Must-know: The medical device tax repeal is closer than ever

Repeal more possible than ever

Another GOP Senator backed repeal efforts for the medical device excise tax yesterday, as experts say action is closer than ever. Senators said Tuesday that they would try to attach the repeal to a government spending measure in an effort to dodge Democrat opposition to any Obamacare defunding.

However, before the Senate accomplishes anything, it will need the House to move first. House leaders have discussed attaching a repeal measure to upcoming stopgap spending bills they receive from the Senate (a bill they could receive as late as Sunday).

Opponents of the tax claim it puts tens of thousands of jobs at risk and pushes manufacturers out of business. The house passed a non-binding measure backing a repeal of the tax (79–20).

IHI YTD Stock priceEnlarge Graph

What does this mean for device stocks?

A repeal of the medical device excise tax could be a huge boost for an industry with stymied growth. Primarily, a repeal equals more revenue in the pockets of device makers, driving up valuations. Also, in such a tough environment, the added capital could drive R&D (research and development) up and spurn more innovation in the industry. Innovation includes device productivity enhancement and more valuable products with add-on services such as call services (a help line for device users). The repeal of the tax could be a gigantic boost for device stocks and ETFs such as IHI and XHE, which started the year slower than their healthcare counterparts. Look for activity on the measure as close as this Monday.

Proponents of the tax argue that stripping the $30 billion of funding that the tax offers over the next ten years will drive our debt up. They’ve also argued that innovation won’t suffer, as Obamacare will offset the cost of the tax via increased healthcare users and greater demand.