The revenue would help pay for health care reform, but Minnesota's U.S. senators say jobs and innovation could be imperiled.
In a bid to protect one of Minnesota's signature industries and major employers, Sens. Amy Klobuchar and Al Franken on Tuesday said they oppose a tax on medical device companies -- part of a proposal being considered by Congress to pay for health care reform.
In a letter to Sen. Max Baucus, D-Mont., chairman of the powerful Senate Finance Committee, the Minnesota Democrats claimed the proposed $4 billion tax "will seriously threaten thousands of American jobs and deter innovation" in the heavily research-focused device industry.
Baucus' health care legislation could be introduced before his committee as early as today.
Minnesota is home to some 300 medical device firms, including industry giant Medtronic Inc., St. Jude Medical Inc., two major divisions of Boston Scientific Corp., and hundreds of smaller firms. About 50,000 Minnesotans work in the industry.
Tuesday's letter was also signed by Indiana Sens. Richard Lugar, a Republican, and Evan Bayh, a Democrat. The Hoosier state is home to several medical technology firms that employ 15,500 people, including Zimmer Inc. and DePuy Orthopaedics Inc.
Baucus' proposal calls for makers of pacemakers, artificial knees, heart stents and valves and other medical devices to pay about $4 billion annually beginning next year, approximately 3 percent of annual U.S. sales.
Beyond that, the senators said "recent independent estimates" indicate the tax could translate into an annual income tax surcharge of between 10 percent and 30 percent on medical device makers.
"We're very concerned this would squelch innovation and research which is so important -- that's how we make better and better medical devices," Klobuchar said in an interview Tuesday. "Think about the early pacemakers and what they are today."
In addition, the senators said the proposed tax could threaten jobs in states such as Minnesota and Indiana. Last week, several device makers hinted that job losses could result in Minnesota if the tax goes through.
Beyond the proposed tax, the device industry may be facing $15 billion to $17 billion in reduced revenue over the next decade because hospitals will see a decline in reimbursement for medical products, the senators wrote. Device makers sell their products directly to hospitals, which may negotiate tougher discounts for their products, or curb purchases altogether because of expected economies in the Medicare system.
"There are many other ways to save money in health care," said Franken in an e-mail statement. "We need to focus on containing costs by providing high quality care that encourages value, not volume."
Medtronic spokesman Chuck Grothaus said the company was pleased to see congressional leaders "quickly stepping forward and bringing light to this provision that could severely impact the medical device industry."
Boston Scientific spokesman Paul Donovan said: "We have been very impressed with your senators, and very grateful for their work." Although headquartered in Natick, Mass., the company employs 5,000 Minnesotans in Arden Hills and Maple Grove facilities. (Massachusetts Sen. John Kerry sits on the finance committee.)
A spokesman for Rep. Erik Paulsen, R-Minn., co-chair of the House Medical Technology Caucus, said the congressman is working on a similar letter to Baucus opposing the tax.
Janet Moore • 612-673-7752