Biotechnology Groups Join Movement to Limit Medical Device Tax

Two biotechnology groups have joined the protest against a proposed medical device tax to help fund healthcare reform.

BioOhio and LifeScience Alley, the state biotechnology organizations in Ohio and Minnesota, have joined 20 other industry groups that want federal lawmakers to limit the medical device tax Congress included in its healthcare reform bills.

In legislation proposed by the U.S. Senate Finance Committee, medical device manufacturers would be required to pay a “fee” based on total revenue and assessed proportionate to market share. Such a “fee” would raise $40 billion over 10 years, or about $4 billion annually.

However, the legislation passed by the U.S. Senate shortly before Christmas included a fee aimed at raising $20 billion over a decade, starting in 2011. Companies with less than $5 million in annual sales would be exempt from paying the tax, while companies generating between $5 million and $25 million would be taxed on half of their U.S. sales. Healthcare reform legislation passed by the U.S. House of Representatives calls for a 2.5 percent excise tax on device sales in the U.S.

In a Jan. 15 letter to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nevada), more than 20 industry groups (including the Medical Device Manufacturers Association and the Advanced Medical Technology Association) asked Congress to limit taxes on medical devices. Their proposals included:

• Collecting no more than $20 billion in taxes from 2010 to 2019.
• Graduating the tax to minimize its impact on small firms.
• Start collecting the tax after healthcare coverage is expanded rather than before.
• Setting a fixed rate or fee so companies can plan better.
• Allow companies to deduct the tax on their income tax returns.

Robert Schmidt, founder and chairman of Cleveland Medical Devices Inc., agrees with the groups’ attempt to modify the impact of the proposed fee. He told MedCity News that he considers the move a compromise of the provisions proposed by Congress.

But Schmidt, like other industry representatives, opposes any tax on all manufacturers.

Invacare chairman and CEOA. Malachi Mixon III has vociferously opposed the proposed device tax. In a regulatory filing two weeks ago, the company disclosed that it expects to pay between $12 million and $14 million annually on U.S. sales of devices. To prepare for such a hefty fee, the company has stopped matching contributions to employees’ 401K retirement plans, suspended merit pay increases for managers and instituted a hiring freeze.

“If there is to be a tax, it ought to be based on profits or gross margin, not sales,”Mixon told MedCity News. The tax, he added, should be delayed to give companies time to determine how they will pay it.