The Device Tax: On a State Level

From U.S. Sen. Dan Coats’ (R-Ind.) perspective, the tax is punishing Indiana workers and stifling innovation; U.S. Sen. Rob Portman (R-Ohio) drew attention to the importance of U.S. manufacturing as a backbone industry; and B.Braun Medical Inc. Chairman and CEO Caroll H. Neubauer said that while his company has avoided layoffs, the tax has forced cutbacks in R&D.

In a wider discussion of revenue losses and the perceived anti-business slant of the tax, the real reason medical devices are important sometimes gets lost in the shuffle. In his op-ed, which appeared on News-Sentinel.com, Coats took pains to highlight specific medical technologies that have saved lives tangibly such as cardiac valves and stents, and others that improve quality of life such as prosthetics.

“Indiana is an international leader in the development of these technologies that continue to improve health care every day,” Coats wrote. “Our state is home to more than 300 [U.S. Food and Drug Administration]-registered medical device manufacturers, who employ 20,000 Hoosiers directly and another 28,000 indirectly. These are jobs that on average pay 41 percent higher wages than the median wage rate in Indiana.”

Coats then referred to the recent report released by medtech industry advocate groups Medical Device Manufacturers Association, the Medical Imaging & Technology Alliance and the Advanced Medical Technology Association, which put the cost thus far of the tax at $1 billion.

“This has denied device manufacturers resources to expand facilities, hire more workers and invest in research and development,” he said. “Down the road, this costly tax could force many medical device manufacturers to ship good-paying American jobs overseas.”

He urged Congress to repeal the tax.

In Pennsylvania, Neubauer said in Lehigh Valley, Pa.’s The Morning Call, the medtech industry supports more than 79,000 jobs.

“The U.S. medical technology industry currently is a global leader, a manufacturing industry that maintains a significant trade surplus with other nations, but that leadership is in peril,” Neubauer said. “The U.S. corporate tax system is a significant obstacle to our continued success, and fundamental reform is necessary to improve America’s competitiveness and rebuild our nation’s economic future.”

Neubauer praised U.S. Senate Finance Committee Chairman Max Baucus (D-Mont.) and House Ways and Means Committee Chairman Dave Camp (R-Mich.) for rallying support for an overhaul of the entire U.S. tax structure. The two lawmakers have been touring the nation since the first week of July, and visited two sites in Philadelphia, Pa., on July 29.

He noted that on Capitol Hill, legislation for a repeal of the device tax is supported by a bipartisan group from Pennsylvania.

“For companies large and small, the tax’s added expense will needlessly deplete funds firms might otherwise invest in research and development—the efforts they undertake to find new treatments and cures for heart disease, cancer, diabetes, Alzheimer’s, Parkinson’s and other serious conditions,” Neubauer wrote. “Adding further harm, the tax limits a company’s ability to make essential capital investments needed for economic growth like new facilities or equipment.

“Some companies have had to make the difficult decision to lay off employees as a response to the increased tax burden. Thousands of workers have already received this bad news, and more than one analysis suggests as many as 43,000 jobs are at risk. At B. Braun, we have been able to hold employment steady, but we have had to make the difficult decision to forgo annual raises.”

Like Coats, Neubauer tried to appeal to the human side of medtech, citing how between 1980 and 2010 medical advancements helped add five years to U.S. life expectancy and cut heart disease, stroke and breast cancer fatalities in half.

“Innovations like minimally invasive surgery have helped reduce the duration of hospital stays by more than 50 percent over the same time period,” he added. “A recent study showed that minimally invasive
coronary revascularization, for example, saves more than $30,000 and allows patients to get back to work approximately 30 days quicker compared to conventional open surgery.”

Neubauer joined the growing tax repeal chorus.

“America is better off when we are building things,” Portman wrote on July 12 in the weekly column on his Senate website. “We have a powerful service economy, but the backbone of our greatness has always been our builders, our manufacturers, and our innovators. We’ve seen that first-hand in Ohio. Manufacturing is in our blood.”

Zimmer Holdings Inc., a Warsaw, Ind.-based orthopedic device company, employs approximately 300 people in Ohio. Portman recently met with representatives from the company’s surgical unit, who reportedly expressed that the device tax will be extremely damaging as it will be levied whether the company is profitable or not, as it is applied purely to revenue.

“Established companies will be forced to divert resources from areas like research and development to pay this tax, while new companies—some of which struggle for years to become profitable—may not
survive it at all,” Portman wrote.

Portman also called for the levy’s repeal.