Health bill would tax med-tech makers

Industry lobbyists urged the House to differentiate among product classes.

By JANET MOORE, Star Tribune

Last update: November 9, 2009 - 8:58 PM

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The medical technology industry would face a $20 billion tax over 10 years on many of its products under provisions of health care legislation passed Saturday by the U.S. House of Representatives.

The $1 trillion House package includes a 2.5 percent excise tax on the wholesale prices of medical devices sold in the United States beginning in January 2013.

The levy is smaller and different from one proposed by the Senate Finance Committee in its health care legislation, a tax on annual revenue that would raise $40 billion over 10 years.

The medical device industry's lobbying group in Washington, AdvaMed, quickly went on the offensive over the weekend, saying the tax proposed by the House should be differentiated according to Food and Drug Administration (FDA) product class "to recognize the diversity of medical device products and the thousands of companies that develop and manufacture them."

The FDA identifies medical devices as Class I, including products such as tongue depressors and arm slings; Class II, including X-rays; and Class III, the most sophisticated category, which includes heart defibrillators and stents. The proposed House tax does not include retail products, such as contact lenses and glucose meters and strips.

AdvaMed also proposes that manufacturers with less than $100 million in annual gross receipts be exempted.

Meanwhile, St. Jude Medical Inc. has withdrawn its membership from AdvaMed in a disagreement over the group's approach to the various med-tech tax proposals. In a letter to AdvaMed CEO Stephen Ubl, St. Jude said taxing devices based on their complexity hurts companies like St. Jude, which specializes in high-tech implants such as defibrillators and pacemakers.

"We feel it is inappropriate for AdvaMed to advocate for a specific policy that economically advantages a portion of its membership at the expense of other members," wrote Daniel Starks, St. Jude's CEO. Starks also resigned from the group's board.

The medical device tax proposals have drawn a good deal of debate in Minnesota, home to some 200 companies employing about 20,000 people. The Senate Finance Committee proposal drew opposition from an unlikely slate of bipartisan lawmakers, ranging from Democratic Sens. Amy Klobuchar and Al Franken to Minnesota Gov. Tim Pawlenty, a Republican. All told, five governors, 14 senators and more than 20 members of the House publicly opposed the Finance Committee's tax.

The House version drew criticism from Rep. Erik Paulsen, a Republican whose district includes several medical device companies. Paulsen said in a statement Monday that the measure "will slow innovation, hamper job growth and ultimately increase costs for patients."

The House legislation also calls for the establishment of a National Medical Device registry, which is intended to monitor the safety of some medical devices once implanted in patients. AdvaMed said the registry would duplicate the work of the FDA.

Now attention turns back to the Senate, where Majority Leader Harry Reid, D-Nevada, is waiting for the Congressional Budget Office to issue cost estimates of his bill. Several congressional insiders say the amount of the $40 billion tax will likely be pared in coming weeks, perhaps by as much as half.

Dow Jones contributed to this report.

Janet Moore • 612-673-7752

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