Medical Device Tax about to Hit Industry

Dec 17, 2012

Radio talk show host Hugh Hewitt interviewed Tom Loarie, CEO of medical device maker Mercator MedSystems about the impending 2.3% revenue tax on medical devices set to take effect on January 1. He told Hewitt that the tax is “targeted right now to raise about $30 billion dollars in taxes. Initially, it was going to be $20 billion. Now think about that when you compare it to $10 billion dollars that’s being spent on R&D in this [medical device] industry.” Loarie went to explain that the tax will deprive his company and other companies of cash needed for operations, expansion, and research and development.

Some medical device firms are either considering laying off workers or have already done it:

 [O]ver at Uresil, LLC, in Skokie, Ill., the layoffs have already started. The company laid off six people from its 52-person workforce this year, "primarily related" to the tax, President Lev Melinyshyn said.

"We had never laid off anybody," he told "We bought the company in 2004, never had a layoff. In fact, even during the recession, we added jobs. ... It wasn't until this tax hit us that we had to do it."

Melinyshyn, whose company makes specialized catheters, said he thinks that at current staffing levels, his 46-person company can handle the tax -- however, he's expecting to cut back sharply on product development, which hurts in the long run.

Trade association AdvaMed warns that 43,000 jobs are a risk from the tax.

Realizing the effects on jobs, a number of Senators recently asked the administration to delay the tax. From Allenton, PA’s Morning Call:

U.S. Sen. Bob Casey and 16 other Senate Democrats want the medical device tax - included in the 2010 healthcare reform law that they supported - postponed.

The 2.3 percent excise tax that devicemakers must pay on their gross sales goes into effect on Jan. 1. It's one of the new revenues used to offset the cost of the healthcare law. The Internal Revenue Service issued Wednesday its final rules on the tax, which will impact profits on items such as high-tech burn treatments, catheters, back braces and in-home HIV tests.

Casey signed a letter to Senate Majority Leader Harry Reid this week asking that he support delaying implementation of the tax. Casey supports fully repealing it.

"With this year quickly drawing to a close, the medical device industry has received little guidance about how to comply with the tax—causing significant uncertainty and confusion for businesses," the senators wrote.

And from the Minneapolis Star Tribune:

Minnesota's two senators sought Monday to delay a tax on medical devices that was expected to add $28 billion over the next decade to help pay for health care reform.

Democratic Senators Amy Klobuchar and Al Franken pointed to thousands of high-paying jobs that device companies support in Minnesota, headquarters to such giant devicemakers as Medtronic and St. Jude Medical. The industry has painted the tax as a job killer that would hurt innovation.

"The delay would give us the opportunity to repeal or reduce that tax," said Klobuchar, co-author of a letter sent to Senate Majority Leader Harry Reid seeking the delay.

Repeal is the ultimate goal of the letter's 18 signers, including Klobuchar, Franken and all the heavy hitters in the Senate Democratic leadership.

This summer, the House of Representatives passed a bill to repeal the tax, but it has stalled in the Senate. In November, over 800 medical device company and medical groups signed a letter to Senate leaders asking for action.

Time is running out. Unless Congress acts, this tax will hurt workers, medical innovation, and American competitiveness.

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