Device makers respond to the State of the Union with renewed calls for device tax repeal

President Barack Obama’s State of the Union speech mentioned jobs, the economy and U.S. small businesses in no short order, and medical device makers seized on the opportunity renew calls for repeal of the medical device tax that took effect at the start of the year.

The Medical Device Manufacturers Assn. issued a press release today responding to the State of the Union address, saying that the industry is "prepared to answer the challenge" to help strengthen the U.S. economy, but that the 2.3% tax imposed on medical device sales is in the way.

"MDMA agrees with the President that we need to grow our economy by expanding our manufacturing base while creating more middle class jobs," MDMA president & CEO Mark Leahey said in prepared remarks. "Unfortunately, a huge barrier stands in their way in the form of a medical device tax that is harming job creation and eroding the quality of care for patients."

Pres. Obama last night expressed interest in tax code reforms that would help small businesses put more of their money toward "expanding and hiring" rather than dealing with complicated forms, as well as incentives for companies that companies that keep manufacturing in the U.S.

Medical device makers have long warned that the new tax, contained in the landmark Affordable Care Act would have the opposite effect – preventing small medtech companies from investing in new hires and pushing more companies to shift their manufacturing overseas.

"Thousands of jobs have already been lost in this high tech, manufacturing-based industry because of the medical device tax, and 10s of 1,000s more are at risk if Congress and the President don’t repeal this ill-conceived tax," Leahey said. "MDMA and others have long warned about the adverse impact of this onerous policy, and now we are seeing the harsh realities."

Medtech companies reportedly laid off about 7,000 workers in 2012 and some companies blamed at least part of their cuts on the medical device tax, including Stryker (NYSE:SYK), which cut about 1,000 employees; Hill-Rom Holdings (NYSE:HRC), which cut 3% of its workforce; and Zimmer (NYSE:ZMH), which announced layoffs and outsourcing for an Indiana facility.

Industry advocates have structured their tax repeal rhetoric around corporate tax reform, hoping to distance the issue from the healthcare reform.

Long time medtech advocate Rep. Erik Paulsen (R-Minn.) earlier this month told reporters that he still sees avenues for repealing the tax tied to larger discussions of corporate tax reform, especially because it will hit healthcare giants as well as small, pre-profit companies.

"It’s not just the larger companies like Medtronic or Boston Scientific – there are 400 of these smaller companies, medical technology companies in Minnesota, that will be impacted by the new tax,"Paulsen told reporters. "This tax is not a tax on profit for companies, this is a tax on their sales, on their revenue, and for most companies that are medical device companies it takes 10-15 years to achieve profitability, so this is the time to push the panic button."

"The simple fact is that our economy needs new jobs paying good wages, which have the added benefits of increasing exports while reducing the costs of care," Leahey said today. "The medical technology industry is one of the few job creators that can deliver, but we need to remove unnecessary hurdles and establish a reasonable and predictable regulatory environment to do so."

Pres. Obama never mentioned the medical device tax during his address last night, but has said in the past that he would veto a repeal bill if such a measure ever made it to his desk. The levy is expected to collect about $30 billion over the course of 10 years, revenue that will fund parts of healthcare reform.

Industry advocates and lobbying groups are still pushing hard for a repeal of the tax, garnering wins last week with both the House of Representatives and the Senate introducing measures to strike the tax from the Affordable Care Act.

Concerns about healthcare costs were also a big feature of Pres. Obama’s address, but he didn’t offer any new avenues for curbing spending, instead rallying support for measures he’d proposed in the past. Such measures include pay-for-quality rather than pay-for-quantity Medicare reimbursement rates, increasing Medicare premiums for seniors and reducing reimbursements for prescription drugs.

"The biggest driver of our long-term debt is the rising cost of healthcare for an aging population," Pres. Obama said. "And those of us who care deeply about programs like Medicare must embrace the need for modest reforms – otherwise, our retirement programs will crowd out the investments we need for our children, and jeopardize the promise of a secure retirement for future generations."

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