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Health bill would hit Minnesota’s medical device industry

WASHINGTON, D.C. — Tucked into a draft of the health-care reform bill (PDF) before the Senate Finance Committee are billions of dollars in fees that would hit one of Minnesota’s largest industries: medical device manufacturing.

The bill calls for device makers to pay $40 billion in fees over 10 years. The payments would vary based on each company’s market share.

Medical device makers like Medtronic and Boston Scientific are among Minnesota’s largest employers.

“We are very concerned about the Finance Committee proposal, which would raise costs, stifle innovation and threaten jobs in Minnesota,” Boston Scientific spokesman Paul Donovan said in a statement. “There are better ways to pay for health care reform than this misguided proposal, which would wind up hurting patients and medical-device industry workers, thousands of whom are currently employed in Minnesota.”

The Advanced Medical Technology Association (AdvaMed), the main device-industry group, warned that the measure would raise the cost of care for those in need of advanced treatments and diagnostics.

“Moreover, the tax will fall most heavily on the small and emerging companies that are the backbone of our industry, often driving development of cutting-edge treatments and cures, and are least able to pay new taxes,” Stephen J. Ubl, president and CEO of AdvaMed, said in a statement.

Klobuchar, Franken oppose tax
GOP Gov. Tim Pawlenty has asked Minnesota’s U.S. senators, Democrats Amy Klobuchar and Al Franken, to oppose the tax. The senators are lobbying to change the measure.

In a letter Tuesday, Klobuchar and Franken called on Finance Committee Chairman Sen. Max Baucus, D-MT, to reconsider the proposal, arguing that the provision would harm economic development and health care innovation.

“The proposed fee will seriously threaten thousands of American jobs and deter innovation in the industry,” wrote the senators, who were joined by Sens. Evan Bayh, D-Ind., and Dick Lugar, R-Ind. “At a time when every effort is being made to promote small business and growth industries of the future, the proposed medical device tax would harm economic development and health care innovation nationally and in our states.”

The senators said other parts of the bill could also hurt the industry, including a proposed reduction in reimbursements to hospitals.

“While we support efforts to ensure that any health care reform bill does not add to our country’s deficit, this industry should not be forced to pay more than its fair share,” the senators wrote.

The cost of the health care bill is of even more importance in light of President Obama’s pledge last Wednesday to veto a bill that is not deficit neutral.

The version of the House health care legislation that passed the Ways and Means Committee would cost more than $1 trillion. The expected cost of the Senate Finance Committee bill is projected to be less than $880 billion.

“I don’t think anybody from the clinical labs to the device manufacturers ought to be stunned by this,” said Norm Ornstein, a Congressional expert at the conservative-leaning American Enterprise Institute in Washington, D.C. “But, obviously, it is tough.”

Few options
Ornstein pointed to Finance Committee’s increasingly difficult task of finding money to pay for reform.

With the bill’s mandate that everyone have health coverage, there will need to be fines for those who don’t purchase health insurance — resulting in revenue for the government. But there will also need to be government subsidies for those who do can’t afford health insurance, raising the bill’s price tag.

“You will come down to whether you are going to stick it to the guy making $15,000 a year… or you are going to try to make their lives a little easier by hitting up the device manufacturers,” Ornstein said. “I think in the end they don’t have any better option.”

In addition, Ornstein said, the 30 million new customers that will be brought into the health care system under the reform plan will be a boon for the medical device industry.

“The effects of the fee will be mitigated,” Ornstein said. “But, if I was part of the industry, I still wouldn’t be happy about it.”

Cynthia Dizikes covers Minnesota’s congressional delegation and reports on issues and developments in Washington, D.C. She can be reached at cdizikes[at]minnpost[dot]com.

Comments (5)

  1. Submitted by Bernice Vetsch on 09/16/2009 - 01:14 pm.

    “You will come down to whether you are going to stick it to the guy making $15,000 a year … or you are going to try to make their lives a little easier by hitting up the device manufacturers,” Ornstein said. “I think in the end they don’t have any better option.”

    No, Mr. Ornstein??? Baucus wrote his plan with the guidance of the insurance industry, whose lobbyists vetted it as he and the Gang of Six went along. Other members of the Finance Committee didn’t get to have much input because they would have insisted on a system that served the people rather than corporations.

    The other option, always on the table everywhere except Washington, is single payer universal health care, publicly funded and privately delivered, leaving zero Americans without health care, and saving us $400 billion per year.

  2. Submitted by Joe Johnson on 09/16/2009 - 01:34 pm.

    One big four accounting firm issued this overview to for the Max Tax plan.


    The provisions in the chairman’s mark would:

    * Impose on insurance companies and plan administrators a 35% excise tax on insurance plans with premiums greater than $8,000/$21,000 (individuals/families), indexed for inflation, beginning in 2013; the tax would apply to the excess of the thresholds

    * Limit flexible spending accounts in cafeteria plans to $2,000, beginning in 2013

    * Eliminate the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees, beginning in 2011

    * Conform the definition of qualified medical expenses for health savings accounts (HSAs), health flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs) to the definition used for the itemized deduction (an exception would allow amounts paid for over-the-counter medicine with a prescription to qualify as medical expenses), effective in 2011

    * Increase the additional tax for HSA withdrawals before age 65 that are not used for qualified medical expenses from 10% to 20%, beginning in 2010

    * Require businesses that pay any amount greater than $600 during the year to corporate providers of property and services to file an information report with each provider and with the IRS, for payments made after 2011

    * Establish requirements for to nonprofit hospitals beginning, including community needs assessments, beginning in 2010

    * Impose a non-deductible, fee of $2.3 billion annually on the pharmaceutical manufacturers, beginning in 2010, allocated by market share (it would not apply to companies with sales of branded pharmaceuticals of no more than $5 million)

    * Impose a similar fee of $4 billion on medical device manufacturers ($5 million sales floor)

    * Impose a similar fee of $6 billion on health insurance companies (no revenue floor)

    * Impose a similar fee of $750 million on clinical laboratories (revenue floor of $500,000)

  3. Submitted by L.A. Krahn on 09/16/2009 - 03:50 pm.

    So sorry for those tiny, storefront, mom-and-pop medical device companies. Perhaps they’d prefer an old-fashioned “window tax” on medical device company campuses?

  4. Submitted by Tim Nelson on 09/16/2009 - 04:49 pm.

    It’s a good thing that medical device makers can’t be traced back to any personal bankruptcies.

  5. Submitted by Dan Landherr on 09/17/2009 - 01:05 pm.

    More information on the details of these fees would be useful. For example, is there a tariff on imported medical devices or is the fee only on US based companies? If there are $4B worth of fees on US medical device manufacturers (who already pay money to the FDA for the ability to market in the US) and none for international manufacturers it will drive this high-tech industry overseas.

    Taxes on manufacturing inventory have already driven many medical device manufacturing jobs overseas to low-cost locations like Ireland and Puerto Rico. It would be a debacle to further incent US medical device companies to move their research and development operations to other countries.

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