JP Morgan analyst says device makers tax might not be as deep as originally feared

September 23, 2009 by MassDevice staff

Analyst Michael Weinstein says negotiations are going on to cut the proposed $4 billion tax in half.

Medical device makers may only have to pay half of the proposed $4 billion annual nut Washington lawmakers were calling for to pay for healthcare reform, according to an analyst at JP Morgan & Chase.

The Bloomberg news service is reporting that Michael Weinstein, an analyst at the investment bank, put out a note to investors saying device makers may only have to pay about half of the proposed 3 percent annual tax on industry, thanks to negotiations between industry leaders and the White House.

In total, the analyst predicted that medical device makers would pay about 1.5 to 2 percent on their $120 billion in annual U.S. sales. That works out to $1.8 billion to $2 billion per year.

"It’s important to emphasize that all this is far from final," Weinstein wrote. "There are a number of amendments under active discussion to reduce industry exposure and, in particular, limit the impact on smaller companies."

Sen. Max Baucus originally called for an annual fee of $4 billion to pay for healthcare reform efforts. Since then he's been working to try and curb some of the spending in the bill in order to win broader support, according to published reports.

Thomas Sommer, president of the Massachusetts Medical Device Industry Council (MassMEDIC) told MassDevice he isn't celebrating any victories yet, cautioning that one analyst's opinion doesn't mean a consensus has been reached.

But even if Weinstein is correct, Sommer said, the industry council for the second-largest medical device cluster in the United States isn't planning to concede a penny.

"We're continuing our all-out opposition to the tax as proposed in the Baucus bill," Sommer told us.

He's not the only one opposed to the idea. A week after telling MassDevice in a prepared statement that he was concerned about "unintended consequences," Mass. Sen. John Kerry told a Senate committee hearing he's decided the fees aren't a good idea at all.

"I don’t want to see that innovation stifled," Kerry said, according to the Wall Street Journal.

And a group of governors from med-tech-heavy states — Mass. Gov. Deval Patrick not among them — sent a letter Sept. 21 to Baucus detailing their opposition to the proposal. Govs. Arnold Schwarzenegger and Tim Pawlenty, of the states with the first- and third-largest medical device clusters, California and Minnesota, as well as those of Nevada, Indiana and Utah, all signed on to the letter.

"We all support health care reform, but special taxes on the companies that bring high-quality, innovative solutions to health care professionals and their patients runs counter to the goals of better health care for Americans," read the letter, which was also signed by Nevada's Jim Gibbons, Indiana's Mitch Daniels and Utah's Gary Herbert.

They joined Democratic Sens. Amy Klobuchar and Al Franken of Minnesota, Indiana Sens. Evan Bayh and Republican Dick Lugar, in writing to Baucus to reconsider the fee. "This industry should not be forced to pay more than its fair share," the senators wrote.