Companies Air Concerns at Medical Device Tax Hearing

Aaron Holm is counting on advances in medical technology to keep him active as he ages.

Holm, 43, lost both his legs below the knee in an accident nearly three years ago on a busy Minnesota highway. He learned to walk again with the help of prosthetic limbs called C-Legs that contain computer chips in the knees. Designed to prevent falls, C-Legs act in much the same way as a natural limb, with microprocessors controlling resistance to keep the knee mobile and stable.

Within two months of receiving his artificial limbs, Holm was walking around and playing golf. By the first anniversary of his accident, the Shakopee, Minn., resident was driving and had returned to his old job. Holm credits his quick recovery to the care and resources to which he had access after his accident. His appreciation for the support he received from the civic, medical and business communities inspired him last year to form Wiggle Your Toes, a nonprofit organization that helps amputees and their families regain mobility and independence.

“I realize every day as I age, as I get older I need the products to get better,” Holm said at a recent hearing on the proposed federal tax on medical devices. “I need them to support me more and more.”

Holm, however, fears that support could run out under a $4 billion annual tax the government is considering imposing on medical device companies to pay for healthcare reform. The tax is expected to reap $40 billion over the next decade from medical device firms and would be assessed based on a company’s U.S. sales, according to the reform bill approved Oct. 13 by the U.S. Senate Finance Committee. That bill, which includes the tax provision, is currently before the full U.S. Senate.

Though it is still technically just a proposal, the tax has become a source of contention among lawmakers in Washington, D.C., particularly with those whose home states have thriving medical device industries. On Oct. 19, one of those lawmakers—U.S. Rep. Erik Paulsen (R-Minn.)—held a field hearing in the North Star State to assess the impact of the tax on jobs, innovation and healthcare costs. Holm was among patients, medical device executives and venture capitalists who attended the hearing to discuss the tax’s impact on the device industry and their lives.

Holm’s chief concern about the tax is one that is shared by executives of medical device companies throughout the nation. He believes the tax will slow research, stifle innovation and ultimately, make devices such as his prosthetic legs (which cost more than $30,000 each) more difficult to get. (Authors of the healthcare reform bill that passed the Senate committee have said prosthetic limbs are not subject to tax).

“The federal government can’t look at the medical device industry as a bank to rob in order to pay for their healthcare reform without seriously damaging our industry’s innovation,” said Howard Root, CEO of Vascular Solutions Inc., a Minneapolis, Minn.-based firm that develops and markets hemostatic products.

Venture capitalists such as Dave Stassen fear the tax will scare away already wary investors. “Possibly for investors this could be the final nail in the coffin,” he testified at the hearing in Plymouth, Minn. “Four billion dollars a year coming out of the industry.”

In the months since it was first proposed, the medical device tax has turned into a tug-of-war between Democratic lawmakers who want to reform the nation’s healthcare system and a bipartisan group of politicians who want to protect an industry worth an estimated $130 billion annually. Industry advocacy groups have joined the fray as well, with both the Advanced Medical Technology Association (AdvaMed) and the Medical Device Manufacturers Association vociferously opposing the proposal. During AdvaMed’s third annual conference Oct. 12-14, President and CEO Stephen J. Ubl called the tax a “job-killer, innovation killer, a sucker punch to medical progress, and an unfair burden. He said lawmakers looking to trim fat in the nation’s healthcare system should look somewhere else.

“Why in the world would anyone want to hobble one shining American industry that leads the world?” Ubl asked.

Proponents of the tax, however, contend that healthcare reform will help rather than hobble medical device firms because an influx of new patients will increase demand for products. Besides, some legislators claim, medical device companies that earn billions of dollars in profits have a responsibility to pay their fair share of healthcare reform costs.

“This all comes down to shared responsibility,” Senate Finance Committee Chairman Max Baucus (D-Mont.) told reporters during a teleconference call on Oct. 19. “We’re all in this together as Americans—and that means hospitals, the insurance industry, the pharmaceutical industry and the medical device manufacturers. No group should be exempt, and at the same time, shared responsibility means that each contributes fairly.”

Paulsen though, called the tax a levy on “the tools of modern medicine” and said the proposal is “symptomatic of the mentality in Washington that needs to be fundamentally changed. This industry is an American success story. I want to make sure it stays that way.”