Medical device makers are lobbying hard against a tax included in the Senate Finance Committee’s recently approved health-care reform bill that would require the industry’s manufacturers to pay $40 billion in fees over 10 years.

Under the United States health-care reform bill approved by the Senate Finance Committee last week, medical device manufacturers, drugmakers and health-insurance companies would be assessed an annual tax on revenue based on their market shares. The assessments, according to ModernHealthcare.com, “would raise $130 billion over 10 years to help pay for the $829 billion reform program.”

The medical device industry alone would pay a total of $40 billion in fees over the 10-year levy included in the bill.

“Backers of the levy note that profit margins top 20 percent for many popular medical devices and that spending on such technology is far higher in the U.S. than in other countries with better health outcomes,” the Washington Post reported. Drugmakers and hospitals have agreed to help finance part of the legislation, according to Kaiser Health News.

Yet medical device manufacturers say such a tax would stifle innovation and job growth, adding to the nation’s unemployment level.

Although the medical device industry has supported overhauling the health-care system and commends the Senate Finance Committee’s effort on health reform, the Massachusetts Medical Devices Journal reports that “the bill’s proposed 10-year, $40 billion levy on medical device makers has drawn fire from within and without the industry.”

“Players big and small in the industry, which makes items from tongue depressors to artificial hearts, warned that the tax would harm their ability to innovate,” according to a separate Washington Post report.

The tax on the $130 billion medical device industry “is a really devastating proposal,” particularly for smaller companies, Advanced Medical Technology Association (AdvaMed) President and CEO Stephen Ubl said last week.

According to a new analysis by AdvaMed, the proposed tax on U.S. medical-device manufacturers would result in “a doubling of the tax burden already faced by these companies and would likely contribute to health cost growth.”

Johnson & Johnson CFO Dominic Caruso told the Associated Press that the proposed tax on medical-device makers “might have the unintended consequence of stifling innovation” and eventually lead to a decrease in the number of U.S. jobs in the medical device industry.

“This is not an industry like the pharmaceutical industry,” Mark B. Leahey, president and chief executive of the Medical Device Manufacturers Association, told the Post. “The real research and development in this industry comes from small players who are just struggling to get by.”

By AdvaMed’s count, the medical device industry encompasses 6,000 companies in the U.S., the majority of which make less than $100 million per year in revenue.

U.S. Senate Finance Committee Chairman Max Baucus (D-Mont.), co-author of the America’s Healthy Future Act of 2009, sees the levy as the device industry’s fair share in helping pay for legislation that could bring it millions of new insured customers.

Speaking to reporters during a teleconference call on Monday, Baucus said that health-care reform is the responsibility of the public, the pharmaceutical companies, the insurers, the medical-device makers, hospitals and all other providers. (Source: Deseret News)

“We’re looking for ways to do that fairly and across the board,” Baucus said.

Resources

Fighting Back (subscription required)
by Shawn Rhea
ModernHealthcare.com, Oct. 19, 2009

Medical Device Makers Court Unlikely Allies
by Dan Eggen and Ceci Connolly
The Washington Post, Oct. 18, 2009

Proposed Tax Rattles Orthopedic Device Industry
by Julie Appleby
Kaiser Health News, Oct. 14, 2009

Medical Device Cos Hope To Reduce Senate Bill’s $4B Fee
by Jared A. Favole
Dow Jones Newswires (via The Wall Street Journal), Oct. 13, 2009

AdvaMed Commends Senate Finance Committee’s Effort on Health Reform
Advanced Medical Technology Association, Oct. 13, 2009

CBO: Baucus Bill Shaves Deficit by $81 Billion
Massachusetts Medical Devices Journal, Oct. 8, 2009

Medical-Device Firms Criticize Tax Proposal
by Mike Musgrove
The Washington Post, Oct. 14, 2009

Proposed Medical Device Tax Would More than Double Taxes Paid by Companies…
Advanced Medical Technology Association, Sept. 30, 2009

J&J: Planned Tax on Medical Device Makers Too High
by Linda A. Johnson
The Associated Press, Oct. 13, 2009

Baucus Says Health-Care Reform a Shared Duty
by James Thalman
Deseret News, Oct. 19, 2009