Group says tax on medical device makers has cost jobs

WASHINGTON – The medical device industry's major trade group says that a new tax on revenue cost the industry 33,000 med-tech jobs in 2013.

The Advanced Medical Technology Association — AdvaMed — based its conclusion on a survey of members conducted late last year. Thirty-eight companies — about 15 percent of AdvaMed's membership — responded to the survey, and AdvaMed "generalized" those results across the entire industry to determine that approximately 14,000 industry jobs were cut and companies deferred hiring of another 19,000 workers.

A dozen companies that responded to the survey said they had cut spending on research and development as a result of the new 2.3 percent tax on gross revenue, and four said they had expanded overseas operations as a result of the tax.

Congress approved the tax to help pay for national health care reform. It is expected to raise $29 billion over the next decade, but device makers were projected to recoup part of the tax in the form of increased business generated by patients who are newly insured by the Affordable Care Act.

Not everyone agrees with the industry that the tax will have ugly effects. A survey of 3,800 managers of medical device companies worldwide by the consulting firm Emergo Group, for example, concluded that the device tax's impact was "not as severe as predicted." Half of those responding said they "did not make significant changes" in response to the medical device tax.

Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities who spent 18 years at the Congressional Budget Office, said the AdvaMed survey has a relatively small sample size.

"We know that the medical device industry is going through turmoil," Van de Water noted. "But there's a tendency to blame all the industry's problems on the tax."

Repealing the device tax is the U.S. medical device industry's No. 1 priority, AdvaMed officials said during a press call to release their survey.

"The tax is bad for patients and innovation," AdvaMed's CEO Stephen Ubl said.

"Companies are not able to pass this tax on, and they aren't experiencing a windfall from expanded coverage."

Members of the U.S. House and Senate from medical technology-rich Minnesota made repeal a centerpiece in budget talks and legislation last year. But the tax remains on the books.

Newly installed Senate Finance Committee Chairman Ron Wyden, D-Ore., offers fresh hope to the device industry. Unlike his predecessor, recently retired Sen. Max Baucus, D-Mont., Wyden voted to kill the device tax during last year's budget negotiations.

A majority of House members have signed on to a bill to kill the tax, sponsored by Republican Rep. Erik Paulsen of Minnesota's Third Congressional District, home to several of the state's med-tech companies.

But finding an alternative funding source to replace money lost in the device tax's repeal has proved elusive.

AdvaMed officials said Tuesday that they don't believe finding another revenue source is their job.

"In the first and last instance, it's something policymakers should be able to address," said AdvaMed board chairman David Dvorak, who is president and CEO of devicemaker Zimmer Holdings Inc.

Jim Spencer • 202-383-6123