Pleas to spare med-tech firms from federal tax

Aaron Holm owes his mobility and peace of mind to medical technology.

The 43-year-old Shakopee man had both legs amputated above the knee after an accident in 2007. Now outfitted with two high-tech prosthetic limbs made by Plymouth-based Otto Bock, Holm has become a cheerleader, of sorts, for Minnesota's signature industry. At a hearing Monday, he spoke out against a proposed $4 billion annual tax (or $40 billion for the next decade) on med-tech companies that would help pay for federal health care reform.

"As we grow older we hope the technology gets better," he said, claiming the tax would stifle innovation and development of new products.

Organized by Rep. Erik Paulsen, R-Minn., the hearing brought together patients such as Holm, executives from local med-tech companies and a venture capitalist, all of whom opposed the tax, which is now part of the U.S. Senate's health care proposal.

"This industry is an American success story. I want to make sure it stays that way," Paulsen said.

Although a similar tax is not included in companion legislation under consideration in the U.S. House, Paulsen said there are "rumors" that one might be added.

The issue has been closely followed in Minnesota, home to more than 200 medical device and biologic firms employing about 20,000 people.

It has attracted a bipartisan group of opponents, including Gov. Tim Pawlenty, a Republican, and Sens. Amy Klobuchar and Al Franken, both Democrats. All told, five governors, 14 senators and more than 20 members of the House have publicly opposed the tax.

They argue that taxing the revenue of med-tech companies will stifle research and development into new products, cause job losses and result in more devices being manufactured overseas. But those supporting the Senate's bill claim that expensive medical tests and devices -- Holm says his legs cost $30,000 to $40,000 each -- drive up the cost of health care. The $140 billion industry favors health care reform overall, just not the part requiring it to pay $40 billion for the next decade.

Stephen Ubl, the Mounds View native who is med-tech's top lobbyist in Washington as president of AdvaMed, said, "We appreciate Rep. Paulsen shining a light on the harmful effects of this tax on jobs and innovation. The more policymakers and the public learn about this tax the less they like it."

Howard Root, CEO of Maple Grove-based Vascular Solutions, said the tax would result in the heart device company paying an extra $2 million a year in taxes. In the short term, the company would be forced to cut research and development and an internship program. In the long run, the tax could force Vascular Solutions to abandon a plant expansion in Minnesota and outsource some of its manufacturing operations overseas.

Medical devices save lives, he said, adding: "We're not the bank to rob to pay for reform."

Dave Stassen, managing director of the Eden Prairie-based venture capital firm Split Rock Partners, said the tax would disproportionately harm the small start-ups that often develop the most innovative technologies. It takes about $100 million for a small firm to bring a new product to market, he noted. If these firms are hampered with a tax, they are less likely to be successful.

The debate surrounding health care reform, as well as changes at the Food and Drug Administration, have already affected venture funding to these fledgling firms, Stassen said. "Given this uncertainty, we have basically stopped investing in [med-tech companies] until we get some clarity. ... [The tax] is a really bad idea and it should be stopped."

The hearing did not explore alternative ways to fund health care reform. Holm, who has started a nonprofit for amputees called Wiggle Your Toes, said his prostheses were paid for by workers' compensation funds. (He was hit by a car as he changed a co-worker's tire on Interstate 394.)

Surrounded by television cameras following the hour-long hearing, Holm said he wasn't sure a public option was the way to go for health care reform but said he felt everyone who needs high-tech medical devices should get them. "Otherwise,'' he said, "I'd be in a wheelchair."

Janet Moore • 612-673-7752