The medical device industry is scrabbling to derail a proposal by Sen. Max Baucus to levy a $4 billion a year “reform contribution” on device makers as part of the healthcare reform initiative, according to news reports.
The Senate Finance Committee chairman released a so-called “framework” of his forthcoming healthcare reform bill that called for device makers to pay fees allocated by market share, totalling $40 billion over 10 years beginning in 2010.
The industry’s response was fast and furious, beginning with an AdvaMed statement that the trade council would “vigorously oppose” the proposal.
Locally, Tom Sommer, president of the Massachusetts Medical Device Industry Council sent an open letter to Sen. John Kerry (signed by many of the council’s 225 member companies) asking him to oppose the enactment of such a proposal. Sommer wrote, “There are better ways to reform the system than through taxing the roughly 80,000 products necessary to treat every patient who walks through the door of a physician’s office, hospital, or nursing home.”
Other industry leaders weren’t far behind. Boston Scientific CEO Ray Elliott barely had time to get his seat warm before being confronted by the proposal. Elliott, threatening to re-enact the Boston Tea Party, called the idea “nonsensical,” according to CNNMoney.com. He also said it could trigger job cuts, reduce research and development and push some companies overseas.
Boston Scientific spokesman Paul Donovan added, “We are very concerned about the (Senate) proposal, which would raise costs, stifle innovation and threaten jobs in Minnesota,” according to the Pioneer Press.
Device manufacturers employ 60,000 Minnesotans at an average salary of $60,000 per year, according to the newspaper.
Edwards Lifesciences Corp. president Michael Mussallem told the Wall Street Journal that “the $40 billion tax would cut into research and hurt companies’ ability to add jobs:”
“‘We were working overtime to come up with ideas. When we learned about the tax over Labor Day, we were shocked,'” he said.
“He said the tax details are too vague. ‘What is “market share?” Whose market? What is the base year for comparison?’ asked Mr. Mussallem. Senate Finance aides said those details are being worked out.”
Medtronic CFO Gary Ellis told analysts at an investors conference that the “innovation tax” amounts to a second tax on device makers, because device makers’ main customers — hospitals — are already facing cutbacks and reimbursement reductions.
“It’s a double impact on the medical device industry,” Ellis said, according to the Pioneer Press.
Serial medical device entrepreneur David Auth had perhaps the most caustic comments on the Xconomy website.
“Our government rewards dummies and punishes geniuses,” Auth told the blog. “GM is a dumb company, and has been for 35 years, and yet they get a bailout. The medical device industry in this country is one of the absolutely most competitive industries we have. All the great medical devices have come from U.S. companies. And so we tax them $4 billion a year?”
Auth laid out some potential consequences of the Baucus proposal, including large firms passing on the cost to customers and cutting R&D budgets to maintain margins; smaller companies that drive innovation will have to cut staff or even shut down.
According to the Journal, Baucus and other senators were angered by the industry’s proposal to tax hospital purchasing groups instead, which would pass some or all of that tax on to device makers:
“Some senators, including [Baucus] were troubled that the device makers were ‘offering up other people’s money,’ said a person close to the negotiations. This person cited a line that has come to represent the maneuvering among health-care industries, the White House and Congress: ‘You either come to the table early, or you end up part of the dinner.’
“Mr. Baucus is planning to make public his bill on Tuesday, and aides said the new fees on device makers’ revenues are likely to remain part of it. …
“A person close to the negotiations argued that device makers will get ‘huge benefits’ from an overhaul, because wider insurance coverage will bring them more customers. As a result, the White House wants savings commitments to help pay for the package.”
AdvaMed President Stephen Ubl told the newspaper that it made the proposal with an eye toward keeping it “scorable” by the Congressional Budget Office — meaning the agency could estimate their effect on federal spending.
“We did not walk away from the table,” Ubl said. “We put forward a policy that would have produced billions in scorable savings which the committee did not accept.”
That drew a barbed response from the Health Industry Group Purchasing Assn., with president Curtis Rooney writing that, “Advocating proposals that affect another industry to the benefit of your own … can not be considered real beneficial healthcare reform.”