Industry says device tax cost 4,500 jobs in 2014

WASHINGTON – A medical device tax used to help pay for the Affordable Care Act cost 4,500 jobs in the industry in 2014, a major trade group said Wednesday.

AdvaMed, which has battled to repeal the tax since its passage in 2010, said the job losses are in addition to 14,000 jobs that were lost in 2013, the first year the tax was collected. The trade group also projected another 20,500 jobs will be lost in the next five years.

The group based the new number on a survey that 55 of its 284 members answered. "This is the only real-world empirical evidence we have," AdvaMed President Steve Ubl said in a call with reporters.

Ubl said the survey's respondents bring in almost half of the device industry's total revenue. Two-thirds of the respondents said they cut jobs because of the device tax, and 53 percent said they reduced research and development spending.

AdvaMed offered the numbers as the House and Senate consider device tax repeal bills driven by Rep. Erik Paulsen, R-Minn., and Sens. Amy Klobuchar and Al Franken, D-Minn.

The new AdvaMed study is at odds with a Congressional Research Service (CRS) analysis that predicted no more than 1,200 job losses attributable to the device tax. It also conflicts with a survey of 665 U.S. device executives by the private consultancy Emergo.

The Emergo study showed that just 14 percent of respondents cut jobs in 2014 because of the tax and only 18 percent reduced research and development spending, while 29 percent raised their device prices and 56 percent did nothing.

David Nexon, AdvaMed senior executive vice president, said his group's survey was more reliable than those from CRS or Emergo.

With responding companies accounting for almost half of the industry's income, AdvaMed had "a very solid basis for generalizing," Nexon said.

"CRS could never have come to the conclusion it did if it had talked to anyone in the medical technology community," he added.

Jane Kiernan, the CEO of Salter Labs in Illinois, joined Ubl and Nexon to say that group purchasers and hospitals that buy her respiratory devices refused to accept price increases she tried to impose to pay for the tax. Kiernan said that led to cost reductions that led her to relocate 170 jobs to Mexico.

AdvaMed will take its survey results to Capitol Hill to provide ammunition for repeal of the tax. But Ubl declined to discuss ways to offset the loss of $29 billion in revenue that the device tax was projected to raise over 10 years.

He said it was "not entirely clear that the [repeal] bill will need to be offset," but that AdvaMed would defer to congressional leaders pushing to end the tax.

Franken has couched his support for repeal on finding an offset. Paulsen and Klobuchar have also acknowledged the need to find a so-called pay-for. Both have mentioned incorporating it into an overall tax reform effort.

Paulsen said he was "not surprised" by the results of the latest AdvaMed poll. He said it mirrors recent reactions from another trade group, the Medical Device Manufacturers Association.

"It's a combination of fewer jobs, less research and development and fewer capital investments," Paulsen said.

Paulsen's most recent tax repeal bill includes no specific offset, but the congressman expects a pay-for to be worked out by the money committees of the House and Senate.

"I don't think it's a stumbling block," he said.

The White House has in the past threatened to veto attempts to end the device tax because it threatens the funding mechanism for President Obama's health care reform.

Ubl tried to distance device tax repeal from Republican efforts to defund the Affordable Care Act.

He said "it is important to point out" that repealing the device tax will not cause anyone to lose health insurance coverage made available by the act.

Jim Spencer • 202-383-6123