The Medical Device Tax: Sound Bites From Across the Nation

The medtech industry can’t stop chattering about the medical device tax, especially now that H.R. 436, also known as the Protect Medical Innovation Act of 2012, has been gaining momentum on Capitol Hill.

During the Plastics in Medical Devices 2012 conference hosted by Plastics News on June 11-13, a panel of medical device professionals spoke up when asked about the tax:

The proposed 2.3 percent excise tax “kills startups,” said Ted Kucklick, president and chief technology officer of Cannuflow Inc., a medical technology firm in San Jose, Calif.

The cost of taxes paid by medical-device makers “will be passed on to the finished product cost — there won’t be any savings,” explained Brian Gilbert, CEO of Future Path Medical (FPM) Holding Co., a medical-device maker in Concord, Ohio. FPM is about to commercialize its first product, the Urosense-brand urine-monitoring system, so is heavily invested in seeing the proposed tax repealed.

The tax also “stops people from being creative, and affects jobs,” added Claire Zangerle, president and CEO of the Visiting Nurse Association of Ohio.

Greg Riemer, president of medical device molding company MRPC in Butler, Wis., is going ahead with his planned acquisition of ETI Inc., a Tampa, Fla.-based maker of custom silicone injection molding despite the threat of heavy taxation in 2013.

“The reality of any tax on a business is it ultimately gets pushed down to some sort of consumer,” said Riemer, “Suppliers like us are asked to take price reductions.”

Industry stakeholders are not the only ones having their say. Lawmakers have been voicing their support for this tax repeal in what entities such as the Medical Device Manufacturers Association and the Advanced Medical Technology Association have been calling a rare bipartisan effort.

On June 12, U.S. Representatives from Pennsylvania Jim Gerlach and Patrick Meehan, both Republican, visited local Malvern, Pa.-based company Neuronetics to highlight the potential damage the tax might cause:

“This pending tax means higher costs for doctors and hospitals, less investment in finding new ways to improve treatments for patients and fewer jobs for American workers,” Gerlach said. “Approximately 600 medical-device makers have helped [Pennsylvania’s] work force transition from a Rust Belt economy to a high-tech leader in life sciences, biotechnology and medical device manufacturing. However, this looming tax on innovation threatens to bring a little bit of the rust back to our manufacturing base.”

Neuronetics provides non-invasive therapies for psychiatric and neurological disorders using MRI-strength magnetic field pulses.

H.R. 436 was passed in the House of Representatives on June 7 with a vote of 270-146. Congressman John Tierney (D-Mass.) and seven other House members from Massachusetts voted against repealing the tax, despite their state being home to some of the largest medical device companies in the world. Among the 35 Democrats who voted for the repeal were Bill Keating and Niki Tsongas, the two most junior members of the Massachusetts delegation.

Tierney struggled when faced with the choice of voting for the repeal of the tax that will certainly hurt major businesses in his state, or voting against it in order to fund the Affordable Care Act, which he supports and voted for. With regard to the ACA, he said, “If I hadn’t voted the way I voted, 350,000 people would have lost insurance.”

Tierney points out a problem with repealing the tax that has not really been addressed sufficiently yet:

“You’ve got to find a way to fill the ($29 billion) hole, and I don’t think you can fill that hole by knocking 350,000 [people] off of health insurance.”

Despite his support of the tax repeal, industry executive Joe Panetta acknowledges the problem the vacuum of funds will pose: “There’s been some concern on the Senate side about [finding] a way to pay for [the ACA]. There’s still a bit of a challenge, and with our delegation, it’s not a cut-and-dried thing,” he told North County Times.

Panetta is president of Biocom, a San Diego, Calif.-based life sciences company.

H.R. 436 is now being negotiated by the U.S. Senate. On June 11, Sen. Robert Menendez (D-N.J.) rose on the floor of the Senate to introduce the bill by asking for its first reading. A second reading was given the next day. Under Senate Rule XIV, the next step is for Senate leaders to decide which committees will consider the bill.