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Erik Paulsen tries again to dump medical device tax

Rep. Erik Paulsen
MinnPost photo by Devin HenryRep. Erik Paulsen

Paulsen held up the one major ACA change Congress has managed to enact. In 2011, lawmakers overturned the law’s 1099 tax reporting requirement mandating business owners file documentation when they buy more than $600 worth of goods or services from a vendor. The rule was seen as burdensome and would have hit cash-strapped small businesses.

There are a couple key differences between that and the device tax, however:

  • First, repealing the 1099 requirement had broad bipartisan support. The Senate passed it with 87 votes, and even Obama called it an “unnecessary burden for small businesses.” That’s not the case with the device tax: It’s a mechanism built into the law to raise revenue to help implement it, and there’s been little indication most Democrats or the president consider it the kind of mistake the 1099 provision was.
  • Secondly, the tax has taken effect, and the government has started receiving revenue from it. It’s a “tough hill to climb because, number one, it’s started. Revenue is coming in. It’s always tougher to stop a tax once its started,” Paulsen said.

Two-pronged lobbying effort

Mandel said the device industry’s lobbying effort will be geared around a two-part message, the first being the lost revenue and job cuts companies have pinned to the tax.

Take, for example, St. Jude and Medtronic. The former told the Star Tribune last month that it plans to pay up to $60 million under the tax plan. When it laid off 800 employees last year, the tax was partly to blame. Medtronic plans to spend between $125 million and $175 million annually.

But the message is broader than that.

"It's really about the future of the medical device industry and where it’s going to be,” Mandel said. “We see a future where the device industry is largely located in other places and where leadership no longer is in the US. We’re trying to keep that from happening.”

Paulsen’s office said he’ll have 157 co-sponsors on the bill when it drops on Wednesday. Majority Leader Eric Cantor voiced his support for the measure in a Tuesday speech, and Paulsen said the bill could move forward either on its own, or tied into a larger tax reform bill.

Its passage in the House is certain if GOP leaders want it to advance. Pushing it through the Senate and White House is where the real heavy lifting lies.

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Comments (6)

Tax consequence

If we want to encourage something, lower the taxes on that something. If we want to restrict something, raise the taxes on that something.

Couple Questions

Maybe some folks can answer..

I agree with the statement that most medical devices covered under this tax go to folks who are elderly. One study said 80-90% of the users of most of these devices are 55+ years old. And I also agree that most of these people already have insurance and/or Medicare. This is the rhetoric used to say there won't be ANY windfall from a device unit shipment perspective. My questions...

1) How much does the 2.3% excise tax affect profit levels, on average (ie what would the tax need to be if it were based on profits - and I understand some to many small med device companies are not profitable for many years so it skews the number)? I think I have heard numbers around 12-14% net hit on profits, but those are numbers from the industries lobbying to repeal - I'd like an unbiased, 3rd party response.

2) Ok, so MOST people using these devices are elderly.. what % of people already receiving these devices are not covered under Medicare or their own insurance?

3) How many devices sales are possible given the answer to point 2 for the 30M people who are uninsured today and elect not to receive treatment?

4) Can we have an honest discussion about what is causing layoffs at the medium to big device firms? No BS answers. These companies have been laying off hundreds to thousands of people every year for the previous 4-5 years, seen slumping sales and profits, had multiple quality issues, etc etc. Can we stop letting the industry frame the discussion around job loss to simply the MDTax?

All good questions,

to which I'll add this:

If this is an excise tax (a type typically passed on to end-users) and if the tax applies to both domestic and imported medical devices, then how can it affect competition?

obviously

If that pacemaker or ICD goes up 2.3%, I'm going to skip getting it, and instead carry around a car battery and jumper cables.

Missing the point

Wouldn't you think that the MD companies are competing against other industries for investment dollars? They want their profits high as to attract investors instead of those investors shifting their funds to other more profitable industries. To make it a level playing field, Obamacare should have imposed the 2.3% tax on sales to every industry.

To which

Everyone else would have cried foul.

I am in agreement with critics of the tax that being an excise is a bad route. It unfairly targets young firms and upstarts that aren't profitable and makes it harder to keep investing in small R&D and facilities. That's one reason I find it funny that the big firms are the loudest and most vocal in opposition - they stand to do better than smaller firms that would otherwise reach profitability quicker, allowing them to stave off disruption.

I would say that focusing ONLY on medical devices was also a very narrow view considering the entire healthcare industry stands to benefit. Drug companies, hospitals, makers or medical supplies (not devices), etc. They should have been included and the rate should have been lowered, affecting each firm less. Just my opinion.

To answer your question, yes, these companies do fight for investment dollars. Both from venture capital and public investment. I'd like my questions earlier answered to truly understand the impact on their bottom line. I'm sure there is an impact, just not as much as the companies claim (they stand to gain by painting the picture as bad as possible). Even after that, what I see is a bunch of companies and people who are unwilling to accept the idea of lower profits, (possibly) slower innovation to help a large number of people gain access to healthcare. It's always a discussion of what's going to happen bad to ME.