A Vocal Hearing During a recent hearing on the White House’s proposed budget for 2013 held on

A Vocal Hearing

During a recent hearing on the White House’s proposed budget for 2013 held on Feb. 15 by the House Committee on Ways and Means, Republican members of the committee took time out to grill Treasury Secretary Tim Geithner about the device tax.

“My district is outside of Philadelphia. We have a very significant medical device industry. And we’re very concerned that the 2.3 percent tax imposed as part of the Obamacare legislation actually will have the opposite effect,” said Rep. Jim Gerlach from Pennsylvania’s 6th District. “In fact, there was a study by AdvaMed that there would be about a 48,000 job loss in theindustry if this $20 billion tax over 10 years is implemented. So, based upon yourtestimony today that you intend to, as part of the administration, put forward a comprehensive corporate tax reform plan of action—although it won’t be in a legislative form. Will the repeal of the medical device tax be part of that? And if not, why not?

Geithner said it would not be part of that, but that he shared Gerlach’s concerns, and would be happy to discuss it moredetail with lawmakers and industry.

“Let me give you our general sense,” Geithner explained. “The Affordable Care Act will dramatically expand insurance coverage, as you know, for tens of millions of Americans. And therefore, we’re pretty confident that the net impact on businesses that are in the business of providing healthcare devices or otherwise will be very positive—substantially positive—even with the measures we propose to make sure we’re doing that in a fiscallyresponsible way.”

Gerlach was quick to respond.

“Well, given the nature of the tax, if you’re familiar with it, it’s a 2.3 percent tax on gross receipts right off the top. Whereas, many of the companies in our area—and Rep. Paulsen has been working very hard on this issue—many of these companies only have a net profit at the end of the day of only about 1 or 2 percent. So if you’re taking 2.3 percent off their gross revenues, you’re putting many of those companies at risk, and, in fact, allowing them to consider moving to other parts of the world to

undertake their R&D and their manufacturing. So again, what is it about the medical device tax you think somehow is going to create jobs, rather than what you agree is the purpose of corporate tax reform, which is to incentivize the growing of jobs here in the United States?”

Geithner reiterated that while he’d “be happy” to spend more time trying to understand lawmakers’ concerns, he believes that “on balance a mix of reforms that again will expand healthcare dramatically … will be very positive for American businesses that are in [medical technology].”

Rep. Paulsen added to the chorus of critics peppering the Treasury chief with device tax questions—a topic that certainly hadn’t been at the forefront of the day’s agenda.

“I want to follow up on this because I know in Massachusetts, which has some similar provisions that are in the president’s new healthcare law, there’s been no increased utilization of medical device sales. And [U.S. Department of Health and Human Services] Secretary [Kathleen]Sebelius has been here to talk about this as well. And my understanding is that 75percent of the folks that are uninsured are 45 years of age or less. And you know a lot of these medical devices that are life-improving, life-saving go to folks that are above age 45. And so I don’t think there’s data. If there’s data out there I’d like to see the data of what’s supporting it.”

Paulsen said the companies he represents in Minnesota are “very concerned” about the impact to research and development jobs.

“It’s about innovation—and the president has talked about that,” Paulsen said. “You mentioned it today, and I just really think this is an American success story as much as it is a Minnesota success story. This is a tax that’s about $20 billion over a 10-year period. It’s more than the amount of money that’s invested in this industry actually each and every year. So I really want to follow up with you if there’s actual data that’s going to support this down the road. In fact, Stryker—which is based in Michigan where the chairman and the ranking member [of the Ways and Means Committee] are from—is laying off 5 percent of their workforce this year because of the tax in anticipation. It’s a time bomb out there. This is a real issue.”

Paulsen has said that his bill to repeal the tax will be headed for a vote on the House floor in the near future. But while members of the House seem to be “fired up” about this issue, the subject of medical device taxes doesn’t seem to have nearly as much cache in the Senate. The upper house also has two pending device tax-repealing bills that have been referred to the Finance Committee, but there hasn’t been a lot of movement lately and given the Democratic control of the Senate, it’s likely that such legislation wouldn’t pass, particularly in an election year.

A public hearing on the final IRS regulations is scheduled for May 16.

—This report was compiled by Jim Stommen, contributing writer, and Christopher Delporte, editorial director.