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North Bay Business Journal

Monday, August 1, 2011, 5:20 am

Medical device industry group opposes new 2.3 percent tax

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    NORTH BAY — As part of the federal health care overhaul bill passed last year in Washington, medical device makers will have a new tax imposed on them that is forecast to generate roughly $20 billion in new government revenue.

    The 2.3 percent excise tax, expected to be implemented at the start of 2013, is already facing fierce opposition from much of the industry.

    And, according to a recent economic outlook report prepared for the Sonoma County Economic Development Board by Moody’s Analytics, the tax could have broad impact on both a local and national scale.

    Some provisions of Patient Protection and Affordable Care Act may benefit medical device makers, as a broader mix of patients become insured and thus eligible for medical devices, such as heart stents and pacemakers, according to Moody’s.

    “The increased number of insured households will increase the pool of possible recipients of medical devices designed and manufactured in the county,” the report, prepared in June, said.

    But there is potential for a negative impact, according to Moody’s.

    “A downside to this factor will be a 2.3 percent excise tax to be placed on medical device manufactures beginning in 2013, which would accelerate the outsourcing of production to lower-cost areas in the U.S. and abroad,” according to the report.

    Prominent North Bay device manufactures declined to comment or said they hadn’t had enough time yet to form a full opinion or asses the full impact on the matter.

    But the Medical Device Makers Association, representing some 400 device makers nationwide, is staunchly opposed to the tax and has lobbied Congress to repeal the measure.

    “We believe that implementation of this $20 billion excise tax will adversely impact patient care and innovation, and will substantially increase the costs of health care,” the group said in  July letter sent to Congressional leadership urging a vote for repeal by the end of this year.

    The association calls the medical device industry a “uniquely American success story,” calling the U.S. a leader in manufacturing “life-saving and life-enhancing treatments, and the industry is an important engine for economic growth.”

    It employs more than 400,000 workers nationwide, invests nearly $10 billion in research and development and pays higher salaries than most other industries, according to the MDMA.

    Likewise in Sonoma County, medical device makers, along with telecom, are a part of three key industries that are considered primary drivers for local economic growth, according to the June Moody’s report. The other two industries are wine and the travel and tourism industry.

    “When U.S. and global demand is strong for these industries, the local economy thrives,” the report said. “But when demand falters, the local economy slows, creating potential for a volatile pattern of growth over the long term.”

    Proponents of the tax have said the device makers would be able to offset the tax by a “windfall” of new patients eligible for such devices. Some 32 million Americans are expected gain insurance under health reform. Sonoma County is anticipating some 45,000 newly insured.

    But the MDMA disputes that notion, saying most medical devices are geared toward a population that is either covered by Medicare or already has private insurance.

    “Unlike other industries that may benefit from expanded coverage, the majority of device-intensive procedures are performed on patients that are older and already have private insurance or Medicare,” the group said.

    Nationwide, the industry consists of largely small companies with 80 percent having less than 50 employees and 98 percent with less than 500 employees, according to the MDMA.

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