr, and therefore, distinguishes Lohr from the Riegel case.

So what economic effect might the Riegel case have on medical device manufacturers?  Like so many other questions, this will depend on several factors, including the type of medical devices being manufactured and sold. Read more »